INCOME TAXES

The total income tax provision (benefit) consists of the following:



	Year Ended December 31,					Period from May 26, 2016 (Inception) through December 31,
	2018			2017		2016
	(In thousands)
Current income taxes:
Federal	$	(1,041	)	$	—	$	—
State	—			—		—
	(1,041		)	—		—
Deferred income taxes:
Federal	(10,464		)	5,413		—
State	1,004			1,628		—
	(9,460		)	7,041		—
Total	$	(10,501	)	$	7,041	$	—

The total income tax provision (benefit) differs from the amounts computed by applying the U.S. statutory income tax rate to income (loss) before income taxes. A reconciliation of the tax on the Company’s income (loss) from continuing operations before income taxes and total tax expense is shown below:



	Year Ended December 31,						Period from May 26, 2016 (Inception) through December 31,
	2018			2017			2016
	(In thousands)
Income tax expense (benefit) at U.S. statutory rate	$	(2,255	)	$	(4,037	)	$	—
Partnership income not subject to tax	(891		)	—			—
State tax expense	818			1,058			—
Change in U.S. tax rate	—			1,843			—
Valuation allowance	(8,177		)	8,177			—
All other, net	4			—			—
Income tax expense (benefit)	$	(10,501	)	$	7,041		$	—

The net deferred income tax liability reflects the net tax impact of temporary differences between the asset and liability amounts carried on the balance sheet under GAAP and amounts utilized for income tax purposes. The net deferred income tax liability consists of the following:



	December 31,
	2018		2017
	(In thousands)
Deferred tax assets:
Investment in partnership	$	65,851	$	—
Asset retirement obligation	220		3,956
Net operating losses	495		48,024
Other	1,212		530
Total deferred tax assets	67,778		52,510
Valuation allowance	—		(8,177		)
Net deferred tax assets	67,778		44,333
Deferred tax liabilities:
Property, plant and equipment	2,863		51,374
Net deferred tax assets / (liabilities)	$	64,915	$	(7,041	)

Net deferred tax assets and liabilities are included in the balance sheet as follows:



	December 31,
	2018		2017
	(In thousands)
Assets:
Deferred tax asset	$	67,558	$	—
Liabilities:
Deferred tax liability	2,643		7,041
Net deferred tax assets (liabilities)	$	64,915	$	(7,041	)

Prior to the Business Combination, the Alpine High Entities were treated as disregarded subsidiaries of Apache Corporation, a C-corporation, for federal income tax purposes. As a result, federal taxable income associated with Alpine High Midstream has historically been included in Apache’s consolidated federal income tax return. Prior to the Business Combination, Alpine High Midstream calculated its income tax provision as if it were a taxable C-corporation.

Pursuant to the Contribution Agreement, Apache contributed the Alpine High Entities and the Pipeline Options to Altus Midstream LP. Net operating losses associated with Alpine High Midstream's operations prior to November 9, 2018 remained with Apache. After the Business Combination, the Alpine High Entities continued to be treated as disregarded entities for federal income tax purposes. The entities' new regarded parent is Altus Midstream LP, a partnership for federal income tax purposes. As such, Altus Midstream LP will not be subject to U.S. federal income taxes and will instead pass through its taxable income or loss to its partners, Apache and Altus. As a result of the change in ownership structure, Altus is required to calculate a federal deferred tax asset based on its investment in Altus Midstream LP. A $62.5 million increase in the Company’s net deferred tax asset was a direct result of the reverse recapitalization and recorded as a component of equity.

From November 9, 2018 through December 31, 2018, the Company recorded a $0.9 million reduction in income tax provision associated with income not subject to tax by Altus Midstream LP.

Altus is also subject to the Texas margin tax. Unlike federal income taxes, the Texas margins regime assesses taxes on corporations, limited liability companies, limited partnerships, and disregarded entities. As such, the Company records deferred tax assets and liabilities for Texas margins tax based on the differences between the financial statement carrying value and tax basis of assets and liabilities on the balance sheet. The reverse recapitalization did not have a material impact on the Company’s state income tax provision. The Texas margins tax associated with Apache's share of the liability is recorded as a component of the noncontrolling interest.

The Company has a federal net operating loss carryforward of $2.3 million which has an indefinite carryforward period.

Management assesses the available positive and negative evidence to evaluate the future realization of the Company’s deferred tax assets. Since the formation of Alpine High Midstream, a significant element of objective negative evidence was historic losses associated with the formation of the business and commencement of operations. In 2018, Alpine High Midstream has continued to see growth in revenue associated with midstream assets placed in service during the year. In the third and fourth quarter of 2018, Alpine High Midstream recorded net income before income taxes. Management believes net income before income taxes will continue to grow as new construction is placed in service. Accordingly, management has determined that there was sufficient positive evidence to conclude that it is more likely than not that the deferred tax assets will be realized. As such, prior to the transaction the Company recorded a deferred tax benefit of $8.2 million associated with the release of the valuation allowance.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. Under the Act, the U.S. corporate income tax rate was reduced from 35 percent to 21 percent effective January 1, 2018. As a result of the decrease in the corporate income tax rate, the Company recorded a $1.8 million deferred tax expense in 2017 related to the remeasurement of the Company’s December 31, 2017 deferred tax asset.

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. Each quarter the Company assesses the amounts provided for and, as a result, may increase (expense) or reduce (benefit) the amount of interest and penalties. As of December 31, 2018, Altus did not have any uncertain tax positions that would require recognition. Uncertain tax positions may change in the next twelve months; however, we do not expect any possible change to have a significant impact on our results of operation or financial position. If incurred, we will record income tax interest and penalties as a component of income tax expense. The contributor of Altus Midstream LP’s operating assets, Apache Corporation, is currently under IRS audit for 2014, 2015, and 2016