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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Taxes |
Income Taxes | NOTE 18. Income Taxes The Company has elected to be taxed as a REIT under the applicable provisions of the Code for every year beginning with the year ended December 31, 1985. The Company has also elected for certain of its subsidiaries to be treated as taxable REIT subsidiaries (“TRS” or “TRS entities”) which are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this Note 18. Certain REIT entities are also subject to state, local and foreign income taxes. The TRS entities subject to tax reported losses before income taxes of $22 million and $2 million for the years ended December 31, 2015 and 2014, respectively, and income before income taxes of $10 million for the year ended December 31, 2013. The REIT’s losses before income taxes from the U.K. were $15 million and $4 million for the years ended December 31, 2015, and 2014, respectively. The total income tax (benefit) expense from continuing operations consists of the following components (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Current |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 4,948 |  | $ | 1,833 |  | $ | 130 |
State |  |  | 2,784 |  |  | 2,773 |  |  | 2,195 |
Foreign |  |  | 828 |  |  | 223 |  |  | — |
Total current |  | $ | 8,560 |  | $ | 4,829 |  | $ | 2,325 |
Deferred |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (11,317) |  | $ | (3,278) |  | $ | 3,045 |
State |  |  | (1,382) |  |  | (347) |  |  | 445 |
Foreign |  |  | (4,872) |  |  | (954) |  |  | — |
Total deferred |  | $ | (17,571) |  | $ | (4,579) |  | $ | 3,490 |
Total income tax (benefit) expense |  | $ | (9,011) |  | $ | 250 |  | $ | 5,815 |
The Company’s income tax expense from discontinued operations was insignificant for the years ended December 31, 2014 and 2013. The following table reconciles the income tax expense at statutory rates to the actual income tax expense recorded (in thousands):
|  | Year Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Tax (benefit) expense at U.S. federal statutory income tax rate on income or loss subject to tax |  | $ | (12,630) |  | $ | (2,131) |  | $ | 3,582 |
State income tax expense, net of federal tax |  |  | 93 |  |  | 764 |  |  | 928 |
Gross receipts and margin taxes |  |  | 1,480 |  |  | 1,699 |  |  | 1,553 |
Foreign rate differential |  |  | 2,269 |  |  | 554 |  |  | — |
Effect of permanent differences |  |  | (298) |  |  | (196) |  |  | (221) |
Return to provision adjustments |  |  | (368) |  |  | (528) |  |  | (27) |
Increase in valuation allowance |  |  | 443 |  |  | 88 |  |  | — |
Total income tax (benefit) expense |  | $ | (9,011) |  | $ | 250 |  | $ | 5,815 |
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
|  | December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets, and the treatment of interest and certain costs |  | $ | 19,862 |  | $ | 3,418 |  | $ | 707 |
Net operating loss carryforward |  |  | 3,703 |  |  | 484 |  |  | 749 |
Expense accruals and other |  |  | (753) |  |  | 462 |  |  | (4) |
Valuation allowance |  |  | (531) |  |  | (88) |  |  | — |
Net deferred tax assets |  | $ | 22,281 |  | $ | 4,276 |  | $ | 1,452 |
Deferred tax assets and liabilities are included in other assets, net and accounts payable and accrued liabilities. At December 31, 2015 the Company had a net operating loss (“NOL”) carryforward of $10 million related to the TRS entities. These amounts can be used to offset future taxable income, if any. The NOL carryforwards begin to expire in 2033 with respect to the TRS entities. The Company records a valuation allowance against deferred tax assets in certain jurisdictions when it cannot sustain a conclusion that it is more likely than not that it can realize the deferred tax assets during the periods in which these temporary differences become deductible. The deferred tax asset valuation allowance is adequate to reduce the total deferred tax assets to an amount that the Company estimates will “more-likely-than-not” be realized. The C ompany files numerous U.S. federal, state and local income and franchise tax returns. With a few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by taxing authorities for years prior to 2012. For each of the years ended December 31, 2015 and 2014, the tax basis of the Company’s net assets is less than the reported amounts by $6.5 billion. The difference between the reported amounts and the tax basis is primarily related to the Slough Estates USA, Inc. (“SEUSA”) and HCRMC acquisitions, which occurred in 2007 and 2011, respectively. Both SEUSA and HCRMC were corporations subject to federal and state income taxes. As a result of these acquisitions, the Company succeeded to the tax attributes of SEUSA and HCRMC, including the tax basis in the acquired companies’ assets and liabilities. The Company generally will be subject to a federal corporate-level tax on any taxable disposition of HCRMC pre-acquisition assets that occur within five years after its April 7, 2011 acquisition. The corporate-level tax associated with the disposition of assets acquired in connection with the HCRMC acquisition would be assessed only to the extent of the built-in gain that existed on the date of the acquisition, based on the fair market value of the assets on April 7, 2011. The Company has not and does not expect to dispose of any assets that would result in the imposition of a material tax liability. As a result, the Company has not recorded a deferred tax liability associated with this corporate-level tax. Gains from asset dispositions occurring more than five years after the acquisition will not be subject to a federal corporate-level tax. However, gains from asset dispositions occurring within ten years after the SEUSA and HCRMC acquisitions may be subject to corporate-level tax in some states. F rom time to time, the Company may dispose of SEUSA or HCRMC assets before the applicable built-in gain holding period if it is able to effect a tax deferred exchange. In connection with the HCRMC acquisition, the Company assumed unrecognized tax benefits of $2 million. For each of the years ended December 31, 2014 and 2013, the Company had a decrease in unrecognized tax benefits of $1 million. There were no unrecognized tax benefits balances at December 31, 2015 and 2014. A reconciliation of the Company’s beginning and ending unrecognized tax benefits follows (in thousands):
|  | Amount |
Balance at January 1, 2013 |  | $ | 1,977 |
Reductions based on prior years’ tax positions |  |  | (890) |
Additions based on 2013 tax positions |  |  | — |
Balance at December 31, 2013 |  |  | 1,087 |
Reductions based on prior years’ tax positions |  |  | (1,087) |
Additions based on 2014 tax positions |  |  | — |
Balance at December 31, 2014 |  | $ | — |
During the year ended December 31, 2014, the Company reversed the entire balance of the interest expense associated with the unrecognized tax benefits assumed in connection with the acquisition of HCRMC. The amount reversed was insignificant and it was due to the lapse in the statute of limitations. For the year ended December 31, 2013, the Company recorded insignificant net increases to interest expense associated with the unrecognized tax benefits.

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