5. Income taxes:

While we are a not-for-profit membership corporation formed under the laws of Georgia, we are subject to federal and state income taxation. As a taxable cooperative, we are allowed to deduct patronage dividends that we allocate to our members for purposes of calculating our taxable income. We annually allocate income and deductions between patronage and non-patronage activities and substantially all of our income is from patronage-sourced activities, resulting in no current period income tax expense or current or deferred income tax liability.

Although we believe that treatment of non-member sales as patronage-sourced income is appropriate, this treatment has not been examined by the Internal Revenue Service. If this treatment was not sustained, we believe that the amount of taxes on such non-member sales, after allocating related expenses against the revenues from such sales, would not have a material adverse effect on financial condition or results of operations and cash flows.

We account for income taxes pursuant to the authoritative guidance for accounting for income taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

The difference between the statutory federal income tax rate on income before income taxes and our effective income tax rate is summarized as follows:


	2016		2015		2014

Statutory federal income tax rate	35.0	%	35.0	%	35.0%
Patronage exclusion	(34.7	%)	(34.7	%)	(34.4%)
Other	(0.3	%)	(0.3	%)	(0.6%)

Effective income tax rate	0.0	%	0.0	%	0.0%

The components of our net deferred tax assets and liabilities as of December 31, 2016 and 2015 were as follows:


		(dollars in thousands)
		2016			2015

Deferred tax assets
Net operating losses	$	29,724		$	29,724
Tax credits (alternative minimum tax and other)		599			1,198
Accounting for Rocky Mountain transactions		349,127			348,779
Other assets		109,793			107,527

Deferred tax assets		489,243			487,228
Less: Valuation allowance		(29,724	)		(29,724	)

Net deferred tax assets	$	459,519		$	457,504

Deferred tax liabilities
Depreciation	$	435,570		$	426,173
Accounting for Rocky Mountain transactions		170,402			167,907
Other liabilities		123,121			131,454

Deferred tax liabilities		729,093			725,534

Net deferred tax liabilities		269,574			268,030
Less: Patronage exclusion		(269,574	)		(268,030	)

Net deferred taxes	$	–		$	–

As of December 31, 2016, we have federal tax net operating loss carryforwards and alternative minimum tax credits as follows:


		(dollars in thousands)

Expiration Date		Alternative Minimum Tax Credits		NOLs

2018	$	–	$	61,533
2019		–		10,516
2020	$	–		4,362
None	$	599	$	–

	$	599	$	76,411

The net operating loss expiration dates start in the year 2018 and end in the year 2020. Due to the tax basis method for allocating patronage and as shown by the above valuation allowance, it is not more likely than not that the deferred tax asset related to the net operating losses will be realized.

On December 18, 2015, the Protecting Americans from Tax Hikes (PATH) Act was signed into law. The PATH Act allows us to accelerate and monetize AMT credits in lieu of bonus depreciation up through 2019. We intend to make this election when filing our tax returns for tax years ended December 31, 2016 and December 31, 2017. We also expect to fully monetize the remaining balance of tax credits of $599,000 on the 2017 tax return.

The authoritative guidance for income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

We file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the year 2013 forward. State jurisdictions have statutes of limitations generally ranging from three to five years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by tax authorities in major state jurisdictions include 2013 forward. We have no liabilities recorded for uncertain tax positions.