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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes |
Income Taxes | Note 18—Income Taxes We are organized and conduct our operations to qualify as a REIT and to comply with the provisions of the Internal Revenue Code. A REIT is generally not subject to federal income tax on taxable income which it distributes to its stockholders, provided that it distributes at least 90% of its REIT–taxable income and meets certain other requirements. Certain REIT income may be subject to state and local income taxes. In 2019, we elected to retain excess inclusion income rather than passing it through to our shareholders. Consequently, we had REIT-federal taxable income, net of dividends paid deduction, for 2019, and therefore, have provided for REIT federal income tax expense of $0.6 million attributable to excess inclusion income. We did not have any REIT–federal taxable income, net of dividends paid and net operating loss deductions, for 2018 and 2017, and therefore, have not provided for REIT federal income tax expense. The REIT incurred state tax expense/(benefit) for 2019, 2018 and 2017 , in the amount of $0.1 million, ($0.1) million and $1.0 million, respectively. For the 2009 and 2010 tax years, the income and the tax on certain debt extinguishment transactions was, at our election, deferred to be recognized ratably over five years from 2014 to 2018. Certain of our assets and operations that would not otherwise comply with the REIT requirements, such as the Agency Business, are owned or conducted through our TRS Consolidated Group, the majority of the income of which is subject to U.S. federal, state and local income taxes. The TRS Consolidated Group has federal net operating losses from prior years which will be used against the income from the Agency Business. For 2019, 2018 and 2017, we recorded a provision for income taxes related to the assets held in the TRS Consolidated Group and the REIT in the amount of $15.0 million, $9.7 million and $13.4 million, respectively. In 2019, valuation allowance previously recorded at the TRS Consolidated Group was released in the amount of $3.3 million on the deferred tax assets subject to loss limitation rules. In 2018, valuation allowance was recorded at the TRS Consolidated Group in the amount of $0.3 million on the deferred tax assets related to capital loss carryforwards. In 2017, valuation allowance previously recorded at the TRS Consolidated Group was released in the amount of $3.5 million. In January 2018, the $50.0 million preferred equity interest entered into with ACM to finance a portion of the Acquisition purchase price was paid off. When we entered into the Acquisition, we established a deferred tax liability in connection with the $50.0 million preferred equity interest. Upon payoff in January 2018, the deferred tax liability was written off and we recorded a deferred tax benefit in the amount of $12.5 million. See Note 19 for details. A summary of our pre-tax GAAP income is as follows (in thousands):
|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Pre-tax GAAP income: |  |  |  |  |  |  |  |  |
REIT |  | $ | 94,076 |  | $ | 64,260 |  | $ | 66,988
TRS Consolidated Group |  |  | 76,198 |  |  | 93,522 |  |  | 43,880
Total pre-tax GAAP income |  | $ | 170,274 |  | $ | 157,782 |  | $ | 110,868
Our provision for (benefit from) income taxes is comprised as follows (in thousands):
|  | Year Ended December 31,
|  | 2019 |  | 2018 |  | 2017
Current tax provision: |  |  |  |  |  |  |  |  |
Federal |  | $ | 12,380 |  | $ | 17,479 |  | $ | 17,201
State |  |  | 2,505 |  |  | 4,285 |  |  | 3,557
Total |  |  | 14,885 |  |  | 21,764 |  |  | 20,758
Deferred tax provision (benefit) : |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,744 |  | $ | (9,446) |  | $ | (2,928)
State |  |  | 688 |  |  | (2,867) |  |  | (929)
Valuation allowance |  |  | (3,281) |  |  | 280 |  |  | (3,542)
Total |  |  | 151 |  |  | (12,033) |  |  | (7,399)
Total income tax expense |  | $ | 15,036 |  | $ | 9,731 |  | $ | 13,359
A reconciliation of our effective income tax rate as a percentage of pre-tax income to the U.S. federal statutory rate is as follows:
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
U.S. federal statutory rate |  | 21.0 | % | 21.0 | % | 35.0 | %
REIT non-taxable income |  | (11.3) |  | (8.6) |  | (21.2) |
State and local income taxes, net of federal tax benefit |  | 1.5 |  | 0.6 |  | 1.6 |
Change in valuation allowance |  | (1.9) |  | 0.2 |  | (1.3) |
Preferred equity interest deferred tax write-off |  | — |  | (6.3) |  | — |
Tax rate change |  | — |  | — |  | (4.8) |
Other |  | (0.5) |  | (0.7) |  | 2.7 |
Effective income tax rate |  | 8.8 | % | 6.2 | % | 12.0 | %
The significant components of our deferred tax assets and liabilities of our TRS Consolidated Group are as follows (in thousands):
|  | December 31,
|  | 2019 |  | 2018
Deferred tax assets: |  |  |  |  |  |
Expenses not currently deductible |  | $ | 14,850 |  | $ | 11,853
Loan loss reserves |  |  | 8,863 |  |  | 8,614
Net operating and capital loss carryforwards |  |  | 417 |  |  | 417
Valuation allowance |  |  | (417) |  |  | (3,698)
Deferred tax assets, net |  | $ | 23,713 |  | $ | 17,186
Deferred tax liabilities: |  |  |  |  |  |
Interest in equity affiliates–net |  | $ | 1,587 |  | $ | 136
Intangibles |  |  | 8,684 |  |  | 9,674
Mortgage servicing rights |  |  | 11,476 |  |  | 5,290
Other |  |  | 837 |  |  | 807
Deferred tax liabilities, net |  | $ | 22,584 |  | $ | 15,907
The Tax Reform was signed into law on December 22, 2017. Among numerous provisions included in the new tax law was the reduction of the corporate federal income tax rate from 35% to 21%. The provision for income taxes for 2019 and 2018 reflects the newly enacted corporate federal income tax rate of 21%. We applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Reform throughout 2018 and in 2017. At December 31, 2018, we completed our accounting for the enactment-date income tax effects of the Tax Reform and no material adjustments were recorded. At December 31, 2017, the provision for income taxes for 2017 included the newly enacted corporate federal income tax rate of 21%, which resulted in a deferred income tax benefit of approximately $5.3 million primarily from applying the new lower income tax rates to our net long term deferred tax assets and liabilities recorded on our consolidated balance sheets. At December 31, 2019, our TRS Consolidated Group, had approximately $23.7 million of deferred tax assets net of a $0.4 million valuation allowance. The deferred tax assets consist of expenses not currently deductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by approximately $22.6 million in deferred tax liabilities consisting of timing differences from investments in equity affiliates, intangibles, and mortgage servicing rights. At December 31, 2018, our TRS Consolidated Group, had approximately $17.2 million of deferred tax assets net of a $3.7 million valuation allowance. The deferred tax assets consist of expenses not currently deductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by approximately $15.9 million in deferred tax liabilities consisting of timing differences from investments in equity affiliates, intangibles, and mortgage servicing rights. As of both December 31, 2019 and 2018, the REIT (excluding the TRS Consolidated Group) had no federal net operating loss carryforwards remaining and no capital loss carryforwards. At both of December 31, 2019 and 2018, the TRS Consolidated Group had federal and state net operating loss carryforwards of approximately $0.5 million, which will expire through 2031 and capital loss carryforwards of approximately $1.1 million, which will expire through 2023. We have assessed our tax positions for all open years, which includes 2016-2019, and have concluded that there were no material uncertainties to be recognized. We have not recognized any interest and penalties related to tax uncertainties for the years ended 2016 through 2019.

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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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