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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On December 22, 2017, the President of the United States signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States tax law. The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”). Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided accounting guidance for the Tax Act. SAB 118 provided a measurement period similar to a business combination whereby a company recognizes provisional amounts to the extent that they are reasonably estimable and adjusts them over time as more information becomes available, not to extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete. To the extent the accounting related to the Tax Act is incomplete but a reasonable estimate is attainable, a provisional estimate should be reflected within the financial statements. For the year ended December 31, 2017, the Company recorded a provisional amount for certain enactment-date effects of the Tax Act by applying the guidance in SAB 118 for the effects of the following aspects: remeasurement of deferred tax assets and liabilities, one-time transition tax, and tax on GILTI. As of December 31, 2018, the accounting for all enactment-date income tax effects of the Tax Act was complete resulting in an adjustment to income tax expense of $1.2 million, which increased the effective tax rate for the year ended December 31, 2018 by 1.3%. In connection with our initial analysis of the Tax Act impact during 2017, we recorded a provisional decrease to net deferred tax assets of $261.3 million with a corresponding increase to deferred tax expense to account for the change in the federal tax rate to 21%. The Company’s computations were complete as of December 22, 2018, and a change of $0.3 million was recorded in the current year for the remeasurement of our net deferred tax assets. Beginning in 2018, the new federal rate of 21% has been reflected in the current federal tax expense within our Consolidated Statement of Operations. Additionally, there was a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). The application of the transition tax was relevant to certain undistributed and previously untaxed post-1986 foreign earnings and profits from our management service contract with Casino Rama located in Orillia, Ontario. The Company recognized a provisional tax expense of $2.6 million related to the transition tax in 2017 and the new law allows a Company to pay this liability over an eight-year period without interest. Upon further analysis of the Tax Act and published guidance issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service, we finalized our calculations of the transition tax liability during 2018. We increased our December 31, 2017 provisional amount by $0.9 million, which is included as a component of income tax expense. We have elected to pay our transition tax over the eight-year period provided in the Tax Act. As of December 31, 2018, the remaining balance of our transition tax obligation was $3.2 million, which will be paid over the next seven years. The Tax Act also contained a new GILTI tax provision and due to the complexity and timing of the enactment, the Company did not record any provisional amount in the December 31, 2017 Consolidated Financial Statements, or make a policy decision regarding whether to record deferred taxes related to GILTI. In accordance with U.S. GAAP, the Company has made an accounting policy election to treat taxes due under the GILTI tax provision as a current period expense. The GILTI provision resulted in a current period expense of $0.3 million. The following table summarizes the tax effects of temporary differences between the Consolidated Financial Statements carrying amount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. In connection with the failed spin-off-leaseback, the Company continued to record real estate assets and a financing obligation of $2.0 billion and $3.5 billion, respectively, on November 1, 2013, which resulted in a substantial increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre-tax losses during the most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted. The components of the Company’s deferred tax assets and liabilities were as follows:
| December 31,
(in thousands) | 2018 |  | 2017
Deferred tax assets: |  |  |
Stock-based compensation expense | $ | 8,998 |  |  | $ | 15,038 |
Accrued expenses | 42,897 |  |  | 39,474 |
Loan to the JIVDC | — |  |  | 26,237 |
Financing obligations associated with Master Leases | 1,919,718 |  |  | 900,311 |
Unrecognized tax benefits | 6,732 |  |  | 6,565 |
Investments in unconsolidated affiliates | 3,579 |  |  | — |
Net operating losses, interest limitation and tax credit carryforwards | 122,785 |  |  | 59,842 |
Gross deferred tax assets | 2,104,709 |  |  | 1,047,467 |
Less: Valuation allowance | (89,508 | ) |  | (113,699 | )
Net deferred tax assets | 2,015,201 |  |  | 933,768 |
Deferred tax liabilities: |  |  |
Property and equipment, non-Master Leases | (47,308 | ) |  | (33,148 | )
Property and equipment, Master Leases | (1,599,907 | ) |  | (469,363 | )
Investments in unconsolidated affiliates | — |  |  | (1,218 | )
Undistributed foreign earnings | (349 | ) |  | (2,061 | )
Intangibles | (287,025 | ) |  | (37,035 | )
Net deferred tax liabilities | (1,934,589 | ) |  | (542,825 | )
Noncurrent deferred tax assets, net | $ | 80,612 |  |  | $ | 390,943 |
We recorded a $1.0 billion increase in gross deferred income tax assets and $1.4 billion increase in gross deferred tax liabilities in connection with the acquisition of Pinnacle, which were primarily related to temporary differences associated with the financing obligation on the Pinnacle Master Lease, acquired net operating losses, and property and equipment assumed under the Pinnacle Master Lease, as amended. Pinnacle properties will now be included in our consolidated federal and state tax returns, which impacted our effective tax rate in certain jurisdictions in the fourth quarter 2018. The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration to all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes. The Company determined that a valuation allowance was no longer required against its federal and state net deferred tax assets for the portion that will be realized. The most significant evidence that led to the reversal of the valuation allowance during the three months ended September 30, 2017 included the following:
• | Achievement and sustained growth in our three-year cumulative pretax earnings. During the fourth quarter 2016, we emerged from a three-year cumulative pretax loss position, generating a near break-even cumulative amount of pretax income. This cumulative pretax income increased to $76.6 million as of September 30, 2017 and was expected to rise substantially at year-end since the Company had recorded a $161.5 million pretax loss in the fourth quarter 2014 due to impairment charges of $155.3 million in that period.
• | Substantial pretax income in seven of the last eight quarters with the only loss reported eight quarters ago.
• | Lack of significant goodwill and intangible asset impairment charges expected in 2017. The Company had experienced significant impairment charges in connection with the spin-off of its real estate assets to GLPI in November 2013. The Company recorded impairment charges totaling $40.0 million, $159.9 million and $798.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. There were no impairments recorded in 2016 and for the nine months ended September 30, 2017, the Company recorded impairments of $29.9 million.
For the three months ended December 31, 2017, there were no material changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal and state net deferred tax assets for the portion that is more-likely-than-not to be realized. As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard. Moreover, the Company continued to experience significant three-year cumulative pretax income of $185.5 million as of December 31, 2018 supporting the position that a federal valuation allowance is not necessary excluding the valuation allowance recorded on the federal capital loss carryforwards. During the three months ended December 31, 2018, we released a partial valuation allowance on a capital loss carryforward in the amount of $22.4 million that offset the capital gain realized on the Plainridge Park Casino Sale-Leaseback. This reversal is reflected in our income tax benefit within the Consolidated Statements of Operations. The Company continued to maintain a valuation allowance of $89.5 million as of December 31, 2018 primarily related to certain state filing groups where we continue to be in a cumulative three-year pretax loss position. Following the ownership changes of the Tropicana Las Vegas and more recently the Pinnacle Acquisition, the Company had $252.8 million of total federal net operating loss carryforwards and a Section 163(j) interest limitation carryforward of $18.0 million. The portion of tax attributes that will expire on various dates from 2020 through 2037 is $182.1 million. The remaining tax attributes do not expire. The utilization of indefinite federal net operating loss carryforwards is limited to 80% of taxable income in any given year. As management receives additional information during the measurement period, the tax attributes acquired from Pinnacle may be adjusted through goodwill and accounted for in the period they arise. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations, however, we believe it is more-likely-than-not that the benefit from these tax attributes will be realized. For state income tax reporting, the Company had gross state net operating loss carryforwards aggregating approximately $835.2 million available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania and the States of Missouri, New Mexico, Louisiana, Iowa, Illinois, and Ohio localities as of December 31, 2018. The tax benefit associated with these net operating loss carryforwards was approximately $53.2 million. Due to statutorily limited operating loss carryforwards and income and loss projections in the applicable jurisdictions, a valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be realized in the amount of $32.1 million. If not used, substantially all the carryforwards will expire at various dates from December 31, 2019 to December 31, 2038. The increase in total gross state net operating loss carryforwards was largely due to the tax attributes acquired upon closing the Pinnacle Acquisition. Following the ownership change, the Company acquired approximately $382.0 million of gross state net operating loss carryforwards available to reduce future state income taxes. Overall, the Company’s valuation allowance decreased year-over-year by a net amount of $24.2 million, primarily due to the partial recognition of a capital loss carryforward associated with the loan to the JIVDC that offset the capital gain recognized from the Plainridge Park Casino Sale-Leaseback. The tax effects of the Pinnacle Acquisition were immaterial to the Company’s valuation allowance; however, they are preliminary and subject to change during the measurement period. A change in purchase accounting may affect the recorded deferred tax assets and liabilities and our effective rate in a future period. The domestic and foreign components of income (loss) before income taxes for the years ended December 31, 2018, 2017 and 2016 were as follows:
| For the year ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Domestic | $ | 89,582 |  |  | $ | (29,538 | ) |  | $ | 116,693 |
Foreign | 339 |  |  | 4,494 |  |  | 3,924 |
Total | $ | 89,921 |  |  | $ | (25,044 | ) |  | $ | 120,617 |
The provision for income taxes charged to operations for the years ended December 31, 2018, 2017 and 2016 was as follows:
| For the year ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Current tax benefit (expense) |  |  |  |  |
Federal | $ | (15,336 | ) |  | $ | (16,318 | ) |  | $ | (8,721 | )
State | (6,402 | ) |  | (6,062 | ) |  | (3,489 | )
Foreign | (1,349 | ) |  | 2,981 |  |  | 9,639 |
Total current | (23,087 | ) |  | (19,399 | ) |  | (2,571 | )
Deferred tax benefit (expense) |  |  |  |  |
Federal | 14,576 |  |  | 480,712 |  |  | (4,701 | )
State | 10,945 |  |  | 39,255 |  |  | (3,279 | )
Foreign | 1,159 |  |  | (2,061 | ) |  | (756 | )
Total deferred | 26,680 |  |  | 517,906 |  |  | (8,736 | )
Total income tax benefit (expense) | $ | 3,593 |  |  | $ | 498,507 |  |  | $ | (11,307 | )
The following table reconciles the statutory federal income tax rate to the actual effective income tax rate for the years ended December 31, 2018, 2017 and 2016:
| For the year ended December 31,
| 2018 |  | 2017 |  | 2016
Percent of pretax income |  |  |  |  |
Federal statutory rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes - net of federal benefits | (6.2 | ) |  | 6.3 |  |  | 1.2 |
Nondeductible expenses | 6.9 |  |  | (16.0 | ) |  | 0.3 |
Goodwill impairment | — |  |  | (20.5 | ) |  | — |
Compensation | (3.8 | ) |  | 29.5 |  |  | (1.5 | )
Contingent liability settlement | — |  |  | 22.9 |  |  | 0.6 |
Foreign | (0.1 | ) |  | 11.3 |  |  | (8.5 | )
Valuation allowance | (20.3 | ) |  | 2,962.3 |  |  | (17.1 | )
Tax Act - deferred rate change | — |  |  | (1,043.5 | ) |  | — |
Other miscellaneous items | (1.5 | ) |  | 3.3 |  |  | (0.6 | )
Total effective tax rate | (4.0 | )% |  | 1,990.6 | % |  | 9.4 | %
The income tax benefit (expense) differs from the federal statutory amount due to the effect of the items detailed in the table below:
| For the year ended December 31,
(in thousands) | 2018 |  | 2017 |  | 2016
Amount of pretax income |  |  |  |  |
Federal statutory rate | $ | (18,883 | ) |  | $ | 8,765 |  |  | $ | (42,216 | )
State and local income taxes - net of federal benefits | 5,615 |  |  | 1,567 |  |  | (1,498 | )
Nondeductible expenses | (6,161 | ) |  | (4,018 | ) |  | (371 | )
Goodwill impairment | — |  |  | (5,131 | ) |  | — |
Compensation | 3,369 |  |  | 7,376 |  |  | 1,817 |
Contingent liability settlement | — |  |  | 5,740 |  |  | (756 | )
Foreign | 117 |  |  | 2,840 |  |  | 10,268 |
Valuation allowance | 18,275 |  |  | 741,872 |  |  | 20,675 |
Tax Act - deferred rate change | — |  |  | (261,329 | ) |  | — |
Other miscellaneous items | 1,261 |  |  | 825 |  |  | 774 |
Total income tax benefit (expense) | $ | 3,593 |  |  | $ | 498,507 |  |  | $ | (11,307 | )
A reconciliation of the beginning and ending amounts for the liability for unrecognized tax benefits was as follows:
(in thousands) | Unrecognized tax benefits
Unrecognized tax benefits as of January 1, 2017 | $ | 26,792 |
Additions based on current year positions | 2,979 |
Additions based on prior year positions | 2,836 |
Decreases due to settlements and/or reduction in reserves | (1,322 | )
Currency translation adjustments | (119 | )
Settlement payments | (216 | )
Unrecognized tax benefits as of December 31, 2017 | 30,950 |
Additions based on current year positions | — |
Additions based on prior year positions | 775 |
Decreases due to settlements and/or reduction in reserves | (2,005 | )
Currency translation adjustments | (39 | )
Settlement payments | — |
Unrecognized tax benefits as of December 31, 2018 | $ | 29,681 |
The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded within the Consolidated Balance Sheets. The Company will continue to classify any income tax related penalties and interest accrued related to unrecognized tax benefits in the income tax provisions within the Consolidated Statements of Operations. During the year ended December 31, 2018, the Company did no t record any new tax reserves, and accrued interest or penalties related to current year uncertain tax positions. The tax reserves acquired through the Pinnacle Acquisition were immaterial and as such we did not disclose separately in the reconciliation above. In regard to prior year tax positions, the Company recorded $0.8 million of tax reserves and accrued interest and reversed $2.2 million of previously recorded tax reserves and accrued interest for uncertain tax positions that are anticipated to settle and/or close within the next 12 months. We recognize accrued interest and penalties related to uncertain tax positions as a component of income taxes. The unrecognized tax benefits of $30.4 million are included in “Noncurrent tax liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax expense of $0.5 million in connection with its uncertain tax positions for the year ended December 31, 2018. Included in the liability for unrecognized tax benefits as of December 31, 2018 and 2017 were $23.6 million and $25.1 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. Also included in the reserve as of December 31, 2018 and 2017, was less than $0.1 million and $0.1 million, respectively, of currency translation gain related to foreign currency tax positions and the settlement receivable on account. During the years ended December 31, 2018 and 2017, the Company recognized approximately $0.5 million and $1.7 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $0.2 million, net of deferred taxes. These accruals are included in “Noncurrent tax liabilities” within the Company’s Consolidated Balance Sheets. The Company is currently in various stages of the examination process in connection with its open audits. Generally, it is difficult to determine when these examinations will be closed, but the Company reasonably expects that its ASC 740 liabilities will not significantly change over the next twelve months. As of December 31, 2018, the Company is subject to U.S. federal income tax examinations for the tax years 2015, 2016, and 2017. In addition, the Company is subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which the Company operates. As of December 31, 2018 and 2017, “Prepaid expenses” within the Company’s Consolidated Balance Sheets included prepaid income taxes of $14.9 million and $12.0 million, respectively.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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