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Income Taxes
3 Months Ended
Mar. 31, 2016
Income Taxes [Abstract]  
Income Taxes

NOTE 11 – INCOME TAXES

We recorded a tax provision of $26,000 on our $8.6 million loss before taxes and equity in net income of unconsolidated entities for the three months ended March 31, 2016.  For the first three months of 2015, we recorded an income tax provision of $39,000 on our $5.4 million loss before equity in net income of unconsolidated entities. These provision amounts represent our qualifying U.S. flag operations, which continue to be taxed under the “tonnage tax” provisions rather than the normal U.S. corporate income tax provisions, state income taxes paid, and foreign income tax withholdings or refunds.  In accordance with Internal Revenue Code (IRC) Section 1359 disposition of qualifying vessels, we have elected to defer taxable gains on the sale of qualifying tonnage tax vessels operating under the tonnage tax regime.  IRC Section 1359(b) defers the recognition of taxable gains for three years after the close of the first taxable year in which the gain is realized or subject to such terms and conditions as may be specified by the Secretary of the Internal Revenue Service, on such later date as the Secretary may designate upon application by the taxpayer.  Deferred gains on the sale of qualifying vessels must be recognized if the amount realized upon such sale or disposition exceeds the cost of the replacement qualifying vessel, limited to the gain recognized on the transaction.  We have elected to defer gains of approximately $77.5 million from the dispositions of qualifying vessels in prior years. In order to meet the non-recognition requirements for the remaining $31.9 million of deferred gains, we would need to acquire qualifying replacement property totaling $52.2 million for periods ending December 31, 2016 through December 31, 2018. To the extent any gain is recognized, we expect to utilize existing tax attributes to fully offset such gain.

During the quarter ended March 31, 2016, we recorded a deferred tax liability of $217,000 on earnings of our controlled foreign corporations. We recorded a decrease in our valuation allowance as discussed below.

We established a valuation allowance against deferred income tax assets in 2014 because, based on available information, we could not conclude that it was more likely than not that the full amount of deferred income tax assets generated primarily by net operating loss carryforwards and alternative minimum tax credits would be realized through the generation of taxable income in the near future. We have and will continue to evaluate the need for a valuation allowance on a quarterly basis.  We recorded an increase in our valuation allowance of $1.8 million for the three months ended March 31, 2016, which reflects the increase in net operating loss attributes for the period.

In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” to simplify the presentation of deferred taxes in the balance sheet. Under this amendment, entities will no longer be required to separate deferred income tax liabilities and assets into current and noncurrent amounts.  Rather, the amendment requires deferred tax liabilities and assets be classified as noncurrent in a balance sheet.  For public companies, the revised standard is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted with retrospective application optional.  We elected to early adopt this new standard effective January 1, 2016.  Prior periods were not retrospectively adjusted for this change.  The adoption of this standard did not have a material effect on our financial position, results of operations, or cash flows.

For further information on certain tax laws and elections, see our Annual Report on Form 10-K for the year ended December 31, 2015, including Note L - Income Taxes to the consolidated financial statements included therein.