Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

10. Income Taxes

The Company has elected to be taxed as a REIT effective January 1, 2013, pursuant to the U.S. Internal Revenue Code of 1986, as amended. As a REIT, generally the Company will not be subject to federal corporate income taxes on ordinary taxable income and capital gains income from real estate investments that it distributes to its stockholders. The Company pays federal and state corporate income taxes on earnings of its taxable REIT subsidiaries (“TRSs”).

The income tax provision for continuing operations consists of the following (amounts in thousands):

	2021		2020		2019
CURRENT:
Federal	$	126	$	(101)	$	(120)
State		(1,077)		(457)		(3,941)
Total current provision		(951)		(558)		(4,061)
DEFERRED:
Federal		(3,646)		(13,565)		(13,715)
State		(360)		(12,961)		(699)
Total deferred provision		(4,006)		(26,526)		(14,414)
Total provision for income taxes	$	(4,957)	$	(27,084)	$	(18,475)

Due to the financial statement impact of the COVID-19 pandemic, and in connection with the preparation of the consolidated financial statements included herein, the Company reassessed the realizability of net deferred tax assets during 2020. As a result, the Company’s tax provision for 2020 includes $26.7 million in expense related to the recording of a valuation allowance on the 2020 beginning net deferred tax assets of its TRSs.

The Company is required to distribute at least 90% of its annual taxable income, excluding net capital gains, to its stockholders in order to maintain its qualification as a REIT. The taxability of distributions to stockholders is determined by the Company’s earnings and profits, which differs from net income (loss) reported for financial reporting purposes.

The Company made no cash distributions in 2021. The estimated taxability of cash distributions to common shareholders is shown in the table below (per common share) (unaudited).

	2021		2020		2019
Ordinary income	$	—	$	—	$	2.55
Capital gains		—		0.05		0.05
Return of capital		—		1.80		0.88
	$	—	$	1.85	$	3.48

The differences between the income tax provision calculated at the statutory U.S. federal income tax rate of 21% and the actual income tax provision recorded for continuing operations are as follows (amounts in thousands):

	2021		2020		2019
Statutory federal income tax (provision) benefit	$	39,868	$	91,085	$	(30,822)
Adjustment for nontaxable income of the REIT		(16,379)		(33,116)		15,803
Adjustment for noncontrolling interest in consolidated joint venture		(1,834)		(5,010)		(662)
State tax (provision) benefit (net of federal taxes)		8,581		5,876		(4,596)
Permanent share-based compensation adjustment		329		(579)		1,257
Other permanent items		(281)		(200)		(377)
Change in federal valuation allowance		(25,698)		(65,368)		556
Change in state valuation allowance (net of federal taxes)		(9,264)		(19,293)		(44)
Other		(279)		(479)		410
	$	(4,957)	$	(27,084)	$	(18,475)

Significant components of the Company’s deferred tax assets and liabilities at December 31 are as follows (amounts in thousands):

	2021		2020
DEFERRED TAX ASSETS:
Accounting reserves and accruals	$	26,340	$	17,545
Defined benefit plan		1,074		3,924
Deferred management rights proceeds		43,009		42,424
Federal and State net operating loss carryforwards		105,484		110,869
Tax credits and other carryforwards		1,484		1,114
Other assets		4,477		5,022
Total deferred tax assets		181,868		180,898
Valuation allowance		(125,387)		(97,700)
Total deferred tax assets, net of valuation allowance		56,481		83,198
DEFERRED TAX LIABILITIES:
Property and equipment, net		57,035		71,940
Investment in joint ventures		101		11,048
Other liabilities		4,016		875
Total deferred tax liabilities		61,152		83,863
Net deferred tax liabilities	$	(4,671)	$	(665)

Federal net operating loss carryforwards at the TRS at December 31, 2021 totaled $367.2 million, resulting in a deferred tax asset of $77.1 million. Of the total TRS federal net operating loss carryforwards, $40.3 million were created prior to 2018 and can be used to offset 100% of taxable income in the future. These federal net operating loss carryforwards will expire between 2033 and 2037. The remaining $326.9 million of federal net operating loss carryforwards have no expiration date and can be used to offset 80% of taxable income in the future. Federal net operating loss carryforwards at the REIT at December 31, 2021 totaled $88.4 million, resulting in no deferred tax asset. These net operating losses have no expiration date and can be used to offset 80% of REIT taxable income in the future. The use of certain federal net operating losses, credits and other deferred tax assets are limited to the Company’s future taxable earnings. As a result, a

valuation allowance has been provided for certain federal deferred tax assets. The valuation allowance related to federal deferred tax assets increased (decreased) $23.0 million, $65.9 million and $(0.5) in 2021, 2020 and 2019, respectively.

State net operating loss carryforwards at December 31, 2021 totaled $597.4 million, resulting in a deferred tax benefit of $28.4 million, which will expire between 2024 and 2037. The use of certain state net operating losses, credits and other state deferred tax assets are limited to the future taxable earnings of separate legal entities. As a result, a valuation allowance has been provided for certain state deferred tax assets, including loss carryforwards. The valuation allowance related to state deferred tax assets increased (decreased) $4.7 million, $19.4 million and $(1.3) million in 2021, 2020 and 2019, respectively.

The Company has concluded IRS examinations of the TRS through the 2015 tax year. For federal income tax purposes and substantially all the states with which the Company has nexus, the statute of limitations has expired through 2017. However, the Company has state net operating loss carryforwards from closed years, which could be adjusted upon audit. The Company is routinely subject to other various jurisdictional income tax audits; however, there were no outstanding state or local audits at December 31, 2021.

At December 31, 2021 and 2020, the Company had no accruals for unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. At December 31, 2021 and 2020, the Company has accrued no interest or penalties related to uncertain tax positions.