Note 12. Income Taxes:

PMC Commercial has elected to be taxed as a REIT under the Code. To qualify as a REIT, PMC Commercial must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our taxable income to our shareholders. As a REIT, PMC Commercial generally will not be subject to corporate level Federal income tax on net income that is currently distributed to shareholders.

 

The following reconciles net income (loss) to REIT taxable income (loss):

 

		Years Ended December 31,
		2013				2012				2011
		(In thousands)
Net income (loss)		$	2,067			$	(2,179)			$	3,647
Book/tax differences:
Gains related to real estate			(1,537)				-				(235)
Strategic alternatives			-				(678)				678
Impairment losses			116				300				804
Transaction costs			2,789				-				-
Severance accrual (payments)			(1,806)				1,777				(100)
Amortization and accretion			(100)				(188)				(68)
Loan valuation			(59)				1,403				184
Other, net			99				157				8
Subtotal			1,569				592				4,918
Adjustment for TRS net income, net of tax			(2,101)				(840)				(131)
Dividend distribution from TRS			-				-				1,000
REIT taxable income (loss)		$	(532)			$	(248)			$	5,787
Distributions declared		$	5,299			$	6,353			$	6,767
Basic weighted average common shares outstanding			10,595				10,585				10,570

Dividends per share for dividend reporting purposes were as follows:

 

		Years Ended December 31,
		2013								2012								2011
		Amount Per Share				Percent				Amount Per Share				Percent				Amount Per Share				Percent
Non-qualified dividends		$	-				-			$	-				-			$	0.477				74.53%
Qualified dividends			-				-				-				-				0.095				14.78%
Non-taxable return of capital			0.500				100.00%				0.600				100.00%				0.068				10.69%
		$	0.500				100.00%			$	0.600				100.00%			$	0.640				100.00%

During 2012 and 2013, due primarily to deductible expenses related to exploration of strategic alternatives and payment of severance costs, we had taxable losses. Thus, all dividends were deemed to be non-taxable returns of capital.

In general, in order to meet our taxable income distribution requirements, we may make an election under the Code to treat a portion of the distributions declared and paid in the current year as distributions of the prior year’s taxable income.

PMC Commercial has wholly-owned TRS’s which are subject to Federal income taxes. The income generated from the TRS’s is taxed at normal corporate rates.

We calculate our current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on the final tax returns are generally recorded in the period when the returns are filed.

 

Income tax provision related to the TRS’s consisted of the following:

 

In addition, income tax benefit of $31,000 and $115,000 for 2013 and 2012, respectively, is included in discontinued operations based on operating losses of the REO of our TRS’s.

The provision for income taxes results in effective tax rates that differ from Federal statutory rates of 34%. The reconciliation of TRS income tax attributable to income (loss) from continuing operations computed at Federal statutory rates to income tax provision was as follows:

 

We have identified our Federal tax returns and our state returns in Texas as “major” tax jurisdictions. The periods subject to examination for our Federal tax returns and state returns in Texas are the 2010 through 2012 tax years. We believe that all income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our financial position. Therefore, no reserves for uncertain tax positions have been recorded.

 

The components of our net deferred tax asset were as follows:

 

The net operating loss carryforwards at December 31, 2013 were generated by a TRS and are available to offset future taxable income of this TRS. The net operating loss carryforwards expire from 2027 to 2032.

We paid $976,000, $617,000 and $612,000 in income taxes during 2013, 2012 and 2011, respectively.