INCOME TAXES

12 Months Ended

Dec. 31, 2019

Deferred income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using enacted tax rates currently in effect. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards.

On December 22, 2017, President Trump signed into law the Tax Act that significantly changes the United States federal income tax system. The Tax Act includes a number of changes in existing law including a permanent reduction in the federal income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. As a result of the reduction in the federal income tax rate to 21% and other changes under the Tax Act that impact timing differences, the Company recorded a one-time transitional tax benefit of $101.7 million in its Consolidated Statements of Operations in 2017 related to the remeasurement of its net deferred tax liabilities. As of December 31, 2017, the Company had not fully completed its accounting for the tax effects of the Tax Act. Accordingly, the Company’s provision for income taxes for the year ended December 31, 2017 was based in part on a reasonable estimate of the effects on its transition tax and existing deferred tax balances. The Company completed its analysis of the effects of the Tax Act in 2018 based upon the guidance, interpretations and data available as of December 31, 2018, and there were no additional adjustments of significance.

The provision for (benefit from) income taxes for the years ended December 31, 2019, 2018 and 2017 were as follows:



(In thousands)	2019		2018			2017
Current	$	1,427	$	(703	)	$	(2,338	)
Deferred	27,818		16,195			(43,463		)
Total	$	29,245	$	15,492		$	(45,801	)

Income tax expense is computed by applying the Federal corporate tax rate for the years ended December 31, 2019, 2018 and 2017 and is reconciled to the provision for income taxes as follows:



(In thousands)	2019			2018			2017
Tax at statutory rate on earnings from continuing operations before income taxes	$	21,672		$	15,226		$	42,911
Increase (decrease) in valuation allowance, net	4,419			8,033			(175		)
State income taxes, net of Federal income tax benefit	417			(4,933		)	1,408
Tax benefit from Tax Act	—			—			(101,688		)
Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences	250			(1,292		)	2,941
Tax benefit on equity compensation	(317		)	(1,490		)	(6,403		)
Tax expense on compensation disallowance	2,804			1,168			—
Tax benefit on historic tax credit	—			(1,220		)	—
Non-deductible warrant liability loss	—			—			15,205
Income tax expense (benefit)	$	29,245		$	15,492		$	(45,801	)

Realization of a deferred tax benefit is dependent upon generating sufficient taxable income in future periods. The Company’s net operating loss carryforwards are currently scheduled to expire in subsequent years through 2039. Some of the net operating loss carryforward amounts are subject to the separate return limitation year rules. It is possible that in the future the Company could experience a change in control pursuant to Section 382 that could put limits on the benefit of deferred tax assets. On February 27, 2012, the Company entered into a Section 382 Rights Agreement, with a three-year term, to protect the Company from such an event and protect its deferred tax assets. On February 26, 2015, the Board of Directors extended the term of the Section 382 Rights Agreement to March 14, 2018, and the Company’s stockholders approved the terms on May 21, 2015. However, on January 2, 2018, the Board of Directors approved, and the Company entered into, an amendment to the Section 382 Rights Agreement to provide for an amended expiration date of January 2, 2018 and, as a result, the Section 382 Rights Agreement was no longer in effect as of such date. Currently, the Company’s deferred tax assets are not protected by a Section 382 Rights Plan.

As of December 31, 2019, the amounts and expiration dates of operating loss and tax credit carryforwards for tax purposes are as follows:



			Expiration
(In thousands)	Amount		Date
Net operating loss carryforwards - Federal	$	145,671	2024-2037
Net operating loss carryforwards - Federal	311,972		n/a
Net operating loss carryforwards - State	632,122		2020-2039
Tax credit carryforwards - Federal AMT	1,736		n/a
Tax credit carryforwards - Historic Tax Credit	1,574		2038

As of December 31, 2019 and 2018, the Company had gross deferred tax assets totaling $197.9 million and $182.9 million, and gross deferred tax liabilities of $348.9 million and $314.8 million, respectively. The Company has established a valuation allowance in the amount of $29.7 million and $25.3 million as of December 31, 2019 and 2018, respectively, against certain deferred tax assets for which it is more likely than not that such deferred tax assets will not be realized.

The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31, 2019 and 2018 are summarized as follows:



(In thousands)	2019			2018
Deferred tax assets:
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	$	65,590		$	83,263
Interest deduction carryforwards	—			34,611
Operating loss and tax credit carryforwards	132,277			65,071
Total deferred tax assets	197,867			182,945
Valuation allowance	(29,723		)	(25,304		)
Total net deferred tax assets	$	168,144		$	157,641
Deferred tax liabilities:
Property associated with MPCs, primarily differences in the tax basis of land assets and treatment of interest and other costs	$	(163,024	)	$	(146,124	)
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	(67,125		)	(59,517		)
Deferred income	(118,743		)	(109,188		)
Total deferred tax liabilities	(348,892		)	(314,829		)
Total net deferred tax liabilities	$	(180,748	)	$	(157,188	)

The deferred tax liability associated with the Company’s MPCs is largely attributable to the difference between the basis and value determined as of the date of the acquisition by its predecessors in 2004 adjusted for sales that have occurred since that time. The cash cost related to this deferred tax liability is dependent upon the sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income is the difference between the income tax method of accounting and the financial statement method of accounting for prior sales of land in the Company’s MPCs.

Although the Company believes its tax returns are correct, the final determination of tax examinations and any related litigation could be different from what was reported on the returns. In the Company’s opinion, it has made adequate tax provisions for years subject to examination. Generally, the Company is currently open to audit under the statute of limitations by the Internal Revenue Service as well as state taxing authorities for the years ended December 31, 2016 through 2018.

The Company applies the generally accepted accounting principle related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

The Company recognizes and reports interest and penalties, if applicable, within the provision for income tax expense. The Company did not recognize any interest expense related to the unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017.

The Company had no unrecognized tax benefits for the years ended December 31, 2019, 2018 or 2017.