INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company has elected to be treated as a REIT under federal income tax laws. As a REIT, the Company must generally distribute annually at least 90% of our taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less that a minimum amount specified under U.S. federal tax laws.

Certain activities of the Company that produce prohibited income are conducted through a TRS, FOAC, to protect REIT election and FOAC is therefore subject to tax as a U.S. C-Corporation. To maintain our REIT election, the Company must continue to meet certain ownership, asset and income requirements set forth in the Code. As further discussed below, the Company may be subject to non-income taxes on excess amounts of assets or income that cause a failure of any of the REIT testing requirements. As of December 31, 2021 and 2020, we were in compliance with all REIT requirements.

The following table presents our provision for income taxes: 

	Year Ended December 31,
	2021		2020
Deferred tax (benefit)	$	77,894	$	(476,248)
Provision for income tax (benefit)	$	77,894	$	(476,248)

The following is a reconciliation of our effective income tax rate as a percentage of pre-tax income to the U.S. federal statutory rate, for the years ended December 31, 2021 and 2020:

	Year Ended December 31,
	2021		2020
U.S. federal statutory income tax	21.0	%	21.0	%
REIT income not subject to federal income tax	(21.4)	%	(24.6)	%
State and local income taxes, net of federal tax benefit	(0.2)	%	(1.6)	%
Return to provision	(0.1)	%	(0.8)	%
Effective income tax rate	(0.7)	%	(6.0)	%

The differences between the Company's statutory rate and effective rate are largely determined by the amount of income subject to tax by the Company's TRS subsidiary. The Company expects that its future effective tax rate will be determined in a similar manner.

As of December 31, 2021 and 2020, the Company's net deferred tax assets were $1.3 million and $1.4 million, respectively, and are included in other assets in the Company's consolidated balance sheets. The Company believes it is more likely than not that the deferred tax assets will be realized in the future. Realization of the net deferred tax assets is dependent on our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary difference. The amount of deferred tax assets considered realizable is subject to adjustment in future periods of future taxable income change.

The TRS has a deferred tax asset , comprised of the following:

	As of December 31, 2021		As of December 31, 2020
Accumulated net operating losses of TRS	$	985,917	$	993,683
Mortgage servicing rights	$	261,440	$	319,048
Capitalized transaction costs	$	93,903	$	106,423
Net non-current deferred tax asset	$	1,341,260	$	1,419,154

At December 31, 2021, and 2020, the TRS had net operating loss carryforwards for federal income tax purposes of $3.2 million and $3.3 million, which are available to offset future taxable income and begin expiring in 2034.

As of December 31, 2021, the Company has concluded that there are no material uncertain tax positions requiring recognition in the Company's consolidated financial statements. As of December 31, 2021, tax years 2018 through 2021 remain subject to examination by taxing authorities.

REIT Qualification

During tax years 2020 and 2021 the Company passed all the requisite ownership, asset and income tests.