NOTE 14 – INCOME TAXES

The provision for the Company’s income tax expense is comprised of the following:


For the years ended June 30,	2019		2018

Federal
Current tax (expense) benefit	$	(1,387,000)	$	1,455,000
Deferred tax benefit (expense)		2,563,000		(3,567,000)
		1,176,000		(2,112,000)

State
Current tax expense		(25,000)		(227,000)
Deferred tax expense		(850,000)		(717,000)
		(875,000)		(944,000)

Income Tax Benefit (expense)	$	301,000	$	(3,056,000)

The provision for income taxes differs from the amount of income tax computed by applying the federal statutory income tax rate to income before taxes as a result of the following differences:


For the years ended June 30,	2019		2018

Statutory federal tax rate	$	(457,000)	$	(2,218,000)
State income taxes, net of federal tax benefit		(972,000)		(623,000)
Dividend received deduction		16,000		24,000
Valuation allowance		2,158,000		(330,000)
Basis difference in investments		815,000		—
Carryback tax payable		(1,140,000)		—
Other		(119,000)		91,000
	$	301,000	$	(3,056,000)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the future ongoing corporate income tax by, among other things, lowering corporate income tax rates. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. The decrease in corporate tax rate reduced the Company’s deferred tax assets and liabilities to the lower federal base rate of 21%. As a result, a provisional net credit of $404,000 was included in the income tax expense for the year ended June 30, 2018.

The components of the deferred tax asset and liabilities are as follows:


	June 30, 2019		June 30, 2018
Deferred tax assets:
Net operating loss carryforwards	$	6,810,000	$	7,413,000
Capital loss carryforwards		1,283,000		1,132,000
Investment impairment reserve		1,295,000		1,276,000
Accruals and reserves		1,095,000		766,000
Interest expense		162,000		—
Tax credits		619,000		733,000
Unrealized loss on marketable securities		547,000		—
Other		231,000		190,000
Valuation allowance		(524,000)		(2,610,000)
		11,518,000		8,900,000
Deferred tax liabilities:
Equity earnings		(3,188,000)		(2,564,000)
Deferred gains on real estate sale and depreciation		(6,844,000)		(5,638,000)
Unrealized gains on marketable securities		—		(765,000)
State taxes		(18,000)		(178,000)
		(10,050,000)		(9,145,000)
Net deferred tax asset (liability)	$	1,468,000	$	(245,000)

Management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of June 30, 2019, because of tax planning to generate taxable income in the future, management has determined that there is sufficient positive evidence to conclude that a significant portion of its deferred tax assets are realizable. As a result, the valuation allowance decreased by $2,086,000 and $778,000, respectively, during the fiscal years ended June 30, 2019 and 2018.

As of June 30, 2019, the Company had estimated net operating losses (NOLs) of $25,447,000 and $16,583,000 for federal and state purposes, respectively. Below is the break-down of the NOLs for Intergroup, Santa Fe and Portsmouth. The carryforward expires in varying amounts through the year 2037.


	Federal		State
InterGroup	$	—	$	—
Santa Fe		9,735,000		3,913,000
Portsmouth		15,712,000		12,670,000
	$	25,447,000	$	16,583,000

Utilization of the net operating loss carryover may be subject a substantial annual limitation if it should be determined that there has been a change in the ownership of more than 50 percent of the value of the Company’s stock, pursuant to Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating loss carryovers before utilization.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. As of June 30, 2019, it has been determined there are no uncertain tax positions likely to impact the Company.

The Partnership files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to examination by federal, state and local jurisdictions, were applicable.

As of June 30, 2019, tax years beginning in fiscal 2013 remain open to examination by the major tax jurisdictions and are subject to the statute of limitations.