INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

12. Income Taxes

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.

The following summarizes income tax expense (benefit) for the years ended December 31:

thousands	2020		2019		2018
Current	$	826	$	1,427	$	(703)
Deferred	10,827		27,818		16,195
Total	$	11,653	$	29,245	$	15,492

Reconciliation of the Income tax expense (benefit) if computed at the U.S. federal statutory income tax rate to the Company’s reported Income tax expense (benefit) for the years ended December 31 is as follows:

thousands except percentages	2020			2019			2018
Income (loss) before income taxes	$	8,480		$	103,540		$	73,218
U.S. federal statutory tax rate	21.0		%	21.0		%	21.0		%
Tax computed at the U.S. federal statutory rate	$	1,781		$	21,743		$	15,376
Increase (decrease) in valuation allowance, net	11,822			4,419			8,033
State income taxes, net of federal income tax expense (benefit)	(2,608)			417			(3,713)
Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences	2,079			179			(1,442)
Tax expense (benefit) on equity compensation	192			(317)			(1,490)
Tax expense on compensation disallowance	1,553			2,804			1,168
Deconsolidation of 110 North Wacker (a)	(4,826)			—			—
Tax expense (benefit) on historic tax credit	1,660			—			(2,440)
Income tax expense (benefit)	$	11,653		$	29,245		$	15,492
Effective tax rate	137.4		%	28.2		%	21.2		%

(a)The Company deconsolidated 110 North Wacker in the third quarter of 2020. Refer to Note 2 - Real Estate and Other Affiliates for additional information.

As of December 31, 2020, the amounts and expiration dates of operating loss, charitable contribution and tax credit carryforwards for tax purposes are as follows:

thousands	Amount		Expiration Date
Net operating loss carryforwards - Federal	$	119,167	2033-2037
Net operating loss carryforwards - Federal	461,245		n/a
Net operating loss carryforwards - State (a)	348,027		2021-2040
Net operating loss carryforwards - State (a)	176,197		n/a
Capital loss carryforwards - Federal (a)	22,866		2025
Charitable contribution carryforwards - Federal	9,759		2022-2025
Tax credit carryforwards - Historic Tax Credit	630		2038

(a)A valuation allowance has been recorded against the deferred tax benefit related to the capital loss carryforwards and a majority of the state net operating loss carryforwards.

The following summarizes tax effects of temporary differences and carryforwards included in the net deferred tax liabilities at December 31:

thousands	2020		2019
Deferred tax assets:
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	$	51,580	$	65,590
Operating loss and tax carryforwards	161,701		132,277
Total deferred tax assets	213,281		197,867
Valuation allowance	(38,065)		(29,723)
Total net deferred tax assets	$	175,216	$	168,144
Deferred tax liabilities:
Property associated with MPCs, primarily differences in the tax basis of land assets and treatment of interest and other costs	$	(163,836)	$	(163,024)
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	(100,564)		(67,125)
Deferred income	(98,455)		(118,743)
Total deferred tax liabilities	(362,855)		(348,892)
Total net deferred tax liabilities	$	(187,639)	$	(180,748)

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 adjusted for sales that have occurred since that time. The recognition of these deferred tax liabilities is dependent upon the timing and sales price of future land sales and the method of accounting used for income tax purposes. The deferred tax liability related to deferred income represents 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.

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, 2017 through 2020. In the Company’s opinion, it has made adequate tax provisions for years subject to examination. However, the final determination of tax examinations and any related litigation could be different from what was reported on the returns.

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 related to unrecognized tax benefits, if applicable, within the provision for income tax expense. The Company had no unrecognized tax benefits for the years ended December 31, 2020, 2019 or 2018, and therefore did not recognize any interest expense or penalties.