Income Taxes

Income tax expense (benefit) consists of the following (in thousands):



	Years ended December 31,
	2016			2015			2014
Current:
Federal	$	—		$	(151	)	$	151
State	521			(9		)	842
Total	521			(160		)	993
Deferred:
Federal	(4,486		)	(127,482		)	(1,015		)
State	82			(3,688		)	543
Total	(4,404		)	(131,170		)	(472		)
Total income tax expense (benefit)	$	(3,883	)	$	(131,330	)	$	521

Basic paid no federal income taxes during 2016 and 2015. Basic paid federal income taxes of $601,000 during 2014.

Reconciliation between the amount determined by applying the federal statutory rate of 35% to loss before income taxes to income (benefit) expense is as follows (in thousands):



	Years ended December 31,
	2016			2015				2014
Statutory federal income tax	$	(44,540	)	$	(130,576	)		$	(2,737	)
Meals and entertainment	522			684				825
State taxes, net of federal benefit	(6,778		)	(3,698		)		1,093
Valuation allowance	188,970			—			—	—
Cancellation of debt income	(178,017		)	—			—	—
Bankruptcy transaction costs	9,783			—			—	—
Tax basis adjustments	17,981			—			—	—
Goodwill impairment	—			2,833				1,380
Changes in estimates and other	8,196			(573		)		(40		)
	$	(3,883	)	$	(131,330	)		$	521

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):



	Successor			Predecessor
	December 31, 2016			December 31, 2015
Deferred tax assets:
Operating loss carryforward	$	208,973		$	130,826
Goodwill and intangibles	49,380			32,992
Accrued liabilities	12,351			14,028
Deferred debt costs	5,158			130,827
Deferred compensation	79			12,988
Receivables allowance	680			976
Asset retirement obligation	859			672
Inventory	167			164
Valuation Allowances	(189,185		)	(878		)
Total deferred tax assets	$	88,462		$	322,595
Deferred tax liabilities:
Property and equipment	(88,450		)	(195,211		)
Prepaid expenses	(12		)	(1,623		)
Total deferred tax liabilities	$	(88,462	)	$	(196,834	)
Net deferred tax liability	$	—		$	125,761
Recognized as:
Deferred tax assets - current	—			13,484
Deferred tax liabilities - non-current	—			(18,550		)
Net deferred tax liabilities	$	—		$	(5,066	)

Under the Prepackaged Plan, a substantial portion of the Company’s pre-petition debt securities were extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of U.S. CODI is approximately $31.7 million, which will reduce the value of the Company’s U.S. net operating losses.

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes against future U.S. taxable income in the event of a change in ownership. We believe the Debtors’ emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is based on the value of the corporation as of the emergence date. The ownership changes, and resulting annual limitation, is not expected to result in the expiration of any net operating losses generated prior to the emergence date.

Basic provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2016, a valuation allowance of approximately $189.2 million has been recorded on the net deferred tax assets for all federal and state tax jurisdictions in order to measure only the portion of the deferred tax asset that more likely than not will be realized. As of December 31, 2015, a valuation allowance of $0.9 million was recorded against certain state net operating losses not expected to be realized.

Interest is recorded in interest expense and penalties are recorded in income tax expense. Basic had no interest or penalties related to an uncertain tax positions during 2016. Basic files federal income tax returns and state income tax returns in Texas and other state tax jurisdictions.

As of December 31, 2016, Basic had approximately $567.5 million of net operating loss carryforwards ("NOL"), for federal income tax purposes, which begin to expire in 2031 and $226.1 million of net operating loss carryforwards for state income tax purposes which begin to expire in 2017. Additionally, we have $1.9 million of alternative minimum tax credits.