INCOME TAXES

12 Months Ended

Dec. 31, 2020

10. INCOME TAXES

The Company as a qualifying 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.

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 11, 2020 the Company declared a dividend of $0.50 per share which was payable on January 12, 2021 to all shareholders of record as of December 29, 2020. The dividend was 100% return of capital.

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. The dividend was 100% return of capital.

On December 14, 2018 the Company declared a capital gain dividend of $0.50 per share which was payable on January 9, 2019 to all shareholders of record as of December 28, 2018.

As of December 31, 2019, the Company, excluding CII (its taxable REIT subsidiary), had an estimated tax net operating loss carryover (NOL) of approximately $470,000 which was carried forward to 2020.

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.

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 bases 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 December 31, 2020, and 2019, the Company has a net deferred tax liability of approximately $107,000 and $77,000, respectively, as a result of timing differences associated with the carrying value of the investment in affiliate (TGIF) and other investments. CII’s NOL carryover to 2020 is estimated at $1.16 million and is fully reserved due to due to CII historically having tax losses.

The components of income before income taxes and the effect of adjustments to tax computed at the federal statutory rate for the years ended December 31, 2020 and 2019 were as follows:

	2020			2019
(Loss) income before income taxes	$	(1,038,000	)	$	310,000
Computed tax at federal statutory rate of (21%)	$	(218,000	)	$	65,000
State taxes		(2,000	)		1,000
REIT related adjustments		168,000			(31,000	)
Adjustment to valuation allowance		50,000			13,000
Permanent differences		19,000			(2,000	)
Other items, net		7,000			(17,000	)
Provision for income taxes	$	24,000		$	29,000

The REIT related adjustments represent the difference between estimated taxes on undistributed income and/or capital gains and book taxes computed on the REIT’s income before income taxes, including tax on prohibited REIT income.

The provision for income taxes in the consolidated statements of income consists of the following:

Year ended December 31,	2020			2019
Current:
Federal		-			-
State	$	(6,000	)	$	-
		(6,000	)		-
Deferred:
Federal	$	(24,000	)	$	15,000
State		2,000			1,000
		(22,000	)		16,000
Change in valuation allowance		52,000			13,000
Total	$	24,000		$	29,000

As of December 31, 2020, and 2019, the components of the deferred tax assets and liabilities are as follows:

	As of December 31, 2020 Deferred tax					As of December 31, 2019 Deferred tax
	Assets			Liabilities		Assets			Liabilities
Net operating loss carry forward	$	267,000				$	215,000
Excess of book basis of 49% owned corporation over tax basis				$	271,000				$	272,000
Unrealized gain on marketable securities		-			65,000		-			8,000
Excess of tax basis over book basis of other investments and other		229,000			-		203,000			-
Valuation allowance		(267,000	)				(215,000	)
Totals	$	229,000		$	336,000	$	203,000		$	280,000

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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