Income Taxes and Distributions

12 Months Ended

Dec. 31, 2019

We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of current year taxable income are also subject to a 4% federal excise tax. The main differences between net income for federal income tax purposes and consolidated financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

Cash distributions paid to common stockholders, for federal income tax purposes, are as follows for the periods presented:



	Year Ended December 31,
	2019		2018		2017
Per share:
Ordinary dividend⁽¹⁾	$	2.6937	$	2.1988	$	1.8117
Long-term capital gain/(loss)⁽²⁾	0.7863		1.1153		1.5755
Return of capital	—		0.1659		0.0928
Totals	$	3.4800	$	3.4800	$	3.4800

⁽¹⁾ For the years ended December 31, 2019 and 2018, includes Section 199A dividends of $2.6937 and $2.1988, respectively. For the year ended December 31, 2017, includes Qualified Dividend of $0.0038.

⁽²⁾ For the years ended December 31, 2019, 2018 and 2017, includes Unrecaptured SEC. 1250 Gains of $0.2835, $0.3822 and $0.3557, respectively.

Our consolidated provision for income tax expense (benefit) is as follows for the periods presented (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current	$	12,594		$	15,850		$	7,633
Deferred	(9,637		)	(7,176		)	12,495
Totals	$	2,957		$	8,674		$	20,128

REITs generally are not subject to U.S. federal income taxes on that portion of REIT taxable income or capital gain that is distributed to stockholders. For the tax year ended December 31, 2019, as a result of ownership of investments in Canada and the U.K., we were subject to foreign income taxes under the respective tax laws of these jurisdictions.

The provision for income taxes for the year ended December 31, 2019 primarily relates to state taxes, foreign taxes, and taxes based on income generated by entities that are structured as TRSs. For the tax years ended December 31, 2019, 2018 and 2017, the foreign tax provision/(benefit) amount included in the consolidated provision for income taxes was $(3,892,000), $9,804,000 and $4,806,000, respectively.

A reconciliation of income taxes, which is computed by applying the federal corporate tax rate for the years ended December 31, 2019, 2018 and 2017, to the income tax expense/(benefit) is as follows for the periods presented (in thousands):



	Year Ended December 31,
	2019			2018			2017
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes	$	280,005		$	176,069		$	199,588
Increase (decrease) in valuation allowance⁽¹⁾	3,465			28,309			30,445
Tax at statutory rate on earnings not subject to federal income taxes	(311,224		)	(206,937		)	(234,468		)
Foreign permanent depreciation	9,260			8,110			10,065
Other differences	21,451			3,123			14,498
Totals	$	2,957		$	8,674		$	20,128

⁽¹⁾ Excluding purchase price accounting.

Each TRS and foreign entity subject to income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of taxable and deductible temporary differences, as well as tax asset/(liability) attributes, are summarized as follows for the periods presented (in thousands):



	Year Ended December 31,
	2019			2018			2017
Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets and the treatment of interests and certain costs	$	(13,064	)	$	(2,533	)	$	(11,812	)
Operating loss and interest deduction carryforwards	127,525			98,713			94,654
Expense accruals and other	43,056			48,804			25,146
Valuation allowance	(159,057		)	(155,592		)	(127,283		)
Net deferred tax assets (liabilities)	$	(1,540	)	$	(10,608	)	$	(19,295	)

On the basis of the evaluations performed as required by the codification, valuation allowances totaling $159,057,000 were recorded on U.S. taxable REIT subsidiaries as well as entities in other jurisdictions to limit the deferred tax assets to the amount that we believe is more likely that not realizable. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present (and additional weight may be given to subjective evidence such as our projections for growth). The valuation allowance rollforward is summarized as follows for the periods presented (in thousands):



	Year Ended December 31,
	2019		2018		2017
Beginning balance	$	155,592	$	127,283	$	96,838
Expense (benefit)	3,465		28,309		30,445
Ending balance	$	159,057	$	155,592	$	127,283

As a result of certain acquisitions, we are subject to corporate level taxes for any related asset dispositions that may occur during the five-year period immediately after such assets were owned by a C corporation (“built-in gains tax”). The amount of income potentially subject to this special corporate level tax is generally equal to the lesser of (i) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (ii) the actual amount of gain. Some but not all gains recognized during this period of time could be offset by available net operating losses and capital loss carryforwards. During the year ended December 31, 2017, we acquired certain additional assets with built-in gains as of the date of acquisition that could be subject to the built-in gains tax if disposed of prior to the expiration of the applicable five-year period. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such properties and available tax planning strategies.

Given the applicable statute of limitations, we generally are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2016 and subsequent years. The statute of limitations may vary in the states in which we own properties or conduct business. We do not expect to be subject to audit by state taxing authorities for any year prior to the year ended December 31, 2015. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to May 2013 related to entities acquired or formed in connection with acquisitions, and by the U.K.’s HM Revenue & Customs for periods subsequent to August 2013 related to entities acquired or formed in connection with acquisitions.

At December 31, 2019, we had a net operating loss (“NOL”) carryforward related to the REIT of $337,287,000. Due to our uncertainty regarding the realization of certain deferred tax assets, we have not recorded a deferred tax asset related to NOLs generated by the REIT. These amounts can be used to offset future taxable income (and/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. The NOL carryforwards generated through December 31, 2017 will expire through 2037. Beginning with tax years after December 31, 2017, the Tax Cuts and Jobs Act eliminates the carryback period, limits the NOLs to 80% of taxable income and replaces the 20-year carryforward period with an indefinite carryforward period.

At December 31, 2019 and 2018, we had an NOL carryforward related to Canadian entities of $195,791,000, and $154,029,000, respectively. These Canadian losses have a 20-year carryforward period. At December 31, 2019 and 2018, we had an NOL carryforward related to U.K. entities of $209,776,000 and $242,377,000, respectively. These U.K. losses do not have a finite carryforward period.