SPIRIT REALTY CAPITAL, INC. - 10-K filing on 2015-02-27

Income Taxes

12 Months Ended

Dec. 31, 2014

The Company’s total income tax expense was as follows (in thousands):



	Years Ended December 31,
	2014		2013		2012
REIT state income tax	$	673	$	723	$	504
REIT state built-in gain tax expense	—		390		—
Total income tax expense	$	673	$	1,113	$	504

The Company’s deferred income tax expense and its ending balance in deferred tax assets and liabilities were immaterial at December 31, 2014, 2013 and 2012.

To the extent that the Company acquires property that has been owned by a C corporation in a transaction in which the tax basis of the property carries over, and the Company recognizes a gain on the disposition of such property during the subsequent recognition period, it will be required to pay tax at the highest regular corporate tax rate to the extent of such built-in gain. During 2013, the Company sold a property that was subject to state built-in gain tax of $0.4 million.The Company continues to hold certain real estate assets acquired in 2006 with a built-in gain of approximately $435 million. The Company intends to hold these assets beyond the applicable built-in gain recognition period or sell the assets in tax deferred exchanges and therefore does not anticipate recognizing the built-in gain tax associated with these assets.

The Company has net operating loss carryforwards for income tax purposes totaling $63.9 million, $63.9 million and $63.4 million at December 31, 2014, 2013 and 2012, respectively. These losses, which begin to expire in 2015 through 2032, are available to reduce future taxable income or distribution requirements, subject to certain ownership change limitations.

The Company files federal, state and local income tax returns. All federal tax returns for years prior to 2011 are no longer subject to examination. Additionally, state tax returns for years prior to 2010 are generally no longer subject to examination. The Company’s policy is to recognize interest related to any underpayment of income taxes as interest expense and to recognize any penalties as operating expenses. There was no accrual for interest or penalties at December 31, 2014, 2013 and 2012. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

For income tax purposes, dividends paid consist of ordinary income, capital gains, return of capital, or a combination thereof. For the years ended December 31, 2014, 2013 and 2012, preferred dividends paid were characterized for tax as follows (per share):



	Years Ended December 31,
	2014		2013		2012
Ordinary income	$	—	$	—	$	63
Return of capital	—		—		1,112
	$	—	$	—	$	1,175

For the years ended December 31, 2014, 2013 and 2012, common stock dividends were characterized for tax as follows (per share):



	Spirit ⁽¹⁾				Pre-Merger Spirit ⁽²⁾
	Year Ended December 31, 2014		Year Ended December 31, 2013		For the Period January 1, 2013 - July 17, 2013		Year Ended December 31, 2012
Ordinary income	$	—	$	0.29	$	0.12	$	0.23
Return of capital	0.58		—		0.66		—
Capital gain	—		0.32		—		—
	$	0.58	$	0.61	$	0.78	$	0.23

⁽¹⁾ Cole II was the surviving legal entity in the Merger, and for federal income tax purposes, the dividends reflected for Spirit include dividends paid by Cole II prior to the Merger and those paid by the combined company subsequent to the Merger. The capital gain amount includes $0.25 per share of Code Section 1250 capital gain.

⁽²⁾Dividends per share for pre-merger Spirit reflect amounts declared by the Company prior to the Merger and are not adjusted for the Merger exchange ratio.