INCOME TAXES

9 Months Ended

Sep. 30, 2012

INCOME TAXES

INCOME TAXES

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as taxable REIT subsidiaries ("TRS" or "TRS entities"), which are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as "the REIT" within this Note 12.

        Although the TRS entities were not liable for any cash federal income taxes for the nine months ended September 30, 2012, their federal income tax liabilities may increase in future periods as we exhaust net operating loss carryforwards and as our senior living operations and MOB operations reportable business segments grow. Such increases could be significant.

        Our consolidated provision for income taxes for the three months ended September 30, 2012 and 2011 was a benefit of $8.9 million and $13.7 million, respectively. Our consolidated provision for income taxes for the nine months ended September 30, 2012 and 2011 was a benefit of $2.7 million and $23.0 million, respectively. The income tax benefit for the nine months ended September 30, 2012 is due primarily to the income tax benefit of ordinary losses related to our TRS entities, net of the current period valuation allowance. The income tax benefit for the nine months ended September 30, 2011 was due primarily to the income tax benefit of ordinary losses related to our TRS entities and the reversal of certain income tax contingency reserves, including interest.

        Realization of a deferred tax benefit related to net operating losses depends in part upon generating sufficient taxable income in future periods. Our net operating loss carryforwards begin to expire in 2024 with respect to our TRS entities and in 2016 for the REIT.

        Each TRS is a tax paying component for purposes of classifying deferred tax assets and liabilities. Net deferred tax liabilities with respect to our TRS entities totaled $262.5 million and $258.7 million as of September 30, 2012 and December 31, 2011, respectively, and related primarily to differences between the financial reporting and tax bases of fixed and intangible assets and to net operating losses. These amounts include the initial net deferred tax liability related to the ASLG acquisition of $43.5 million and adjustments for activity during the periods from May 12, 2011 (the acquisition date) through September 30, 2012 and from May 12, 2011 through December 31, 2011, respectively.

        Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service for the year ended December 31, 2009 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2008 and subsequent years. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to 2006 related to our Canadian entities.