Income Taxes

Income tax expense for the three months ended March 31, 2014 and 2013 consists of the following:



	Three Months Ended March 31,
	2014		2013
Current:
Federal	$	84,213	$	(64	)
State	160		(170		)
Total	84,373		(234		)
Deferred:
Federal	12,045		211
State	10,487		23
Total	22,532		234
Income tax expense	$	106,905	$	—

Income tax expense attributable to income from operations differed from the amount computed by applying the statutory federal income tax rate of 35% to pre-tax income as a result of the following:



	Three Months Ended March 31,
	2014			2013
Tax at the statutory federal rate	$	178,465		$	(866	)
State income taxes (net of federal benefit)	17,846			(87		)
(Decrease) increase in valuation allowance	(89,300		)	807
Other	(106		)	146
Total income tax expense	$	106,905		$	—

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of March 31, 2014 and December 31, 2013 are presented below:



	March 31,			December 31,
	2014			2013
Deferred tax assets:
Federal net operating carryforwards	$	—		$	26,884
State net operating loss carryforwards	9,763			20,759
Impairment losses	150,858			151,050
Prepaid income from land sales	5,522			10,210
Other	2,168			7,592
Total gross deferred tax assets	168,311			216,495
Valuation allowance	(6,653		)	(95,953		)
Total net deferred tax assets	161,658			120,542
Deferred tax liabilities:
Investment in real estate and property and equipment basis differences	767			1,726
Deferred gain on land sales and involuntary conversions	30,884			31,385
Prepaid pension asset	13,238			15,596
Installment sale	127,822			58,969
Total gross deferred tax liabilities	172,711			107,676
Total net deferred tax (liability) asset	$	(11,053	)	$	12,866

During the three months ended March 31, 2014, the Company had taxable income from the AgReserves Sale of approximately $502.6 million, of which $179.9 million is expected to be deferred for fifteen years for tax purposes. The Company utilized its federal net operating loss carryforwards of $76.8 million and $314.1 million of its state net operating loss carryforwards to offset part of the remaining taxable income from AgReserves. As of March 31, 2014, the Company had no federal net operating loss carryforwards and had $279.0 million of state net operating loss carryforwards, which are available to offset future taxable income through 2031.

In general, a valuation allowance is recorded if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Realization of the Company’s deferred tax assets is dependent upon the Company generating sufficient taxable income in future years in the appropriate tax jurisdictions to obtain a benefit from the reversal of deductible temporary differences and from loss carryforwards. As of December 31, 2013, based on the timing of reversal of future taxable amounts and the Company’s history of losses, management did not believe it met the requirements to realize the benefits of certain of its deferred tax assets; therefore, the Company had maintained a valuation allowance of $96.0 million. As a result of the deferred tax liability of $69.2 million from the AgReserves Sale and the reversals of the deferred tax assets for the federal and state net operating loss carryforwards, the Company had a net deferred tax liability of $11.1 million as of March 31, 2014, as compared to a net deferred tax asset of $12.9 million as of December 31, 2013. During the three months ended March 31, 2014, the Company reversed $89.3 million of the valuation allowance that was recorded at December 31, 2013.

The Company has maintained a valuation allowance of $6.7 million at March 31, 2014 primarily for a portion of its deferred tax assets for state net operating loss carryforwards that management believes it has not met the requirements from which to realize the benefits. In addition, as a result of the adoption of the guidance that was effective for the Company on January 1, 2014 related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, the Company reclassed $1.7 million of its unrecognized tax benefit from Accrued liabilities and deferred credits to Deferred tax liabilities as of March 31, 2014.