Note 8 - Income Taxes

The components of income tax expense (benefit) are as follows:

(in thousands)	Year Ended December 31, 2018			Year Ended December 31, 2017
Federal - current	$	-		$	-
State - current		5			6
Total current		5			6

Federal - deferred		312			(6,037	)
State - deferred		(7,755	)		(5,402	)
Change in valuation allowance		6,052			(8,653	)
Total deferred		(1,391	)		(20,092	)
Income tax expense (benefit)	$	(1,386	)	$	(20,086	)

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows:

(in thousands)	Year Ended December 31, 2018			Year Ended December 31, 2017

Income (loss) before income taxes	$	(1,051	)	$	(68,143	)
Tax expense (benefit) :
Tax at statutory federal rate	$	(221	)	$	(23,851	)
State income taxes		(59	)		(5,019	)
Rate change		(5,759	)		16,047
Permanent items, tax credits and other adjustments		118			-
AMT – Sequestration Reversal (change in law)		(1,391	)		1,390
Deferred true-ups		(126	)		-
Change in valuation allowance		6,052			(8,653	)
Income tax expense (benefit)	$	(1,386	)	$	(20,086	)

A reconciliation of the United States federal statutory rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31, 2018			Year Ended December 31, 2017
Tax at statutory federal rate		21.0	%		35.0	%
State income taxes		5.6			7.0
Rate change		548.0			(24.0	)
Permanent difference, tax credits and other adjustments		(11.2	)		-
AMT – Sequestration Reversal (change in law)		132.4			(2.0	)
Deferred true-ups		12.0			-
Change in valuation allowance		(575.9	)		13.0
Effective income tax rate		131.9	%		29.0	%

For the year ended December 31, 2018, the Company recorded an income tax benefit of $1,386,000. This amount reflects an income tax benefit of $1,391,000 attributable to a release of a valuation allowance in relation to additional AMT credit carryforwards available for refund under the 2017 Tax Act, due to the elimination of reductions for the effect of sequestration amounts. This amount is partially offset by a $5,000 state tax expense, attributable to a provision for a tax on capital imposed by the state jurisdictions.

For the year ended December 31, 2017, the Company recorded an income tax benefit partially offset by a state tax expense, attributable to a provision for a tax on capital imposed by the state jurisdictions. The income tax benefit for the year ended December 31, 2017, is attributable to a release of a valuation allowance in relation to the AMT credit carryforwards and resulting deferred tax asset due to recognition of AMT credit carryforwards projected to be refundable as provided for in the 2017 Tax Act as further detailed herein. For the year ended December 31, 2017, other includes amounts relating to deferred tax true-ups.

The Company has not been notified of any potential tax audits by any federal, state or local tax authorities. As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2015. Interest and/or penalties related to uncertain tax positions, if applicable, would be included as a component of income tax expense (benefit). The accompanying financial statements do not include any amounts for interest and/or penalties.

The utilization of certain carryforwards and carrybacks is subject to limitations under U.S. federal income tax laws. Based on the Company’s federal tax returns as filed and to be filed, the Company estimates it has federal NOL carryforwards available to reduce future federal taxable income which would expire if unused, as indicated below.

Based on the Company’s 2017 income tax returns as filed in October 2018, the Company’s NOL carryforwards increased due to the 2017 income tax loss recognized with regard to the Company’s investment in the 111 West 57^th Street Property. For additional information with regard to the Company’s investment in the 111 West 57^th Property and the Company’s legal proceedings related thereto, see Note 4 and Note 9.

The federal NOL carryforwards as of December 31, 2018, are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2006	2026	$	500,000
2007	2027		12,700,000
2008	2028		4,600,000
2009	2029		2,400,000
2010	2030		1,900,000
2011	2031		1,900,000
2013	2033		3,700,000
2014	2034		4,900,000
2015	2035		4,200,000
2016	2036		3,400,000
2017	2037		68,000,000
2018	-		500,000
		$	108,700,000

AMT credit carryforwards available, which can be used to offset income generated in future years which are not subject to expiration, are as follows:

		Amount
AMT credits carryforwards		$	21,483,000

As noted above the Company has AMT credit carryforwards from prior tax years. In accordance with the 2017 Tax Act AMT credit carryforwards, are expected to be claimed by the Company as refundable on tax returns filed and/or to be filed in future tax years and at various percentages as noted below.

The Company’s AMT credit carryforward amount(s) projected to be claimed as refundable for each tax year are as follows:

Tax Year (a)	Declining balance of the AMT credit carryforward amount(s) available for each tax year (a)(b)		% of AMT credit carryforward amount(s) available to be claimed as refundable for each tax year			AMT credit carryforward amount(s) projected to be claimed as refundable for each tax year (a)(b)

2019	$	10,741,000		50	%	$	5,371,000
2020		5,371,000		50	%		2,685,000
2021		2,685,000		100	%		2,685,000
						$	10,741,000

(a)

Assumes no regular federal income tax liability in tax years presented above which would reduce any AMT credit carryforward amount(s) ultimately refunded.

(b)

See herein with regard the filing of the Company’s 2018 federal income tax return and the March 2019 federal tax refund received.

In January 2019, the Company filed its 2018 federal income tax return seeking a refund of approximately $10.7 million of AMT credit carryforwards as provided for in the 2017 Tax Cuts and Jobs Act. This amount is reflected as a federal tax receivable at December 31, 2018. The remaining amount of $10.7 million is reflected as a deferred tax asset at December 31, 2018, based on tax returns to be filed in future years. In March 2019, the Company received a $10.7 million federal tax refund based on the Company’s 2018 federal income tax return as filed. The IRS typically has broad discretion to examine taxpayer tax returns, even after refunds have been paid to taxpayers, which could result in adjustments to AMT credit carryforward amounts refunded and/or claimed as refundable and/or AMT credit carryforward amounts ultimately received. See herein for additional information.

The Company’s management is continuing to work closely with outside advisors on the Company’s tax matters as they relate to the 2017 Tax Act and on the various federal tax return matters for the numerous interrelated tax years, including the provisions and application of the 2017 Tax Act along with the amounts and timing of any AMT credit carryforward refunds. The AMT credit carryforward amounts from prior tax years and related refund(s) received and/or projected to be received could potentially be subject to IRS or other tax authority audits, including possible IRS Joint Committee review and/or approval. The Company cannot predict whether or not the IRS and/or other tax authorities will review the Company’s tax returns filed, to be filed and/or as filed in prior years, and/or if they will seek repayment from the Company of any amounts already refunded as a result of an IRS review, if any. Moreover, applicable provisions of the Code and IRS regulations permit the IRS to challenge Company tax positions and filed returns and seek recovery of refunded amounts or of additional taxes for an extended period of time after such returns are filed.

The 2017 Tax Act makes broad and complex changes to the Code, including, among other changes, significant changes to the U.S. corporate tax rate and certain other changes to the Code that impact the taxation of corporations. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue additional guidance in the future on how provisions of the 2017 Tax Act will be applied or otherwise administered that differs from our interpretation. As we complete our analysis of the 2017 Tax Act, and IRS regulations and guidance issued in respect thereof and collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. Additionally, there is risk relating to assumptions regarding the outcome of tax matters, based in whole or in part upon consultation with outside advisors; risk relating to potential unfavorable decisions in tax proceedings; and risks regarding changes in, and/or interpretations of federal and state income tax laws. The Company can give no assurances as to the final outcome of any IRS review of the AMT credit carryforward refunds already received or the final amount of any future AMT credit carryforward refunds, if any, or when they might be received.

Based on the Company’s state tax returns as filed and to be filed, the Company estimates that it has state NOL carryforwards to reduce future state taxable income, which would expire if unused.

The state NOL carryforwards as of December 31, 2018, are as follows:

Tax Year Originating	Tax Year Expiring	Amount

2011	2031	$	1,800,000
2013	2033		2,700,000
2014	2034		4,200,000
2015	2035		4,100,000
2016	2036		2,800,000
2017	2037		68,000,000
2018	2038		500,000
		$	84,100,000

The Company has a deferred tax asset arising primarily from NOL carryforwards and AMT credit carryforwards as follows:

	December 31, 2018			December 31, 2017
Deferred tax asset	$	44,501,000		$	47,800,000
Valuation allowance		(33,760,000	)		(27,708,000	)
Net deferred tax asset recognized	$	10,741,000		$	20,092,000

At December 31, 2017, a valuation allowance was released in relation to the AMT credit carryforwards which are projected to be refundable as part of the 2017 Tax Act enacted in December 2017. In 2018, the Company released its valuation allowance in relation to additional AMT credit carryforwards available for refund (under the 2017 Tax Act), due to the elimination of reductions for the effect of sequestration amounts. A full valuation allowance remains on the remaining deferred tax asset amounts, as management has no basis to conclude that realization is more likely than not. Management does not believe that any significant changes in unrecognized income tax benefits are expected to occur over the next year.