Note 19 - Taxable REIT Subsidiaries ("TRS")

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Text Block]

19. Taxable REIT Subsidiaries (“TRS”)

The Company is subject to federal, state and local income taxes on the income from its TRS activities, which include Kimco Realty Services ("KRS"), a wholly owned subsidiary of the Company, the consolidated entities of FNC Realty Corporation (“FNC”) and Blue Ridge Real Estate Company/Big Boulder Corporation.  The Company is also subject to local non-U.S. taxes on certain investments located outside the U.S.

Income taxes have been provided for on the asset and liability method as required by the FASB’s Income Taxes guidance.  Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of the taxable assets and liabilities.

The Company’s deferred tax assets and liabilities, which are included in the caption Other assets and Other liabilities on the accompanying Condensed Consolidated Balance Sheets, at September 30, 2012 and December 31, 2011, were as follows (in thousands):

	September 30, 2012			December 31, 2011
Deferred tax assets:
Tax/GAAP basis differences	$	65,350		$	66,177
Net operating losses		43,628			47,719
Related party deferred loss		7,577			7,577
Tax credit carryforwards		3,815			3,537
Capital loss carryforwards		647			364
Charitable contribution carryforward		3			-
Non-U.S. tax/GAAP basis differences		68,782			63,610
Valuation allowance – U.S.		(33,783	)		(33,783	)
Valuation allowance – Non-U.S.		(35,906	)		(32,737	)
Total deferred tax assets		120,113			122,464
Deferred tax liabilities – U.S.		(11,463	)		(11,434	)
Deferred tax liabilities – Non-U.S.		(20,875	)		(16,085	)
Net deferred tax assets	$	87,775		$	94,945

As of September 30, 2012, the Company had net deferred tax assets of $87.8 million comprised of (i) $54.0 million relating to the difference between the basis of accounting for federal and state income tax reporting and GAAP reporting for U.S. real estate assets, joint ventures, and other investments, net of $11.5 million of deferred tax liabilities, (ii) $3.8 million and $6.0 million for the tax effect of net operating loss carryovers within KRS and FNC, respectively, net of a valuation allowance within FNC of $33.8 million, (iii) $7.6 million for losses deferred for federal and state income tax purposes for transactions with related parties, (iv) $3.8 million for tax credit carryovers, (v) $0.6 million for capital loss carryovers, and (vi) $12.0 million of net deferred tax assets related to its investments in Canada and Latin America, net of a valuation allowance of $35.9 million and deferred tax liabilities of $20.9 million.  General business tax credit carryovers of $2.2 million within KRS expire during taxable years from 2028 through 2031, and alternative minimum tax credit carryovers of $1.6 million that do not expire.

As of September 30, 2012, the Company determined that no valuation allowance was needed against a $67.7 million net deferred tax asset within KRS.  The Company based its determination on an analysis of both positive and negative evidence.  Positive evidence includes positive book income in the KRS’s most recent year and quarter to date as well as future projected income.  Although KRS has three-year cumulative book income through the quarter ended September 30, 2012, the Company considered as negative evidence the three-year cumulative book loss for KRS as of December 31, 2011.  The cumulative loss was primarily the result of impairment charges taken by KRS.  The analysis showed that KRS will more likely than not realize its net deferred tax asset of $67.7 million.  If future income projections do not occur as forecasted, and if KRS does not have sufficient future taxable earnings, the Company will reevaluate the need for a valuation allowance.

The Company’s investments in Latin America are made through individual entities which are subject to local, non-U.S. taxes. The Company assesses each entity to determine if deferred tax assets are more likely than not realizable. This assessment primarily includes an analysis of cumulative earnings and the determination of future earnings to the extent necessary to fully realize the individual deferred tax asset.  Based on this analysis the Company has determined that a full valuation allowance is required for entities that have a three-year cumulative book loss and for which future earnings are not readily determinable. In addition, the Company has determined that no valuation allowance is needed for entities that have three-years of cumulative book income and future earnings are anticipated to be sufficient to more likely than not realize their deferred tax assets. At September 30, 2012, the Company had total deferred tax assets of $45.2 million relating to its Latin American investments with an aggregate valuation allowance of $35.9 million.

The Company’s deferred tax assets in Canada result principally from depreciation deducted under generally accepted accounting principles that exceeds capital cost allowances claimed under Canadian tax rules.  The deferred tax asset will naturally reverse upon disposition as the tax basis will be greater than the basis of the assets under generally accepted accounting principles.

Uncertain Tax Positions:

The Company is subject to income tax in certain jurisdictions outside the U.S., principally Canada and Mexico.  The statute of limitations on assessment of tax varies from three to seven years depending on the jurisdiction and tax issue. Tax returns filed in each jurisdiction are subject to examination by local tax authorities.  The Company is currently under audit by the Canadian Revenue Agency, Mexican Tax Authority and the U.S. Internal Revenue Service (“IRS”).  On March 30, 2012, the IRS issued a notice of proposed assessment, which proposes pursuant to Section 482 of the Internal Revenue Code, as amended (the “Code”), to disallow a capital loss claimed by KRS on the disposition of common shares of Valad Property Ltd., an Australian publicly listed company.  Because the adjustment is being made pursuant to Section 482 of the Code, the IRS may assert a 100 percent “penalty” tax pursuant to Section 857(b)(7) of the Code in lieu of disallowing the capital loss deduction.  The notice of proposed assessment issued to the Company and KRS impose the 100 percent penalty tax in the amount of $40.9 million and disallows the capital loss, respectively.  The Company strongly disagrees with the IRS’ position on the application of Section 482 of the Code to the disposition of the shares, the imposition of the 100 percent penalty tax and the simultaneous assertion of the penalty tax and disallowance of the capital loss deduction.  The Company timely filed a written protest in response including a request for an IRS Appeals Office conference.   The Company intends to vigorously defend its position in this matter and believes it will prevail.

Resolutions of these audits are not expected to have a material effect on the Company’s financial statements.   The Company does not believe that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.