7.	*Income Taxes*

The components of income tax expense (benefit) are as follows:


	For the Years Ended December 31,
	2013			2012			2011
Current Federal alternative minimum (“AMT”) expense	$	42,000		$	—		$	—
Current state and local tax expense (A)		132,000			187,000			—
Deferred Federal tax expense (benefit) (B)		(12,775,000	)		(5,279,000	)		(3,606,000	)
Deferred state and local tax expense (benefit) (C)		(1,299,000	)		(335,000	)		(469,000	)

Consolidated income tax expense (benefit), including taxes attributable to discontinued operations (D)		(13,900,000	)		(5,427,000	)		(4,075,000	)
Less income tax expense (benefit) attributable to discontinued operations		(230,000	)		—			—

Income tax (benefit) (E)	$	(13,670,000	)	$	(5,427,000	)	$	(4,075,000	)

(A)

During 2012, the Company recorded current state and local tax expense of $187,000. This amount reflected the Company’s treatment of NOLs reflected on certain state and local tax returns.

(B)

Includes an AMT tax benefit of $1,181,000 in 2013.

(C)

Includes $92,000 in 2013 attributable to the tax benefit from excess stock based compensation deductions.

(D)

Includes income taxes attributable to income (loss) from discontinued operations.

(E)

Reflects the tax benefit from continuing operations as reported on the consolidated statements of operations for the periods presented.

The reconciliation of income tax computed at the U.S. Federal statutory rate to income tax expense (benefit) is as follows:


	For the Years Ended December 31,
	2013						2012						2011
	Amount			Percent			Amount			Percent			Amount			Percent
Tax (benefit) expense at U.S. statutory rate	$	1,492,000			35.00	%	$	(3,399,000	)		(35.00	%)	$	(766,000	)		(35.00	%)
State and local tax expense (benefit), net of Federal impact		86,000			2.01	%		(96,000	)		(0.99	%)		(61,000	)		(2.80	%)
Impact of state and local tax rate change net of Federal impact		110,000			2.58	%		6,000			0.06	%		67,000			3.08	%
Cost (benefit) attributable to valuation allowance, net		(150,000	)		(3.52	%)		3,671,000			37.80	%		754,000			34.44	%
Non-deductible items		9,000			0.21	%		5,000			0.05	%		6,000			0.28	%
Benefit attributable to reduction in allowance against certain deferred tax assets		(15,217,000	)		(356.94	%)		(5,614,000	)		(57.81	%)		(4,075,000	)		(186.19	%)

	$	(13,670,000	)		(320.66	%)	$	(5,427,000	)		(55.89	%)	$	(4,075,000	)		(186.19	%)

During 2013, 2012 and 2011, the Company recorded an aggregate deferred Federal, state and local income tax benefit of $15,217,000, $5,614,000 and $4,075,000, respectively, from the release of the valuation allowance against certain deferred tax assets. In the fourth quarters of 2013, 2012 and 2011, the Company reversed the valuation allowance recorded against a portion of its net operating loss (“NOL”) carryforwards in 2011 and 2012, and the remaining balance of the valuation allowance against NOL and AMT credit carryforwards in 2013. The decision to reduce the valuation allowance in each period was made after management determined, based on an assessment of continuing operations, profitability and forecasts of future taxable income, that these deferred tax assets would be realized in the future.

Separately, during the fourth quarter of 2013, the Company also reevaluated the availability of state operating loss carryforwards and modified the future effective state and local tax rate. As a result, the future tax benefit was reduced by approximately $346,000 during the year ended December 31, 2013. In the fourth quarter of 2011, the Company revised its annual effective tax rate. The change resulted from a review of the Company’s operations since the Merger and the adoption by New York City of a 100% revenue apportionment factor which is being implemented over a number of years through 2017. As a result of the reduction in the effective tax rate, the deferred tax benefit was reduced by approximately $339,000 for the year ended December 31, 2011.

Due to the amount of its NOL and credit carryforwards, the Company does not anticipate paying Federal income taxes for the foreseeable future. The Company expects, in the near-term, that it will be subject to cash payments for state and local income taxes and Federal AMT.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $23,789,000 and $9,622,000 at December 31, 2013 and 2012, respectively, of which $2,472,000 and $1,065,000 is reflected as a net current asset in prepaid and other assets and $21,317,000 and $8,557,000 is reflected separately as a net non-current asset in the accompanying consolidated balance sheets, respectively. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; (3) stock based compensation; and (4) liability reserves, all as they relate to deferred tax assets; and (5) the deferred tax liability resulting from the intangible assets recorded at the time of the Merger.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2013			2012
Deferred Tax Assets
Net operating loss carryforwards	$	23,771,675		$	24,807,803
Asset basis differences — tax amount greater than book value		263,944			276,365
Liability reserves		212,376			658,713
Reserve for option cancellations		99,689			111,878
Stock compensation plans		1,598,969			1,514,453
AMT credit carryforwards		1,181,423			1,139,392
Other		31,167			25,871

		27,159,243			28,534,475
Valuation allowance		—			(15,217,496	)

Total deferred tax assets		27,159,243			13,316,979

Deferred Tax Liabilities
Acquired asset differences — book value greater than tax		(3,145,741	)		(3,676,472	)
Asset basis differences — carrying amount value greater than tax		(224,982	)		(18,087	)

Total deferred tax liabilities		(3,370,723	)		(3,694,559	)

Net deferred tax asset (liability)	$	23,788,520		$	9,622,420

The Company has aggregate Federal, state and local NOL carryforwards aggregating approximately $66,006,000 at December 31, 2013. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (“VLP”) and the Company’s operating losses prior to the Merger. Approximately $25,158,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $40,848,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. However, because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. A substantial NOL was realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement, discussed in Note 10.

A further requirement of the tax rules is that after a corporation experiences an ownership change, it must satisfy the continuity of business enterprise, or COBE, requirement (which generally requires that a corporation continue its historic business or use a significant portion of its historic business assets in its business for the two year period beginning on the date of the ownership change) to be able to utilize NOLs generated prior to such ownership change. The Company believes that the COBE requirement was met through the required two year period subsequent to the ownership change. In February 2012, the Internal Revenue Service (“IRS”) completed an audit of the Company’s 2009 Federal income tax return. The 2009 tax year included the end of the two year period subsequent to the Merger. The IRS issued a no change letter related to the Company’s 2009 tax return, thereby accepting the Company’s position that the two year COBE requirement was met.

The Company does not have any near-term expirations of NOLs; the next NOL expiration is in 2017 for approximately $3,391,000 of Federal NOLs. Included in Federal and state NOLs at December 31, 2013 is approximately $1,723,000 attributable to excess tax deductions from the issuance of common shares as non-cash compensation. The tax benefits attributable to those NOLs will be credited directly to additional paid in capital when utilized to offset taxes payable.

A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result of management’s current evaluation of the Company’s future operations, it has been determined that no valuation allowance was necessary at December 31, 2013. Management determined that a valuation allowance of approximately $15,217,000 was necessary at December 31, 2012. The allowance at December 31, 2012 related primarily to NOL carryforwards and AMT credits. The decrease in the allowance in 2012 was primarily attributable to the $5,614,000 increase in deferred tax assets expected to be realized in the years subsequent to December 31, 2012, offset in part by the litigation settlement payments made in 2012, net of recoveries, which resulted in an increase to the 2012 NOL. The decrease in the allowance in 2011 was primarily attributable to the release of valuation allowance against deferred assets expected to be utilized in the three years subsequent to December 31, 2011 of $4,075,000, a reduction in the effective tax rate utilized by the Company (approximately $1,850,000), and utilizing the tax loss on the sale of the Company’s East Lyme project for which an allowance was provided for, related to the net liability in 2010, offset by the allowance provided for the net litigation liability at December 31, 2011.

The Company and its subsidiaries have been audited by the Federal tax authorities for 2009 and Federal tax returns are open for 2010, 2011 and 2012; all prior Federal periods are closed, except to the extent that NOLs were generated in a given year. The acquired VLP net operating loss carryforward is open for 1997 and 1998 for the NOLs generated during those years. Private Reis was audited by the IRS for tax years ending October 31, 2005 and 2006. In addition, tax returns are open from 2000 to 2002 and 2007, to the extent that NOLs were generated during these periods by Private Reis.

Tax returns for the Company and a subsidiary are under audit by the State of New York for the years 2004 to 2006 and are open for the years 2007 to 2012. As a result of the New York State audit, New York City returns are open for the years 2004 to 2012 as well. The tax years for another subsidiary, operating in Colorado are open from 2009 to 2012.

The Company’s reserve for unrecognized tax benefits, including estimated interest, was $62,000 and $345,000 at December 31, 2013 and 2012, respectively. The unrecognized tax benefits as well as related interest was included in general and administrative expenses. The Company recorded an additional provision, including interest, of $51,000 and $200,000 in 2013 and 2012, respectively. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2013, 2012 and 2011 follows:


	For the Years Ended December 31,
	2013			2012		2011
Balance at beginning of period	$	345,000		$	145,000	$	145,000
Additional provisions and interest related to prior years		51,000			200,000		7,700
Resolution of matters during the period		(334,000	)		—		(7,700	)

Balance at end of period	$	62,000		$	345,000	$	145,000

The Company expects that a substantial portion of the 2013 balance could be resolved in 2014.