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Note 21 - Income Taxes | 12 Months Ended
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Dec. 31, 2017
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
21. | Income Taxes :
The Company elected to qualify as a REIT in accordance with the Code commencing with its taxable year which began January 1, 1992. To qualify as a REIT, the Company must meet several organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income to its stockholders. Management intends to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate federal income tax, provided that dividends to its stockholders equal at least the amount of its REIT taxable income. If the Company failed to qualify as a REIT in any taxable year, it would be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be permitted to elect REIT status for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through TRSs is subject to federal, state and local income taxes. The Company is also subject to local taxes on certain Non-U.S. investments. Reconciliation between GAAP Net Income and Federal Taxable Income The following table reconciles GAAP net income to taxable income for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
|  | (Estimated) |  |  | (Actual) |  |  | (Actual) |
GAAP net income attributable to the Company |  | $ | 426,075 |  |  | $ | 378,850 |  |  | $ | 894,115 |
GAAP net (income)/loss attributable to TRSs |  |  | (12,164 | ) |  |  | 12,708 |  |  |  | (6,073 | )
GAAP net income from REIT operations (a) |  |  | 413,911 |  |  |  | 391,558 |  |  |  | 888,042 |
Net book depreciation in excess of tax depreciation |  |  | 116,106 |  |  |  | 65,194 |  |  |  | 21,515 |
Capitalized leasing/legal commissions |  |  | - |  |  |  | (11,984 | ) |  |  | (14,246 | )
Deferred/prepaid/above-market and below-market rents, net |  |  | (30,303 | ) |  |  | (34,097 | ) |  |  | (32,848 | )
Fair market value debt amortization |  |  | (8,495 | ) |  |  | (15,901 | ) |  |  | (19,723 | )
Book/tax differences from restricted stock |  |  | 676 |  |  |  | (4,490 | ) |  |  | (3,094 | )
Book/tax differences from non-qualified stock options |  |  | (172 | ) |  |  | (11,301 | ) |  |  | (4,786 | )
Book/tax differences from investments in and advances to real estate joint ventures |  |  | (15,196 | ) |  |  | (20,739 | ) |  |  | (294 | )
Book/tax difference on sale of properties |  |  | (85,856 | ) |  |  | (93,704 | ) |  |  | (64,270 | )
Foreign income tax from capital gains |  |  | - |  |  |  | 3,976 |  |  |  | 5,873 |
Cumulative foreign currency translation adjustment and deferred tax adjustment |  |  | (1,300 | ) |  |  | - |  |  |  | - |
Book adjustment to property carrying values and marketable equity securities |  |  | 53,893 |  |  |  | 11,161 |  |  |  | 4,484 |
Taxable currency exchange gains/(losses), net |  |  | 221 |  |  |  | (8,962 | ) |  |  | (47,297 | )
Tangible property regulation deduction (b) |  |  | (52,237 | ) |  |  | (28,954 | ) |  |  | (126,957 | )
GAAP gain on change in control of interests |  |  | (71,160 | ) |  |  | (57,385 | ) |  |  | (149,407 | )
Valuation allowance against net deferred tax assets |  |  | - |  |  |  | 51,939 |  |  |  | - |
Other book/tax differences, net |  |  | (6,893 | ) |  |  | 542 |  |  |  | (2,971 | )
Adjusted REIT taxable income |  | $ | 313,195 |  |  | $ | 236,853 |  |  | $ | 454,021 |
Certain amounts in the prior periods have been reclassified to conform to the current year presentation, in the table above.
| (a) | All adjustments to "GAAP net income from REIT operations" are net of amounts attributable to noncontrolling interest and TRSs.
| (b) | In September 2013, the Internal Revenue Service released final Regulations governing when taxpayers must capitalize and depreciate costs for acquiring, maintaining, repairing and replacing tangible property and when taxpayers must deduct such costs as repairs. Pursuant to these Regulations the Company deducted certain expenditures that would previously have been capitalized for tax purposes. The Regulations also allowed the Company to make an election to immediately deduct certain amounts that were capitalized in previous years but qualify as repairs under the new Regulations. The Company made such election in 2015 and deducted approximately $85.9 million.
Characterization of Distributions The following characterizes distributions paid for tax purposes for the years ended December 31, 2017, 2016 and 2015, (amounts in thousands):
|  | 201 7 |  |  | 201 6 |  |  | 2015 |
Preferred H Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | - |
Capital gain |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,417 |  |  |  | 100 | %
|  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | 13,417 |  |  |  | 100 | %
Preferred I Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | 21,636 |  |  |  | 96 | % |  | $ | 16,320 |  |  |  | 68 | % |  | $ | - |  |  |  | - |
Capital gain |  |  | 902 |  |  |  | 4 | % |  |  | 7,680 |  |  |  | 32 | % |  |  | 24,000 |  |  |  | 100 | %
|  | $ | 22,538 |  |  |  | 100 | % |  | $ | 24,000 |  |  |  | 100 | % |  | $ | 24,000 |  |  |  | 100 | %
Preferred J Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | 11,880 |  |  |  | 96 | % |  | $ | 8,415 |  |  |  | 68 | % |  | $ | - |  |  |  | - |
Capital gain |  |  | 495 |  |  |  | 4 | % |  |  | 3,960 |  |  |  | 32 | % |  |  | 12,375 |  |  |  | 100 | %
|  | $ | 12,375 |  |  |  | 100 | % |  | $ | 12,375 |  |  |  | 100 | % |  | $ | 12,375 |  |  |  | 100 | %
Preferred K Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | 9,450 |  |  |  | 96 | % |  | $ | 6,694 |  |  |  | 68 | % |  | $ | - |  |  |  | - |
Capital gain |  |  | 394 |  |  |  | 4 | % |  |  | 3,150 |  |  |  | 32 | % |  |  | 9,844 |  |  |  | 100 | %
|  | $ | 9,844 |  |  |  | 100 | % |  | $ | 9,844 |  |  |  | 100 | % |  | $ | 9,844 |  |  |  | 100 | %
Preferred L Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | 1,814 |  |  |  | 96 | % |  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | - |
Capital gain |  |  | 76 |  |  |  | 4 | % |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
|  | $ | 1,890 |  |  |  | 100 | % |  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | - |
Common Dividends |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ordinary income |  | $ | 260,573 |  |  |  | 57 | % |  | $ | 263,892 |  |  |  | 62 | % |  | $ | - |  |  |  | - |
Capital gain |  |  | 9,143 |  |  |  | 2 | % |  |  | 127,689 |  |  |  | 30 | % |  |  | 394,400 |  |  |  | 100 | %
Return of capital |  |  | 187,430 |  |  |  | 41 | % |  |  | 34,050 |  |  |  | 8 | % |  |  | - |  |  |  | - |
|  | $ | 457,146 |  |  |  | 100 | % |  | $ | 425,631 |  |  |  | 100 | % |  | $ | 394,400 |  |  |  | 100 | %
Total dividends distributed for tax purposes |  | $ | 503,793 |  |  |  |  |  |  | $ | 471,850 |  |  |  |  |  |  | $ | 454,036 |  |  |  |  |
For the years ended December 31, 2017, 2016 and 2015 cash dividends paid for tax purposes were equivalent to, or in excess of, the dividends paid deduction. Taxable REIT Subsidiaries and Taxable Entities The Company is subject to federal, state and local income taxes on income reported through its TRS activities, which include wholly-owned subsidiaries of the Company. The Company’s TRSs included KRS, FNC Realty Corporation, Kimco Insurance Company (collectively “KRS Consolidated”) and the consolidated entity, Blue Ridge Real Estate Company/Big Boulder Corporation. As part of the Company’s overall strategy to simplify its business model, the Company merged KRS, a TRS holding REIT-qualifying real estate and the Company’s investment in Albertsons, into a wholly-owned LLC and KRS was dissolved effective August 1, 2016. Any non-REIT qualifying assets or activities received by the Company in the Merger were transferred to a newly formed TRS, Kimco Realty Services II, Inc. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, making significant changes to taxation of corporations and individuals. Effective for tax years beginning on January 1, 2018, this tax reform law reduces the federal statutory income tax rate from 35% to 21% for corporations and changed other certain tax provisions and deductions. ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. As a result, the Company remeasured its deferred tax assets and liabilities and recorded a tax provision of $1.1 million during 2017. The Company is also subject to local non-U.S. taxes on certain investments located outside the U.S. In general, under local country law applicable to the entity ownership structures the Company has in place and applicable tax treaties, the repatriation of cash to the Company from its subsidiaries and joint ventures in Canada, Puerto Rico and Mexico generally is not subject to withholding tax. The Company is subject to and includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are primarily held by the Company at the REIT level and not in the Company’s taxable REIT subsidiary. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries. Income taxes have been provided for on the asset and liability method as required by the FASB ’s Income Tax guidance. Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and the tax basis of taxable assets and liabilities. The Company ’s pre-tax book income/(loss) and (provision)/benefit for income taxes relating to the Company’s TRS and taxable entities which have been consolidated for accounting reporting purposes, for the years ended December 31, 2017, 2016 and 2015, are summarized as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
I ncome/(loss) before income taxes – U.S. |  | $ | 1,487 |  |  | $ | (23,810 | ) |  | $ | 23,729 |
( Provision)/benefit for income taxes, net: |  |  |  |  |  |  |  |  |  |  |  |
Federal: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | (704 | ) |  |  | 2,199 |  |  |  | (638 | )
Deferred |  |  | (632 | ) |  |  | (45,097 | ) |  |  | (7,355 | )
Federal tax provision |  |  | (1,336 | ) |  |  | (42,898 | ) |  |  | (7,993 | )
State and local: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | (66 | ) |  |  | 1,057 |  |  |  | (2,535 | )
Deferred |  |  | (190 | ) |  |  | (8,812 | ) |  |  | (1,474 | )
State tax provision |  |  | (256 | ) |  |  | (7,755 | ) |  |  | (4,009 | )
Total tax provision – U.S. |  |  | (1,592 | ) |  |  | (50,653 | ) |  |  | (12,002 | )
Net (loss)/income from U.S. TRSs |  | $ | (105) |  |  | $ | (74,463 | ) |  | $ | 11,727 |
(Loss)/income before taxes – Non-U.S. |  | $ | (11,483) |  |  | $ | 138,253 |  |  | $ | 381,999 |
B enefit/(provision) for Non-U.S. income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current (1) |  | $ | 2,425 |  |  | $ | (24,393 | ) |  | $ | (58,365 | )
Deferred |  |  | 47 |  |  |  | (3,537 | ) |  |  | 4,331 |
Non-U.S. tax benefit/(provision) |  | $ | 2,472 |  |  | $ | (27,930 | ) |  | $ | (54,034 | )
( 1 ) | The year ended December 31, 2016 includes $24.9 million, in expense related to the sale of interests in properties located in Canada.
Provision differ s from the amounts computed by applying the statutory federal income tax rate to taxable income before income taxes as follows (in thousands):
|  | 201 7 |  |  | 201 6 |  |  | 201 5 |
Federal provision at statutory tax rate (35%) (1) |  | $ | (520 | ) |  | $ | (47,155 | ) |  | $ | (8,304 | )
State and local provision, net of federal benefit (2) |  |  | (1,072 | ) |  |  | (3,498 | ) |  |  | (3,698 | )
Total tax provision – U.S. |  | $ | (1,592 | ) |  | $ | (50,653 | ) |  | $ | (12,002 | )
( 1 ) | The year ended December 31, 2016, includes a $55.6 million charge related to the recording of a deferred tax valuation allowance.
( 2 ) | The year ended December 31, 2016, includes a $7.9 million charge related to the recording of a deferred tax valuation allowance.
Deferred Tax Assets, Liabilities and Valuation Allowances The Company ’s deferred tax assets and liabilities at December 31, 2017 and 2016, were as follows (in thousands):
|  | 201 7 |  |  | 201 6 |
Deferred tax assets: |  |  |  |  |  |  |  |
Tax/GAAP basis differences |  | $ | 35,839 |  |  | $ | 63,167 |
Net operating losses (1) |  |  | 22,137 |  |  |  | 44,833 |
Tax credit carryforwards (2) |  |  | 6,064 |  |  |  | 5,368 |
Capital loss carryforwards |  |  | 4,648 |  |  |  | 3,659 |
Related party deferred losses |  |  | 619 |  |  |  | 952 |
Charitable contribution carryforwards |  |  | 23 |  |  |  | 35 |
Non-U.S. tax/GAAP basis differences |  |  | - |  |  |  | 513 |
Valuation allowance – U.S. |  |  | (54,155 | ) |  |  | (95,126 | )
Total deferred tax assets |  |  | 15,175 |  |  |  | 23,401 |
Deferred tax liabilities – U.S. |  |  | (12,739 | ) |  |  | (19,599 | )
Deferred tax liabilities – Non-U.S. |  |  | - |  |  |  | (559 | )
Net deferred tax assets |  | $ | 2,436 |  |  | $ | 3,243 |
| ( 1 ) | Expiration dates ranging from 2021 to 2032 .
| ( 2 ) | Expiration dates ranging from 2027 to 2035 and includes alternative minimum tax credit carryovers of $3.5 million that do not expire.
The major differences between the GAAP basis of accounting and the basis of accounting used for federal and state income tax reporting consist of impairment charges recorded for GAAP purposes, but not recognized for tax purposes, depreciation and amortization, rental revenue recognized on the straight-line method for GAAP, reserves for doubtful accounts, above-market and below-market lease amortization, differences in GAAP and tax basis of assets sold, and the period in which certain gains were recognized for tax purposes, but not yet recognized under GAAP. Deferred tax assets and deferred tax liabilities are included in the caption s Other assets and Other liabilities on the accompanying Consolidated Balance Sheets at December 31, 2017 and 2016. Operating losses and the valuation allowance are related primarily to the Company’s consolidation of its taxable REIT subsidiaries for accounting and reporting purposes. For the tax year ended August 1, 2016, KRS Consolidated produced $8.1 million of taxable income and utilized $8.1 million of its $44.0 million of available net operating loss carryovers. Under GAAP a reduction of the carrying amounts of deferred tax assets by a valuation allowance is required, if, based on the evidence available, it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. As a result of the Merger, the Company determined that the realization of $63.5 million of its net deferred tax assets was not deemed more likely than not and as such, the Company recorded a full valuation allowance against these net deferred tax assets that existed at the time of the Merger. T he Company prepared an analysis of the tax basis built-in tax gain or built-in loss inherent in each asset acquired from KRS in the Merger. Assets of a TRS that become REIT assets in a merger transaction of the type entered into by the Company and KRS are subject to corporate tax on the aggregate net built-in gain (built-in gains in excess of built-in losses) during a recognition period. Accordingly, the Company is subject to corporate-level taxation on the aggregate net built-in gain from the sale of KRS assets within 60 months from the Merger date (the recognition period). The maximum taxable amount with respect to all merged assets disposed within 60 months of the Merger is limited to the aggregate net built-in gain at the Merger date. The Company compared fair value to tax basis for each property or asset to determine its built-in gain (value over basis) or built-in loss (basis over value) which could be subject to corporate level taxes if the Company disposed of the asset previously held by KRS during the 60 months following the Merger date. In the event that sales of KRS assets during the recognition period result in corporate level tax, the unrecognized tax benefits reported as deferred tax assets from KRS will be utilized to reduce the corporate level tax for GAAP purposes. Uncertain Tax Positions The Company is subject to income tax in certain jurisdictions outside the U.S., principally Canada and Mexico. The statute of limitations on assessment of tax varies from three to seven years depending on the jurisdiction and tax issue. Tax returns filed in each jurisdiction are subject to examination by local tax authorities. The Company is currently under audit by the Canadian Revenue Agency and Mexican Tax Authority . The resolution of these audits are not expected to have a material effect on the Company’s financial statements. The Company does not believe that the total amount of unrecognized tax benefits as of December 31, 2017, will significantly increase or decrease within the next 12 months. The liability for uncertain tax benefits principally consists of estimated foreign, federal and state income tax liabilities in years for which the statute of limitations is open. Open years range from 2011 through 2017 and vary by jurisdiction and issue. The aggregate changes in the balance of unrecognized tax benefits for the years ended December 31, 2017 and 2016 were as follows (in thousands):
|  | 201 7 |  |  | 201 6 |
Balance at January 1, |  | $ | 4,962 |  |  | $ | 4,263 |
Increases for tax positions related to current year (1) |  |  | 339 |  |  |  | 41 |
Increase for tax position due to ASU 2013-11 |  |  | - |  |  |  | 4,930 |
Decreases relating to settlements with taxing authorities |  |  | - |  |  |  | (2,000 | )
Reductions due to lapsed statute of limitations |  |  | (1,310 | ) |  |  | (2,272 | )
Balance at December 31, |  | $ | 3,991 |  |  | $ | 4,962 |
(1) Amounts relate to increases resulting from foreign currency translation adjustments. The Company previously had unrecognized tax benefits reported as deferred tax assets primarily related to book to tax timing differences for depreciation expense on its Canadian real estate operating properties. With respect to the Company’s uncertain tax positions in Canada and in accordance with ASU 2013 - 11 " Income Taxes (Topic 740 ): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ," (“ASU 2013 - 11” ), the uncertain tax position liabilities in Canada were netted against these deferred tax assets. As of December 31, 2016, the Company, due to the sale of certain operating real estate properties in Canada, no longer had these related deferred tax assets to net against the related deferred tax liability and thus, the amount of its liability increased for uncertain tax positions associated with its Canadian operations. As of December 31, 2017 and 2016, the Company’s Canadian uncertain tax positions aggregated $4.0 million and $5.0 million, respectively. The Company and its subsidiaries had been under audit by the U.S. Internal Revenue Service (“IRS”) with respect to taxable years 2004 - 2009. The IRS proposed, pursuant to Section 482 of the Code, to disallow a capital loss claimed by KRS on the disposition of common shares of Valad Property Ltd., an Australian publicly listed company, and to assert a 100 percent “penalty” tax on the Company pursuant to Section 857 (b)( 7 ) of the Code in the amount of $40.9 million with respect to its 2009 taxable year. During 2016, the Company and its subsidiaries favorably settled all matters relating to the audit, agreeing to a net refund of $0.1 million, and in connection with this favorable settlement, the Company released its uncertain tax position liability of $2.0 million. During August 2016, the Mexican Tax Authority issued tax assessments for various wholly-owned entities of the Company that had previously held interests in operating properties in Mexico. These assessments relate to certain interest expense and withholding tax items subject to the United States-Mexico Income Tax Convention (the “Treaty”). The assessments are for the 2010 tax year and include amounts for taxes aggregating $33.7 million, interest aggregating $16.5 million and penalties aggregating $11.4 million. The Company believes that it has operated in accordance with the Treaty provisions and has therefore concluded that no amounts are payable with respect to this matter. The Company has submitted appeals for these assessments and the U.S. Competent Authority (Department of Treasury) is representing the Company regarding this matter with the Mexican Competent Authority. The Company intends to vigorously defend its position and believes it will prevail, however this outcome cannot be assured.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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