INCOME TAXES

12 Months Ended

Dec. 31, 2012

INCOME TAXES

INCOME TAXES

NOTE 11.    INCOME TAXES

For 2012, 2011 and 2010, TCI had net losses for federal tax purposes.

For tax periods ending before August 31, 2012, TCI was part of the American Realty Investors, Inc. consolidated federal return.  After that date, TCI and the rest of the American Realty Investors, Inc. (ARL) group joined the Realty Advisors Management, Inc. (RAMI) consolidated group for tax purposes.  The income tax expense (benefit) for 2010 and 2011 tax periods in the accompanying financial statement was calculated under a tax sharing and compensating agreement between ARL, TCI and IOT.  That agreement continued until August 31, 2012 at which time a new tax sharing and compensating agreement was entered into by ARL, TCI, IOT and RAMI for the remainder of 2012.  For 2012, ARL, TCI and IOT had a combined net taxable loss and TCI recorded no current tax (benefit) or expense.  The expense (benefit) in each year was calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 35%.

Current income tax expense (benefit) is attributable to:

	2012			2011			2010
Income from continuing operations	$	(10,401	)	$	(14,460	)	$	(26,645	)
Income from discontinued operations		10,401			14,460			26,645
Total	$	-		$	-		$	-

There was no deferred tax expense (benefit) recorded for the period as a result of the uncertainty of the future use of the deferred tax asset.

The Federal income tax expense differs from the amount computed by the applying the corporate tax rate of 35% to the income before income taxes as follows:

	2012			2011			2010
Computed "expected" income tax (benefit) expense	$	(4,211	)	$	(16,008	)	$	(24,627	)
Book to tax differences for partnerships not consolidated for tax purposes		-3,831			-6,442			-3,636
Book to tax differences of depreciation and amortization		1,434			1,140			1,544
Book to tax differences in gains on sale of property		-4,835			-7,020			6,056
Book provision for loss		1,656			10,132			8,576
Partial valuation allowance against current net operating loss benefit		10,401			14,460			11,324
Other		-614			3,738			763
Total	$	-		$	-		$	-
Alternative Minimum Tax
	$	-		$	-		$	-

The tax effect of temporary differences that give rise to the deferred tax asset are as follows:

	2012			2011			2010
Net operating losses	$	53,857		$	42,337		$	55,746
ATM credits		1,374			1,374			1,374
Basis difference of
Real estate holdings		(15,159	)		(13,514	)		(38,495	)
Notes receivable		860			1,726			6,678
Investments		(4,757	)		(5,346	)		(5,495	)
Notes payable		16,598			22,966			41,565
Deferred gains		11,370			14,985			26,025
Total	$	64,143		$	64,528		$	87,398
Deferred tax valuation allowance		(64,143	)		(64,528	)		(87,398	)
Net deferred tax asset	$	-		$	-		$	-

TCI has tax net operating loss carryforwards of approximately $138.9 million expiring through the year 2031.

Federal and state tax authorities generally have the right to examine and audit the previous three years of tax returns filed which would mean that the Company’s Forms 1120, U.S, Corporation Income Tax Returns, for the years ending December 31, 2011, 2010 and 2009 are still subject to examination by the IRS.