INCOME TAXES

Income tax expense (benefit) consists of the following:



	Year Ended December 31,
	2015			2014		2013
Current:
Federal	$	(2,737	)	$	3,737	$	—
State and Local	(1,631		)	2,799		—
Total Current Income Tax Expense (Benefit)	(4,368		)	6,536		—
Deferred:
Federal	(2,778		)	12,853		—
State and Local	(3,855		)	3,568		—
Total Deferred Income Tax Expense (Benefit)	(6,633		)	16,421		—
Total Income Tax Expense (Benefit)	$	(11,001	)	$	22,957	$	—

New Residential intends to qualify as a REIT for each of its tax years through December 31, 2015. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. New Residential was a wholly owned subsidiary of Newcastle until May 15, 2013 and, as a qualified REIT subsidiary, was a disregarded entity until such date. As a result, no provision or liability for U.S. federal or state income taxes has been included in the accompanying consolidated financial statements for the period from January 1, 2013 through May 15, 2013. New Residential distributed 100% of its 2013 and 2014 REIT taxable income by the prescribed dates.

New Residential operates various securitization vehicles and has made certain investments, particularly its investments in Servicer Advances (Note 6) and REO (Note 8), through TRSs that are subject to regular corporate income taxes which have been provided for in the provision for income taxes, as applicable. New Residential and its subsidiaries file income tax returns with the U.S. federal government and various state and local jurisdictions beginning with the tax year ending December 31, 2013. Generally, these income tax returns will be subject to tax examinations by tax authorities for a period of three years after the date of filing.

As of December 31, 2014, New Residential recorded an increase to the income tax provision of $2.3 million for unrecognized tax benefits. The reserve for unrecognized tax benefits related to state and local tax positions expected to be taken on the income tax returns. As a result of information received from local tax authorities, New Residential has determined that the reserve for unrecognized tax benefits is no longer needed and has reduced the reserve for unrecognized tax benefits to zero as of March 31, 2015. As a result, New Residential recorded a benefit of $2.3 million to the income tax provision as of March 31, 2015.

The decrease in the provision for income taxes for the year ended December 31, 2015 is primarily due to the benefit of $2.3 million from reducing the reserve for unrecognized benefits to zero and a decrease in taxable profits in entities subject to corporate income tax rates.

The difference between New Residential’s reported provision for income taxes and the U.S. federal statutory rate of 35% is as follows:



	December 31,
	2015		2014		2013
Provision at the statutory rate	35.00	%	35.00	%	35.00	%
Non-taxable REIT income	(36.51	)%	(31.12	)%	(35.00	)%
State and local taxes	(1.16	)%	0.69	%	—	%
Other	(1.58	)%	0.37	%	—	%
Total provision	(4.25	)%	4.94	%	—	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are presented below:



	December 31,
	2015			2014
Deferred tax assets:
Servicer Advances	$	144,842		$	—
Allowance for loan losses	136			962
Unrealized mark to market	468			—
Net operating losses	42,944			2,657
Other	6,330			134
Total deferred tax assets	194,720			3,753
Less valuation allowance	(9,409		)	(3,619		)
Net deferred tax assets	$	185,311		$	134

Deferred tax liabilities:
Unrealized	—			(15,248		)
Total deferred tax (liability)	$	—		$	(15,248	)

Net deferred tax assets (liability)	$	185,311		$	(15,114	)

As of December 31, 2015, New Residential’s TRSs had approximately $110.2 million of net operating loss carryforwards for federal and state income tax purposes which may be available to offset future taxable income, if and when it arises. These federal and state net operating loss carryforwards will begin to expire in 2034. The utilization of the net operating loss carryforwards to reduce future income taxes will depend on the TRSs ability to generate sufficient taxable income prior to the expiration of the carryforward period.

On April 6, 2015, as a part of the purchase price allocation related to the HLSS Acquisition (Note 1), New Residential recorded an increase to its deferred tax asset of $195.1 million. The deferred tax asset primarily relates to the difference in the book basis and tax basis of New Residential’s investment in Servicer Advances. New Residential believes that such deferred tax asset is more likely than not to be realized and, therefore, no valuation allowance has been recorded against such deferred tax asset as of December 31, 2015.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 31, 2015, New Residential recorded a valuation allowance related to certain net operating losses and loan loss reserves as management does not believe that it is more likely than not that the deferred tax assets will be realized.

The following table summarizes the change in the deferred tax asset valuation allowance:



Valuation allowance at December 31, 2013	$	493
Increase related to net operating losses and loan loss reserves	3,126
Valuation allowance at December 31, 2014	$	3,619
Increase related to net operating losses and loan loss reserves	6,680
Other increase (decrease)	(890		)
Valuation allowance at December 31, 2015	$	9,409

New Residential records penalties and interest related to uncertain tax positions as a component of income tax expense, where applicable. As of December 31, 2015, New Residential did not accrue interest or penalties related to uncertain tax positions. New Residential does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date. A reconciliation of the unrecognized tax benefits is as follows:



Balance at December 31, 2013	$	—
Additions for tax positions of the 2013 tax year	2,258
Balance at December 31, 2014	2,258
Additions for tax positions of current year	—
Other additions (reductions)	(2,258		)
Balance at December 31, 2015	$	—

Common stock distributions were taxable as follows:



Year	Dividends per Share		Ordinary Income		Long-term Capital Gain		Return of Capital
2015	$	1.75	92.92	%	7.08	%	—
2014	$	1.58	84.78	%	15.22	%	—
2013	$	0.99	90.01	%	9.99	%	—