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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company elected to be taxed as a REIT under sections 856-860 of the Code, commencing with the filing of its 2015 tax return for its tax year ended December 31, 2015. So long as the Company qualifies as a REIT under the Code, the Company will not be subject to U.S. federal income tax on net taxable income that it distributes annually to its shareholders. If we fail to qualify as a REIT for any taxable year, we will be subject to federal income taxes at regular corporate rates and may not be able to qualify as a REIT for the four subsequent taxable years. The Company is subject to certain foreign and state and local income taxes, in particular income taxes arising from its operating activities in Puerto Rico, which are included in income tax expense in the consolidated statements of income and comprehensive income. In addition, the Company’s taxable REIT subsidiary (“TRS”) is subject to income tax at regular corporate rates.
The Company satisfied its REIT distribution requirement by distributing $0.64, $0.60 and $0.68 per common share in 2022, 2021 and 2020, respectively. The distributions comprised a regular quarterly cash dividend of $0.16 and $0.15 per common share declared for each quarter of 2022 and 2021, respectively. During the year ended December 31, 2020, the Company declared a regular cash dividend of $0.22 per common share for the first quarter of 2020 and a special cash dividend of $0.46 per common share in December 2020. The taxability of such dividends for the years ended December 31, 2022, 2021 and 2020 are as follows:
Year Ended December 31,
202220212020
Dividend paid per share(1)
$0.64 $0.60 $0.68 
Ordinary income100 %100 %100 %
Return of capital— %— %— %
Capital gains— %— %— %
(1) The special cash dividend of $0.46 per common share declared in December 2020, and paid in January 2021, was fully allocable to the 2020 tax year.

For U.S. federal income tax purposes, the REIT and other minority members are partners in the Operating Partnership. As such, the partners are required to report their share of taxable income on their respective tax returns. However, the Company maintains certain non-real estate operating activities that could not be performed by the REIT, and occur through the Company’s TRS, which is subject to federal, state and local income taxes. These income taxes are included in income tax expense in the consolidated statements of income and comprehensive income.
During the year ended December 31, 2022, the REIT was subject to Puerto Rico corporate income taxes on its allocable share of the Company’s Puerto Rico operating activities. The Puerto Rico corporate income tax consists of a flat 18.5% tax rate plus a graduated income surcharge tax for a maximum corporate income tax rate of 37.5%. In addition, the REIT is subject to a 10% branch profits tax on the earnings and profits generated from its allocable share of the Company’s Puerto Rico operating activities and such tax is included in income tax expense in the consolidated statements of income and comprehensive income.
As a result of The Outlets at Montehiedra mortgage refinancing and the Las Catalinas Mall troubled debt restructuring that occurred during the year ended December 31, 2020, the Company recognized a gain on extinguishment of debt for U.S. federal income tax purposes and implemented various tax planning strategies to limit its impact on the Company’s overall U.S. federal taxable income. The strategies implemented resulted in the recognition of a state and local income tax liability and corresponding deferred tax asset for the REIT of $4.5 million during the year ended December 31, 2020. During the year ended December 31, 2021, based on the filing of the 2020 state and local income tax returns, this amount was reduced by $1.2 million due to the final taxable amount being lower than what was originally estimated. During the year ended December 31, 2022, no state and local income tax was recognized as a result of the transactions.
A reduction of the carrying amounts of deferred tax assets by a valuation allowance is required if, based on the evidence available, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. Management’s determination of the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the underlying temporary differences become deductible. As of December 31, 2022, with the exception of certain state and local deferred tax assets, management determined that it is more likely than not that all deferred tax assets will be realized. The Company recorded a valuation allowance against certain state and local deferred tax assets because management determined it is not more likely than not that these state and local deferred tax assets will be realized. There has been no change to the valuation allowance recorded against these state and local deferred tax assets during 2022.
We account for uncertain tax positions in accordance with ASC 740 Income Taxes on the basis of a two-step process whereby (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
During the years ended December 31, 2022 and 2021, income before income taxes from the Company’s operating activities in the United States was $41.2 million and $100.4 million, respectively, and in Puerto Rico was $9.1 million and $8.5 million, respectively. For the year ended December 31, 2022, the Puerto Rico income tax expense was $2.9 million, as compared to a Puerto Rico income tax expense of $2.4 million and a REIT state and local income tax benefit of $1.2 million for the year ended December 31, 2021. Income taxes are accounted for under the asset and liability method. Deferred income taxes are recognized for the tax effect of temporary differences between the financial reporting basis and the tax basis of taxable assets and liabilities and for the tax effect of carried forward tax attributes such as net operating losses and tax credits.

Income tax expense (benefit) for the years ended December 31, 2022, 2021 and 2020 consists of the following:
Year Ended December 31,
(Amounts in thousands)202220212020
Income tax expense (benefit):
Current:
U.S. federal income tax$11 $— $— 
U.S. state and local income tax10 (1,228)4,525 
Puerto Rico income tax78 110 1,293 
Total current99 (1,118)5,818 
Deferred:
U.S. federal income tax1 5 (6)
Puerto Rico income tax2,803 2,252 (44,808)
Total deferred2,804 2,257 (44,814)
Total income tax expense (benefit)$2,903 $1,139 $(38,996)
Provision for income taxes differs from the amounts computed by applying the statutory federal income tax rate to consolidated net income before income taxes as follows:
Year Ended December 31,
(Amounts in thousands)202220212020
Federal provision at statutory tax rate(1)
$10,551 $22,880 $12,338 
REIT income before income taxes not subject to federal tax provision(10,539)(22,875)(12,339)
State and local income tax provision, net of federal benefit10 225 11 
Puerto Rico income tax provision 2,881 2,362 (43,515)
Change in valuation allowance— (1,453)4,509 
Total income tax expense (benefit)$2,903 $1,139 $(38,996)
(1) Federal statutory tax rate of 21% for the years ended December 31, 2022, 2021 and 2020.

Below is a table summarizing the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021:
Balance at
(Amounts in thousands)December 31, 2022December 31, 2021
Deferred tax assets:
Depreciation$37,404 $40,793 
Amortization of deferred financing costs650 860 
Rental revenue deemed uncollectible525 735 
Charitable contribution7 7 
Net operating loss1,451 1,425 
Valuation allowance— (3,061)
Total deferred tax assets40,037 40,759 
Deferred tax liabilities:
Mortgage liability(3,021)(1,394)
Straight line rent(1,009)(961)
Amortization of acquired leases(178)(205)
Accrued interest expense(1,213)(779)
Total deferred tax liabilities(5,421)(3,339)
Net deferred tax assets$34,616 $37,420