Income Taxes

12 Months Ended

Dec. 31, 2021

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	2021		2020		2019
Current	$	4,797	$	826	$	1,427
Deferred	10,356		10,827		27,818
Total	$	15,153	$	11,653	$	29,245

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	2021			2020			2019
Income (loss) before income taxes	$	64,077		$	8,480		$	103,540
U.S. federal statutory tax rate	21.0		%	21.0		%	21.0		%
Tax computed at the U.S. federal statutory rate	$	13,456		$	1,781		$	21,743
Increase (decrease) in valuation allowance, net	2,378			11,822			4,419
State income taxes, net of federal income tax expense (benefit)	(3,182)			(2,608)			417
Tax expense (benefit) from other change in rates, prior period adjustments and other permanent differences	(181)			2,271			(138)
Tax expense on compensation disallowance	1,570			1,553			2,804
Net (income) loss attributable to noncontrolling interests (a)	1,507			(4,826)			—
Tax expense (benefit) on tax credits	(395)			1,660			—
Income tax expense (benefit)	$	15,153		$	11,653		$	29,245
Effective tax rate	23.6		%	137.4		%	28.2		%

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

As of December 31, 2021, the amounts and expiration dates of operating loss, capital loss and charitable contribution carryforwards for tax purposes are as follows:

thousands	Amount		Expiration Date
Net operating loss carryforwards - Federal	$	384,813	n/a
Net operating loss carryforwards - State (a)	346,139		2022-2041
Net operating loss carryforwards - State (a)	252,222		n/a
Capital loss carryforwards - Federal	6,042		2025
Charitable contribution carryforwards - Federal	1,956		2025

(a)A valuation allowance has been recorded against the deferred tax benefit related to 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 as of December 31:

thousands	2021		2020
Deferred tax assets:
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	$	60,933	$	51,580
Operating loss and tax carryforwards	119,884		161,701
Total deferred tax assets	180,817		213,281
Valuation allowance	(40,477)		(38,065)
Total net deferred tax assets	$	140,340	$	175,216
Deferred tax liabilities:
Property associated with MPCs, primarily differences in the tax basis of land assets and treatment of interest and other costs	$	(176,904)	$	(163,836)
Operating and Strategic Developments properties, primarily differences in basis of assets and liabilities	(88,297)		(100,564)
Deferred income	(79,976)		(98,455)
Total deferred tax liabilities	(345,177)		(362,855)
Total net deferred tax liabilities	$	(204,837)	$	(187,639)

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, 2018 through 2021. 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, 2021, 2020 or 2019, and therefore did not recognize any interest expense or penalties on unrecognized tax benefits.