Note 14. Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) commencing upon filing its tax return for its taxable year ended December 31, 2019.  As a REIT, the Company is required to distribute annually 90% of its REIT taxable income.  So long as the Company continues to qualify as a REIT, it will generally not be subject to U.S. federal or state corporate income taxes on its taxable income to the extent that it distributes all of its annual taxable income to its shareholders on a timely basis.  At present, it is the Company’s intention to distribute 100% of its taxable income, although the Company will not be required to do so. The Company intends to make distributions of its REIT taxable income within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.  Accordingly, the

Company does not expect to incur an income tax liability on its REIT taxable income.  For the Company’s tax years ended December 31, 2018 and earlier, the Company was taxed as a C corporation for U.S. federal tax purposes.

For the years ended December 31, 2021 and 2020, the Company had a REIT taxable loss and did not have a distribution requirement.  As of December 31, 2021, the Company had estimated net operating loss (“NOL”) carryforwards of $165,021 that can be used to offset future taxable ordinary income and reduce its REIT distribution requirements. NOL carryforwards totaling $14,588 expire in 2028 and NOL carryforwards totaling $150,433 have no expiration period. As of December 31, 2021, the Company had estimated net capital loss (“NCL”) carryforwards of $127,122 that can be used to offset future net capital gains. The scheduled expirations of the Company’s NCL carryforwards are $3,763 in 2022, $110,323 in 2023 and $13,036 in 2026.  The Company’s estimated NOL and NCL carryforwards as of December 31, 2021 are subject to potential adjustments up to the time of filing of the Company’s income tax returns. During the year ended December 31, 2020, the Company received a cash refund of an alternative minimum tax credit of $4,566.

The Company and subsidiaries have made joint elections to treat certain subsidiaries as taxable REIT subsidiaries (“TRSs”). In general, a TRS may hold assets and engage in activities that the Company cannot hold or engage in directly and generally may engage in any real estate or non-real estate related business. As such, each of these TRSs is taxable as a C corporation and subject to federal, state and local income taxes based upon their taxable income. For the years ended December 31, 2021 and 2020, the Company recognized a provision for income taxes of $1,566 and $0, respectively, on the pre-tax net income of its TRSs.

The Company recognizes uncertain tax positions in the financial statements only when it is more-likely-than-not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more-likely-than-not be realized upon settlement. A liability is established for differences between positions taken in a tax return and the financial statements. As of December 31, 2021 and 2020, the Company assessed the need for recording a provision for any uncertain tax position and has made the determination that such provision is not necessary. If the Company were to incur income tax related interest and penalties, the Company’s policy is to classify them as a component of provision for income taxes.

The Company is subject to examination by the Internal Revenue Service (“IRS”) and state and local authorities in jurisdictions where the Company has significant business operations.  The Company’s federal tax returns for 2018 and forward remain subject to examination by the IRS.