Income Taxes

12 Months Ended

Dec. 31, 2020

The Company is considered to be a partnership for income tax purposes, and is not subject to federal, state, or local income taxes. Any taxable income or loss will be recognized by the partners. Accordingly, no federal, state, or local income taxes have been reflected in the accompanying consolidated financial statements with respect to the Company.

The Company retains an ownership of one taxable REIT subsidiary related to one hotel property (the "TRS Sub") which is treated as a C-corporation for income tax purposes. The TRS Sub pays federal, state and local income taxes on its net taxable income, and any after-tax net income will be available for distribution to the Company but it is not required to be distributed.

The Company accounts for income taxes of the TRS Sub using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the net rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies.

The provision for income taxes of the TRS Sub is different from the amount of income tax (benefit) expense that is determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences (in thousands):


	For the year ended December 31,
	2020		2019		2018
Expected TRS Sub federal tax (benefit) expense at statutory rate	$	(27,622)	$	5,207	$	15,746
Tax impact of REIT election	25,989		(4,049)		(14,805)
Expected TRS Sub tax (benefit) expense	(1,633)		1,158		941
Change in valuation allowance	2,136		(1,085)		(363)

Permanent items	—		—		85
Impact of provision to return	(503)		(73)		(663)
TRS Sub income tax expense	$	—	$	—	$	—

The TRS Sub's deferred income taxes represent the tax effect of the differences between the book and tax basis of the assets and liabilities. The deferred tax assets (liabilities) of the TRS Sub include the following (in thousands):


	December 31, 2020		December 31, 2019
Deferred tax liabilities:
Partnership basis	$	(3,797)	$	(3,125)

Deferred tax liabilities	$	(3,797)	$	(3,125)

Deferred tax assets:
Property and equipment	$	8,413	$	8,436
Net operating loss carryforwards	10,509		7,517
Federal historic tax credits	631		631
Other deferred tax assets	—		160
Valuation allowance	(15,756)		(13,619)
Deferred tax assets	$	3,797	$	3,125

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on the consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income, and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company would record a valuation allowance to reduce its deferred tax assets to the amount that is most likely to be utilized in future periods to offset taxable income. Based upon the available objective evidence at December 31, 2020, the Company determined it was more

likely than not that the deferred tax assets of the TRS Sub would not be utilized in future periods. The Company considered all available evidence, both positive and negative, including cumulative losses in recent years and its current forecast of future income in its analysis. As a result, the Company recognized a full valuation allowance related to the TRS Sub's net deferred tax asset. As of December 31, 2020 and 2019, the Company had a valuation allowance of approximately $15.8 million and $13.6 million, respectively, related to net operating loss ("NOL") carryforwards, historic tax credits, and other deferred tax assets of the TRS Sub. The realization of the deferred tax assets associated with the TRS Sub's NOLs and historic tax credits is dependent on projections of future taxable income. The TRS Sub’s historic results and the cyclical nature of the lodging industry led the Company to conclude future taxable income is uncertain. Accordingly, no provision or benefit for deferred income taxes is reflected in the accompanying consolidated statements of operations and comprehensive (loss) income.

The TRS Sub's NOLs and historic tax credits begin to expire in 2036. Additionally, the annual utilization of these NOLs and historic tax credits is limited pursuant to Sections 382 and 383 of the Internal Revenue Code.

The Company is subject to examination by the U.S. Internal Revenue Service ("IRS") and various state and local jurisdictions. The tax years subject to examination vary by jurisdiction. With few exceptions, as of December 31, 2020, the Company is no longer subject to U.S. federal or state and local tax examinations by tax authorities for the tax years of 2016 and before.

The Company had no accruals for tax uncertainties as of December 31, 2020 and 2019.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details