Income Taxes

The Company is subject to income tax laws of the various jurisdictions in which it operates, including U.S. federal, state and local and non-U.S. jurisdictions, primarily in Europe. The Company's current primary sources of income subject to tax are income from its investment management business, operations of its hotel and healthcare portfolios as well as real estate and loan investments in Europe.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which provides for a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. At December 31, 2017, the Company recognized a provisional amount of $24.9 million relating to the effects of the tax rate change on our existing deferred tax balances, which is included as a component of income tax benefit. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for U.S. federal corporate income tax purposes. During the fourth quarter of 2018, the Company completed its analysis of the Tax Cuts and Jobs Act, which resulted in the recognition of an additional $2.2 million of income tax benefit relating to the effects of the tax rate change on the Company's existing deferred tax balances.

Income Tax Benefit (Expense)



	Year ended December 31,
(In thousands)	2018			2017			2016
Current
Federal	$	2,881		$	(20,316	)	$	(2,720	)
State and local	1,168			(3,606		)	(1,436		)
Foreign	(13,698		)	(16,138		)	(8,244		)
Total current tax benefit (expense)	(9,649		)	(40,060		)	(12,400		)
Deferred
Federal	64,962			110,711			6,214
State and local	1,320			18,235			(713		)
Foreign	3,148			9,513			2,117
Total deferred tax benefit	69,430			138,459			7,618
Total income tax benefit (expense)	$	59,781		$	98,399		$	(4,782	)

Deferred Income Tax Assets and Liabilities

Deferred tax asset is included in other assets while deferred tax liability is included in accrued and other liabilities.

Through the Merger, the Company assumed approximately $218.2 million of deferred tax liabilities as well as deferred tax assets which were fully reserved with a valuation allowance of $31.9 million.

Valuation allowances are established against net operating losses and capital losses when it is more likely than not that these carry forward losses will not be utilized. As of December 31, 2018, the Company believes that it is more likely than not that the carry forward net operating losses on certain hotel portfolios will be utilized prior to their expiration based on the Company’s reassessment of expected future profitability on these portfolios, therefore the related valuation allowance that was previously established of $10.7 million was released in 2018.

The components of deferred tax assets and deferred tax liabilities arising from temporary differences were as follows.



(In thousands)	December 31, 2018			December 31, 2017
Deferred tax assets
Net operating and capital loss carry forwards ⁽¹⁾	$	56,609		$	30,019
Equity-based compensation	17,162			28,071
Basis difference—investment in partnerships	7,745			—
Foreign tax credits ⁽²⁾	892			1,682
Straight-line and prepaid rent expense	7,850			3,601
Deferred income	—			1,932
Deferred interest expense	472			1,924
Other	2,904			7,947
Gross deferred tax assets	93,634			75,176
Valuation allowance ⁽³⁾	(22,062		)	(23,852		)
Deferred tax assets, net of valuation allowance	71,572			51,324
Deferred tax liabilities
Management contract intangibles	33,693			90,605
Basis difference—investment in partnerships	—			5,822
Basis difference—real estate	63,901			68,687
Deferred income	1,263			—
Other	108			1,643
Gross deferred tax liabilities	98,965			166,757
Net deferred tax liability	$	(27,393	)	$	(115,433	)

__________


⁽¹⁾	At December 31, 2018 and 2017, deferred tax asset was recognized on net operating losses of $251.2 million and $121.3 million, respectively. Net operating losses attributable to U.S. federal and state, where applicable, generally begin to expire in 2030, or can be carried forward indefinitely. Net operating losses attributable to foreign operations can generally be carried forward indefinitely.


⁽²⁾	Foreign tax credits expire beginning 2026.


⁽³⁾	The ending balance of the valuation allowance at December 31, 2017 reflects a $12.3 million reduction resulting from the impact of the Tax Cuts and Jobs Act.

Effective Income Tax

The Company's income tax benefit varied from the amount computed by applying the statutory income tax rate to income from continuing operations before income taxes. Income tax expense associated with income from discontinued operations was immaterial. A reconciliation of the statutory U.S. income tax to the Company's effective income tax is presented as follows:



	Year Ended December 31,
(Amounts in thousands)	2018			2017			2016
Income (loss) from continuing and discontinued operations before income taxes	$	(554,956	)	$	(163,012	)	$	295,508
Pre-tax income attributable to pass-through subsidiaries	312,939			(89,104		)	(306,644		)
Pre-tax loss attributable to taxable subsidiaries	(242,017		)	(252,116		)	(11,136		)
Federal tax benefit at statutory tax rate (21%, 35% and 35%, respectively)	50,824			88,241			3,365
State and local income taxes, net of federal income tax benefit	10,983			9,380			88
Foreign income tax differential	(3,533		)	6			(5,441		)
Nondeductible expenses	(4,648		)	(20,372		)	(1,128		)
Excess inclusion income tax expense	—			—			(1,311		)
Valuation allowance, net	2,874			(3,555		)	(692		)
Impact of Tax Cuts and Jobs Act	2,190			24,908			—
Other	1,091			(209		)	337
Income tax benefit (expense)	$	59,781		$	98,399		$	(4,782	)

Tax Examinations

The Company is no longer subject to U.S. federal, state and local or foreign income tax examinations by tax authorities for years prior to 2015.