Income Taxes:
For income tax purposes, NNN may elect to treat certain subsidiaries as taxable REIT subsidiaries in which certain real estate activities may be conducted.
NNN currently has no TRS entities. The following information relates to former TRS entities.
The significant components of the net deferred income tax asset consist of the following at December 31 (dollars in thousands):
| | | | | | | | | | | |
| 2020 | | 2019 |
| Deferred tax assets: | | | |
| | | |
| Net operating loss carryforward | $ | 3,892 | | | $ | 3,899 | |
| | | |
| Valuation allowance | (3,892) | | | (3,899) | |
| Total deferred tax assets | — | | | — | |
| | | |
| Deferred tax liabilities: | | | |
| Built-in gain | — | | | — | |
| Total deferred tax liabilities | — | | | — | |
| | | |
| Net deferred tax asset | $ | — | | | $ | — | |
In assessing the ability to realize a deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The net operating loss carryforwards were generated by NNN’s former taxable REIT subsidiaries. The net operating loss carryforwards begin to expire in 2028. Management believes it is unlikely that NNN will realize all of the benefits of these deductible differences that existed as of December 31, 2020 and 2019.
The decrease in the valuation allowance for the year ended December 31, 2020, was $7,000. The increase in the valuation allowance for the year ended December 31, 2019, was $41,000.
For the years ended December 31, 2020, 2019 and 2018, there was no net income tax expense or benefit to NNN's former TRS entities. The total income tax benefit (expense) differs from the amount computed by applying the statutory federal tax rate to net earnings before taxes as follows for the years ended December 31 (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Loss carryforwards increase (decrease) | $ | (7) | | | $ | — | | | $ | — | |
| Built-in gain tax liability | — | | | 41 | | | — | |
| | | | | |
| Valuation allowance (increase) decrease | 7 | | | (41) | | | — | |
| Total tax expense | $ | — | | | $ | — | | | $ | — | |
FASB prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
NNN, in accordance with FASB guidance included in Income Taxes, has analyzed its various federal and state filing positions. NNN believes that its income tax filing positions and deductions are well documented and supported. Additionally, NNN believes that its accruals for tax liabilities are adequate. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to the FASB guidance. In addition, NNN did not record a cumulative effect adjustment related to the adoption of the FASB guidance.
NNN has had no unrecognized tax benefits during any of the years presented. Further, no interest or penalties have been included since no reserves were recorded and no significant increases or decreases are expected to occur within the next 12 months. When applicable, such interest and penalties will be recorded in non-operating expenses. The periods that remain open under federal statute are 2017 through 2020. NNN also files in many states with varying open years under statute.