INCOME TAXES

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure

9. INCOME TAXES

The Company as a qualifying real estate investment trust (“REIT”) distributes its taxable ordinary income to stockholders in conformity with requirements of the Internal Revenue Code and is not required to report deferred items due to its ability to distribute all taxable income. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back.

The Company’s 95%-owned taxable REIT subsidiary, CII, files a separate income tax return and its operations are not included in the REIT’s income tax return.

Distributed capital gains on sales of real estate as they relate to REIT activities are not subject to taxes; however, undistributed capital gains may be subject to corporate tax.

On December 13, 2019, the Company declared a dividend of $0.50 per share which was payable on January 13, 2020 to all shareholders of record as of December 30, 2019. Our previously issued 2019 Form 1099-DIV was based on estimated information (from Form K-1’s) for income from our various investments and we projected positive current Earnings and Profit (E&P) for 2019. However, upon receipt of the actual 2019 K-1 information in 2020 the REIT reported negative current E&P. Thus, the 2019 distribution made to shareholders is now considered 100% return of capital and not taxable. The 2019 Form 1099-DIV was amended in October 2020.

The Company accounts for income taxes in accordance with ASC Topic 740, “Accounting for Income Taxes.” ASC Topic 740 requires a Company to use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred taxes only pertain to CII. As of September 30, 2020, and December 31, 2019, the Company has recorded a net deferred tax liability of $50,000 and $77,000, respectively, primarily as a result of timing differences associated with the carrying value of the investment in affiliate (TGIF), other investments and investments in marketable securities. CII’s NOL carryover to 2020 is estimated at $1.07 million and has been fully reserved due to CII historically having tax losses.

The benefit from (provision for) income taxes in the consolidated statements of income consists of the following:

Nine months ended September 30,	2020			2019
Current:
Federal	$	-		$	-
State		2,000			-
		2,000			-
Deferred:
Federal	$	49,000		$	(13,000	)
State		4,000			(2,000	)
		53,000			(15,000	)
Total benefit (provision) before allowance		55,000			(15,000	)
Increased valuation allowance		(24,000	)		-
Total	$	29,000		$	(15,000	)

The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC Topic 740 and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements. Our evaluation was performed for the tax years ended December 31, 2019. The Company’s federal income tax returns since 2016 are subject to examination by the Internal Revenue Service, generally for a period of three years after the returns were filed.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the condensed consolidated financial statements as general and administrative expense.