Income Taxes

The following summarizes the tax status of dividends paid during the respective years:



		2011		2010		2009
Dividend per share	$	1.85		1.85		2.11
Ordinary income		33	%	40	%	54	%
Capital gain		1	%	2	%	14	%
Return of capital		66	%	58	%	32	%

RRG is subject to federal and state income taxes and files separate tax returns. Income tax expense is included in other expenses in the accompanying Consolidated Statements of Operations and consists of the following for the years ended December 31, 2011, 2010, and 2009 (in thousands):



		2011	2010		2009
Income tax expense (benefit):
Current	$	283	(639	)	4,692
Deferred		2,422	(860	)	(4,894	)
Total income tax expense (benefit)	$	2,705	(1,499	)	(202	)

Income tax expense (benefit) is included in either other expenses if the related income is from continuing operations or discontinued operations on the Consolidated Statements of Operations as follows for the years ended December 31, 2011, 2010, and 2009 (in thousands):



		2011		2010		2009
Income tax expense (benefit) from:
Continuing operations	$	2,994		(1,333	)	1,883
Discontinued operations		(289	)	(166	)	(2,085	)
Total income tax expense (benefit)	$	2,705		(1,499	)	(202	)

Income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate of 34% to pretax income of RRG for the years ended December 31, 2011, 2010, and 2009, respectively as follows (in thousands):



		2011	2010		2009
Computed expected tax expense (benefit)	$	1,089	(3,368	)	(4,791	)
Increase (decrease) in income tax resulting from state taxes		126	(392	)	(558	)
Valuation allowance		1,438	286		4,755
All other items		52	1,975		392
Total income tax expense (benefit)	$	2,705	(1,499	)	(202	)

For 2011, all other items principally represent permanent differences related to impairments and the effect of the change in state tax rate. For 2010, all other items principally represent straight line rents. For 2009, all other items principally represent the permanent differences related to prior year true-ups. Included in the income tax expense (benefit) disclosed above, the Company has approximately $600,000 of state income tax expense at the Operating Partnership for the Texas Gross Margin Tax recorded in other expenses in the accompanying Consolidated Statements of Operations for each of the years ended December 31, 2011, 2010, and 2009.

The following table represents the Company's net deferred tax assets as of December 31, 2011 and 2010 recorded in other assets in the accompanying Consolidated Balance Sheets (in thousands):



		2011		2010
Deferred tax assets	$	22,260		23,189
Deferred tax liabilities		(2,054	)	(1,999	)
Valuation allowance		(6,479	)	(5,041	)
Net deferred tax assets	$	13,727		16,149

During 2011, 2010, and 2009, a provision for valuation allowance of $1.4 million, approximately $286,000, and $4.8 million was recorded, respectfully. During 2011, the increase in valuation allowance is due primarily to an increase of $2.0 million for the valuation allowance established related to a property impairment which is not considered recoverable. The 2010 provision for valuation allowance of approximately $286,000 was recorded for 100% of the charitable contribution carryforward. The 2009 provision for valuation allowance of $4.8 million was recorded for 100% of the disallowed interest, under Section 163(j) of the Code.

In all cases, it was determined to be more likely than not that the asset would not be realized. Other deferred tax assets and deferred tax liabilities relate primarily to differences in the timing of the recognition of income or loss between U.S. GAAP and tax basis of accounting. As of December 31, 2011, excluding the provision for valuation allowance, significant portions of the deferred tax assets and deferred tax liabilities include a $4.0 million deferred tax asset for capitalized costs under Section 263A of the Code, a $9.7 million deferred tax asset related to the provision for impairment, an approximately $300,000 deferred tax asset related to a net operating loss (“NOL”) carryforward, and a $2.0 million deferred tax liability related to straight line rents.

As of December 31, 2010, excluding the provision for valuation allowance, significant portions of the deferred tax assets and deferred tax liabilities include a $5.1 million deferred tax asset for capitalized costs under Section 263A of the Code, a $9.0 million deferred tax asset related to the provision for impairment, a $2.7 million deferred tax asset related to a NOL carryforward, and a $1.7 million deferred tax liability related to straight line rents. The Company assessed the components of the net deferred tax asset balance at December 31, 2011 and 2010, excluding the items for which a valuation allowance was provided, and determined that it is more likely than not that the assets will be utilized.

The Company accounts for uncertainties in income tax law in accordance with FASB ASC Topic 740. Under FASB ASC Topic 740, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. 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 tax years based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter. Federal and state tax returns are open from 2008 and forward for the Company.