INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax expense (benefit) consists of the following:

	Year Ended December 31,
	2017			2016		2015
Current:
Federal	$	(1,250	)	$	3,813	$	(2,737	)
State and Local	360			252		(1,631		)
Total Current Income Tax Expense (Benefit)	(890		)	4,065		(4,368		)
Deferred:
Federal	148,997			33,999		(2,778		)
State and Local	19,521			847		(3,855		)
Total Deferred Income Tax Expense (Benefit)	168,518			34,846		(6,633		)
Total Income Tax Expense (Benefit)	$	167,628		$	38,911	$	(11,001	)

New Residential intends to qualify as a REIT for each of its tax years through December 31, 2017. 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 distributed 100% of its 2013 through 2017 REIT taxable income by the prescribed dates.

New Residential operates various securitization vehicles and has made certain investments, particularly its investments in MSRs (Note 5), Servicer Advance Investments (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.

The increase in the provision for income taxes for the year ended December 31, 2017 is primarily due to the use of deferred tax assets and an increase in net income attributable to New Residential’s TRSs.

The increase in the provision for income taxes for the year ended December 31, 2016 is primarily due to an increase in net income attributable to New Residential’s TRSs.

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,
	2017		2016		2015
Provision at the statutory rate	35.00	%	35.00	%	35.00	%
Non-taxable REIT income	(21.72	)%	(28.22	)%	(36.51	)%
State and local taxes	1.76	%	0.18	%	(1.16	)%
Change in valuation allowance	0.85	%	0.67	%	0.01	%
Change in federal tax rate	(0.92	)%	—	%	—	%
Other	(0.17	)%	(0.48	)%	(1.59	)%
Total provision	14.80	%	7.15	%	(4.25	)%

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

	December 31,
	2017			2016
Deferred tax assets:
Servicer advances basis difference(A)	$	—		$	113,354
Net operating losses and tax credit carryforwards(B)	20,682			44,289
Interest accruals not currently deductible for tax purposes	2,628			16,543
Basis differences for REO and other assets	8,034			—
Other	2,279			5,684
Total deferred tax assets	33,623			179,870
Less valuation allowance	(12,404		)	(10,054		)
Net deferred tax assets	$	21,219		$	169,816
Deferred tax liabilities:
Basis difference for partnership investments	(3,873		)	—
Interest accruals not currently includible in income for tax purposes	(6,979		)	—
Unrealized mark to market	(29,585		)	(18,532		)
Total deferred tax (liability)	$	(40,437	)	$	(18,532	)
Net deferred tax assets (liability)	$	(19,218	)	$	151,284

(A) 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 related to the difference in the book basis and tax basis of New Residential’s Servicer Advance Investments and is included as part of the deferred tax asset as of December 31, 2016.

(B) As of December 31, 2017, New Residential’s TRSs had approximately $131.3 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 December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA includes a number of significant changes to existing U.S. corporate income tax laws, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. New Residential measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, New Residential’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate, resulting in a $10.1 million decrease in income tax expense for the year ended December 31, 2017 and a corresponding decrease of the same amount in our deferred tax liabilities as of December 31, 2017. New Residential is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts.

In assessing the realizability of deferred tax assets, New Residential 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. During the year ended December 31, 2017, New Residential recorded a partial valuation allowance related to certain net operating losses and loan loss reserves related to one of New Residential’s TRSs as New Residential does not believe that it is more likely than not that these deferred tax assets will be realized.

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

Valuation allowance at December 31, 2015	$	9,409
Increase related to net operating losses and loan loss reserves	1,303
Other increase (decrease)	(658		)
Valuation allowance at December 31, 2016	10,054
Increase related to net operating losses and loan loss reserves	4,720
Decrease related to changes in tax rates	(3,845		)
Other increase (decrease)	1,475
Valuation allowance at December 31, 2017	$	12,404

New Residential and its TRSs file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, New Residential is no longer subject to tax examinations by tax authorities for tax years ended prior to December 31, 2014. New Residential recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations. As of December 31, 2017, New Residential has no material uncertainties to be recognized. 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.

Common stock distributions were taxable as follows:

Year	Dividends per Share		Ordinary Income		Long-term Capital Gain		Return of Capital
2017(A)	$	1.94	66.64	%	7.83	%	25.53	%
2016(B)	1.38		96.13	%	3.87	%	—	%
2015	1.75		92.92	%	7.08	%	—	%

(A) The entire $0.50 per share dividend declared in December 2017 and paid in January 2018 is treated as received by stockholders in 2018.

(B) The entire $0.46 per share dividend declared in December 2016 and paid in January 2017 is treated as received by stockholders in 2017.