Income Taxes

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements [Abstract]

Income Taxes

(7)  Income Taxes

The provision for income taxes totaled $1.6 million and $14.6 million for the three and nine months ended September 30, 2011, respectively. The loss on asset impairment was substantially nondeductible for tax purposes, thereby significantly impacting the income tax expense shown on the accompanying statements of operations relative to the pre-tax loss for the three and nine months ended September 30, 2011.  Excluding the impact of the $317.1 million loss on asset impairment (see Note 2 - "Asset Impairment") and its related $1.8 million income tax benefit, the effective tax rates would have been 33% and 39% for the three and nine months ended September 30, 2011, respectively. The provision for income taxes of $5.6 million and $20.0 million for the three and nine months ended September 30, 2010 resulted in effective tax rates of approximately 41% and 40%, respectively.

The realization of our deferred tax assets is dependent upon generation of taxable income during periods in which deductions and/or credits can be utilized.  As a result, we consider the level of historical taxable income, historical non-recurring credits and charges, the scheduled reversal of deferred tax liabilities, tax-planning strategies and projected future taxable income in determining the amount of the valuation allowance.  The valuation allowance of $18.1 million at September 30, 2011 and December 31, 2010 relates primarily to state net operating loss ("NOL") carryforwards and other deferred tax assets for which realization is uncertain.

After consideration of the November 2010 restructuring of our former parent company, which, among other matters resulted in Sabra Health Care REIT, Inc. holding substantially all of our former parent's owned real property, and utilization of NOL carryforwards through 2010, the Internal Revenue Code ("IRC") Section 382 annual base limitation to be applied to our tax attribute carryforwards is approximately $7.4 million. Accordingly, our NOL, capital loss, and tax credit carryforwards have been reduced to take into account this limitation and the respective carryforward periods for these tax attributes.  As a result of unused IRC Section 382 limitations from prior years and post-ownership change NOLs, we estimate there is approximately $65.1 million of NOLs which can be used to offset U.S. taxable income in 2011.  Considering annual IRC Section 382 limitations and built-in gains, we estimate a total of approximately $170.8 million of utilizable NOL carryforwards to offset taxable income in 2011 and future years.