FEDERAL INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

FEDERAL INCOME TAXES

NOTE 12 – FEDERAL INCOME TAXES

The Company elected to be taxed as a real estate investment trust (REIT) in accordance with the Internal Revenue Code, commencing with its taxable year ended December 31, 1992. In order to qualify as a REIT, the Company must meet a number of organizational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state, and local income taxes.

The Company follows the provisions of ASC Topic 740, Income Taxes, that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.   Based on its evaluation, the Company determined that it has no uncertain tax positions and no unrecognized tax benefits as of December 31, 2011.  The Company records interest and penalties relating to unrecognized tax benefits, if any, as interest expense.  As of December 31, 2011, the tax years 2008 through and including 2011 remain open to examination by the Internal Revenue Service.  There are currently no federal tax examinations in progress.

Federal Excise Tax

The Company does not have a Federal excise tax liability for the 2011, 2010 and 2009, since it intends to or has distributed all of its annual income.

Reconciliation Between U.S. GAAP Net Income and Taxable Income

The following table reconciles U.S. GAAP net income to taxable income for the years ended December 31, 2011, 2010, and 2009:

		2011 Estimate (unaudited)		2010 Actual		2009 Actual
U.S. GAAP net income	$	3,696,263	$	6,668,915	$	3,689,388
Add:  U.S. GAAP net loss of taxable REIT subsidiary included above		3,135,742		2,957,735		2,391,603
U.S. GAAP net income from REIT operations		6,832,005		9,626,650		6,080,991
Stock option expense		295,042		101,004		36,283
Impairment loss and other book / tax differences, net		(264,175)		(1,994,956)		1,331,046
Taxable income before adjustments		6,862,872		7,732,698		7,448,320
Less:  Capital gains		(1,509,827)		(2,307,537)		-0-
Adjusted taxable income subject to 90% dividend requirement	$	5,353,045	$	5,425,161	$	7,448,320

Reconciliation Between Cash Dividends Paid and Dividends Paid Deduction

The following table reconciles cash dividends paid with the dividends paid deduction for the years ended December 31, 2011, 2010, and 2009:

		2011 Estimate (unaudited)		2010 Actual		2009 Actual
Cash dividends paid	$	10,495,037	$	9,216,462	$	8,220,262
Less:  Portion designated as capital gains distributions		(1,509,827)		(2,307,537)		-0-
Less: Return of capital		(3,632,165)		(1,483,764)		(771,942)
Dividends paid deduction	$	5,353,045	$	5,425,161	$	7,448,320

Characterization of Distributions

The following table characterizes the distributions paid per common share for the years ended December 31, 2011, 2010, and 2009:

			2011				2010				2009
		Amount		Percent		Amount		Percent		Amount		Percent
Ordinary income	$	.29090		40.40%	$	.45866		63.70%	$	.58516		81.27%
Capital gains		.08205		11.40%		.16367		22.73%		-0-		-0-%
Return of capital		.34705		48.20%		.09767		13.57%		.13484		18.73%
	$	.72		100%	$	.72		100%	$	.72		100%

For the years ended December 31, 2011, total distributions paid by the Company for preferred stock amounted to $1,426,659 or $1.065625 per share ($.831188 taxed as ordinary income and $.234437 taxed as capital gains).

In addition to the above, taxable income from non-REIT activities conducted by S&F, a taxable REIT subsidiary, is subject to federal, state and local income taxes. Deferred income taxes pertaining to S&F are accounted for using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of available evidence, including tax planning strategies and other factors. For the years ended December 31, 2011, 2010 and 2009, S&F had operating losses for financial reporting purposes of $3,135,742, $2,957,735 and $2,391,603, respectively. Therefore, a valuation allowance has been established against any deferred tax assets relating to S&F. For the years ended December 31, 2011, 2010 and 2009, S&F recorded $5,000, $-0- and ($87,000), respectively, in federal, state and franchise taxes (credits) which have been included in general and administrative expenses.