We have elected to be taxed as a REIT under the applicable provisions of the Code, as amended, for every year beginning with the year ended December 31, 1999. We have also elected for certain of our subsidiaries to be treated as TRS entities, which are subject to federal, state and foreign income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this note. Certain REIT entities are subject to foreign income tax.

Although we intend to continue to operate in a manner that will enable us to qualify as a REIT, such qualification depends upon our ability to meet, on a continuing basis, various distribution, stock ownership and other tests. Our tax treatment of distributions per common share was as follows:


	For the Years Ended December 31,
	2020		2019		2018
Tax treatment of distributions:
Ordinary income	$	—	$	—	$	—
Qualified ordinary income	0.00696		0.12230		0.00375
199A qualified business income	2.14381		2.22898		2.97465
Long-term capital gain	0.28450		—		0.05916
Unrecaptured Section 1250 gain	0.04973		0.03434		0.12244
Non-dividend distribution	—		0.78438		—
Distribution reported for 1099-DIV purposes	2.48500		3.17000		3.16000
Add: Dividend declared in current year and taxable in following year	0.45000		0.79250		0.79250
Less: Dividend declared in prior year and taxable in current year	(0.79250)		(0.79250)		(0.79000)
Distribution declared per common share outstanding	$	2.14250	$	3.17000	$	3.16250

We believe we have met the annual REIT distribution requirement by payment of at least 90% of our estimated taxable income for 2020, 2019 and 2018. Our consolidated benefit for income taxes was as follows:


	For the Years Ended December 31,
	2020		2019		2018
	(In thousands)
Current - Federal	$	402	$	(1,840)	$	(2,953)
Current - State	2,107		2,118		1,332
Deferred - Federal	(56,835)		(49,532)		(32,492)
Deferred - State	(35,447)		(3,353)		(825)
Current - Foreign	2,929		2,335		1,892
Deferred - Foreign	(9,690)		(6,038)		(6,907)
Total	$	(96,534)	$	(56,310)	$	(39,953)

The 2020 income tax benefit is primarily due to a $95.9 million net deferred tax benefit from an internal restructuring of certain US taxable REIT subsidiaries completed in the first quarter, partially offset by a valuation allowance recorded against certain deferred tax assets in the second quarter. During the second quarter of 2020, we determined that the future tax benefits of certain deferred tax assets (primarily US federal NOL carryforwards which begin to expire in 2031) were not more likely than not to be realized. The 2019 income tax benefit was primarily due to the $57.7 million reversal of valuation allowances recorded against the net deferred tax assets of certain of our TRS entities.

Although the TRS entities and certain other foreign entities have paid minimal cash federal, state and foreign income taxes for the year ended December 31, 2020, their income tax liabilities may increase in future years as we exhaust net operating loss (“NOL”) carryforwards and as our senior living and other operations grow. Such increases could be significant.

A reconciliation of income tax expense and benefit, which is computed by applying the federal corporate tax rate for the years ended December 31, 2020, 2019 and 2018, to the income tax benefit is as follows:


	For the Years Ended December 31,
	2020		2019		2018
	(In thousands)
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interest and income taxes	$	27,132	$	77,803	$	80,811
State income taxes, net of federal benefit	(1,967)		2,341		(253)
Change in valuation allowance from ordinary operations	86,359		(47,227)		(5,451)
Decrease in ASC 740 income tax liability	—		—		(4,347)
Tax at statutory rate on earnings not subject to federal income taxes	(53,808)		(90,862)		(89,947)
Foreign rate differential and foreign taxes	3,342		1,407		1,924
Change in tax status of TRS	(150,287)		(52)		359
Effect of the 2017 Tax Act	—		—		(23,160)

Other differences	(7,305)		280		111
Income tax benefit	$	(96,534)	$	(56,310)	$	(39,953)

Each TRS is a tax-paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of temporary differences and carryforwards included in the net deferred tax liabilities are summarized as follows:


	As of December 31,
	2020		2019		2018
	(In thousands)
Property, primarily differences in depreciation and amortization, the tax basis of land assets and the treatment of interests and certain costs	$	(60,494)	$	(257,373)	$	(269,758)
Operating loss and interest deduction carryforwards	124,606		136,771		133,243
Expense accruals and other	10,516		7,380		11,910
Valuation allowance	(127,279)		(40,114)		(80,614)
Net deferred tax liabilities	$	(52,651)	$	(153,336)	$	(205,219)

Our net deferred tax liability decreased $100.7 million during 2020 primarily due to a change in the tax status of certain of our TRS entities. This was offset by the recording of valuation allowances against $54.4 million of other deferred tax assets. Our net deferred tax liability decreased $51.9 million during 2019 primarily due to the $57.7 million reversal of valuation allowances recorded against the net deferred tax assets of certain of our TRS entities. Our net deferred tax liability decreased $44.8 million during 2018 primarily due to accounting for IRS guidance issued subsequent to the enactment of the 2017 Tax Act, specifically a $23.2 million benefit for the reversal of a valuation allowance on deferred interest carryforwards, and tax losses of certain TRS entities.

Due to uncertainty regarding the realization of certain deferred tax assets, we have established valuation allowances, primarily in connection with the NOL carryforwards related to certain TRSs. The amounts related to NOLs at the TRS entities for 2020, 2019 and 2018 are $83.2 million, $21.2 million and $55.1 million, respectively.

We are subject to corporate-level taxes (“built-in gains tax”) for any asset dispositions during the five year period immediately after the assets were owned by a C corporation (either prior to our REIT election, through stock acquisition or merger). The amount of income potentially subject to built-in gains tax is generally equal to the lesser of the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset or the actual amount of gain. Some, but not all, future gains could be offset by available NOL carryforwards.

At December 31, 2020, 2019 and 2018, the REIT had NOL carryforwards of $896.4 million, $858.6 million and $910.7 million, respectively. Additionally, the REIT has $10.8 million of federal income tax credits that were carried over from acquisitions. These amounts can be used to offset future taxable income (or taxable income for prior years if an audit determines that tax is owed), if any. The REIT will be entitled to utilize NOLs and tax credit carryforwards only to the extent that REIT taxable income exceeds our deduction for dividends paid. Certain NOL and credit carryforwards are limited as to their utilization by Section 382 of the Code. The remaining REIT carryforwards begin to expire in 2020.

For the years ended December 31, 2020 and 2019, the net difference between tax bases and the reported amount of REIT assets and liabilities for federal income tax purposes was approximately $3.6 billion and $3.5 billion, respectively, less than the book bases of those assets and liabilities for financial reporting purposes.

Generally, we are subject to audit under the statute of limitations by the Internal Revenue Service (“IRS”) for the year ended December 31, 2017 and subsequent years and are subject to audit by state taxing authorities for the year ended December 31, 2016 and subsequent years. We are subject to audit generally under the statutes of limitation by the Canada Revenue Agency and provincial authorities with respect to the Canadian entities for the year ended December 31, 2016 and subsequent years. We are also subject to audit in Canada for periods subsequent to the acquisition, and certain prior periods, with respect to entities acquired in 2014 from Holiday Retirement. We are subject to audit in the United Kingdom generally for the periods ended in and subsequent to 2019.


	2020		2019
	(In thousands)
Balance as of January 1	$	12,127	$	12,344

Additions to tax positions related to prior years	74		178
Subtractions to tax positions related to prior years	(6,144)		(395)


Balance as of December 31	$	6,057	$	12,127

Included in these unrecognized tax benefits of $6.1 million and $12.1 million at December 31, 2020 and 2019, respectively, were $5.3 million and $10.7 million of tax benefits at December 31, 2020 and 2019, respectively, that, if recognized, would reduce our annual effective tax rate. We accrued no interest or penalties related to the unrecognized tax benefits during 2020. We do not expect our unrecognized tax benefits to increase or decrease materially in 2021.

As a part of the transfer pricing structure in the normal course of business, the REIT enters into transactions with certain TRSs, such as leasing transactions, other capital financing and allocation of general and administrative costs, which transactions are intended to comply with Internal Revenue Service and foreign tax authority transfer pricing rules.