(9) PROVISION FOR INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

(9) PROVISION FOR INCOME TAXES

The provision for income taxes for the years ended December 31, 2011 and 2010 is comprised of the following:

	Year Ended December 31, 2011			Year Ended December 31, 2010
Federal:
Regular	$	(2,068,031	)	$	3,412,174
Undistributed Personal Holding Company Tax		-			852,000
State Franchise Taxes		116,224			134,760
Total Current Income Tax (Benefit )Provision		(1,951,807	)		4,398,934
Deferred Taxes		(3,190,269	)		(1,017,042	)
Total Tax (Benefit) Provision	$	(5,142,076	)	$	3,381,892

The current federal income tax benefit for 2011 is comprised of estimated tax overpayments and the carry back of current year losses. The 2010 federal income tax is comprised of a regular tax and the personal holding company (PHC) income tax assessment.

Under Internal revenue code section 542 a company is defined as a PHC if it meets both an ownership test and an income test. The ownership test is met if a company has five or fewer shareholders that own more than 50% of the company, which is applicable to Daxor. The income test is met if PHC income items such as dividends, interest and rents exceed 60% of adjusted ordinary gross income. Adjusted ordinary income is defined as all items of income except capital gains. For the years ended December 31, 2011 and 2010, more than 60% of Daxor’s adjusted gross income came from items defined as PHC income.

Determining the PHC tax liability requires computing Daxor’s “undistributed PHC income” and taxing such PHC income at the statutory rate of 15%. Undistributed PHC income is current year taxable income of the Company, exclusive of the net operating loss carry forward deduction that is allowed for regular tax purposes. The Company incurred no liability for PHC for the year ended December 31, 2011 because there was no undistributed PHC income. Undistributed PHC income for the year ended December 31, 2010 was $5,500,000.

The calculation does allow for certain deductions and the most significant of these deductions are long-term capital gains and dividends paid. In 2011 the Company had long term capital gains of $1,015,022 and paid dividends of $1,054,450.In 2010,the Company had minimal long-term capital gains and paid dividends of $4,229,520.

In 2011 and 2010, the Company had short-term capital gains totaling $3,545,000 and $17,872,000, respectively. Short term capital gains are not a deduction for PHC tax purposes, and therefore the Company had undistributed PHC income in 2010 of $5,500,000 that gave rise to the PHC tax liability. The Company had no PHC tax liability in 2011 due to the loss that was incurred.

The long and short term capital gains are shown on the Income Statement as part of “Realized gains on sales of securities, net”.

The following is reconciliation between the federal statutory rate of 35% and the effective rate:

	2011			2011			2010			2010
Computed expected provision at the Statutory rates	$	(4,320,929	)		35.0	%	$	2,915,690			35.0	%
Non-deductible items		(2,941	)		0.0	%		(35,029	)		-0.4	%
Under accrual of prior overpayments		(198,031	)		1.6	%		—			0.0	%
Undistributed PHC tax		—			0.0	%		852,000			10.2	%
Franchise tax, net of benefit		116,224			-0.9	%		134,760			1.6	%
Dividends Deduction		(782,808	)		6.3	%		(544,967	)		-6.5	%
Tax Bracket benefit		122,366			-1.0	%		(67,735	)		-0.8	%
Other		(75,957	)		0.6	%		127,173			1.5	%
	$	(5,142,076	)		41.6	%	$	3,381,892			40.6	%

The Company is currently undergoing one audit. Certain allocation percentages used on the Daxor New York City Income Tax Returns for the years ended December 31, 2007, 2008 and 2009 are currently under audit by the New York City Department of Taxation and Finance. As the audit has not been completed, the Company cannot determine if New York City will assess additional tax, interest and penalties.

At December 31, 2011 and 2010, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months.

Interest and penalties related to income taxes are recorded as general and administrative expenses. The Company recognized a $55,000 penalty related to the underpayment of quarterly estimated payments for its fiscal 2010 federal income tax return in 2010.