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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
INCOME TAXES |
13. | INCOME TAXES
As discussed in Note 1, the Company began operating in compliance with REIT requirements for federal income tax purposes effective January 1, 2013. As a REIT, the Company must distribute at least 90 percent of its taxable income (including dividends paid to it by its TRSs) and will not pay federal income taxes on the amount distributed to its stockholders. In addition, the Company must meet a number of other organizational and operational requirements, which the Company currently expects to continue to meet. Most states where CoreCivic holds investments in real estate conform to the federal rules recognizing REITs. Certain subsidiaries have made an election with the Company to be treated as TRSs in conjunction with the Company's REIT election; the TRS elections permit CoreCivic to engage in certain business activities in which the REIT may not engage directly. A TRS is subject to federal and state income taxes on the income from these activities and therefore, CoreCivic includes a provision for taxes in its consolidated financial statements. The TCJA was enacted on December 22, 2017. The TCJA reduced the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign-sourced earnings. However, the TCJA did not change the dividends paid deduction applicable to REITs and, therefore, CoreCivic generally will not be subject to federal income taxes on the Company's REIT taxable income and gains that it distributes to its stockholders. In the fourth quarter of 2017, the Company recorded, in accordance with ASC 740, the tax effects of enactment of the TCJA on existing deferred tax balances and there was no one-time transition tax on foreign earnings. The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. In the fourth quarter of 2017, the Company recognized a charge of $4.5 million, which was included as a component of income tax expense, for the revaluation of deferred tax assets and liabilities and other taxes associated with the TCJA. CoreCivic applied the guidance in the SEC Staff Accounting Bulletin 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" when accounting for the enactment-date effects of the TCJA in 2017 and throughout 2018. During the third quarter of 2018, the Company revised its estimates of the revaluation of deferred tax assets and liabilities resulting in the recognition of an additional charge of $1.0 million, which was also included as a component of income tax expense. Upon this revision in the third quarter of 2018, the Company completed its accounting for all of the enactment-date income tax effects of the TCJA. Income tax expense is comprised of the following components (in thousands):
|  | For the Years Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current income tax expense |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 5,324 |  |  | $ | 10,481 |  |  | $ | 10,202 |
State |  |  | 3,677 |  |  |  | 2,308 |  |  |  | 2,788 |
|  |  | 9,001 |  |  |  | 12,789 |  |  |  | 12,990 |
Deferred income tax expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (489 | ) |  |  | (3,422 | ) |  |  | 1,088 |
State |  |  | (673 | ) |  |  | (1,014 | ) |  |  | (167 | )
|  |  | (1,162 | ) |  |  | (4,436 | ) |  |  | 921 |
Income tax expense |  | $ | 7,839 |  |  | $ | 8,353 |  |  | $ | 13,911 |
Significant components of CoreCivic's deferred tax assets and liabilities as of December 31, 2019 and 2018, are as follows (in thousands):
|  | December 31, |
|  | 2019 |  |  | 2018 |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |
Asset reserves and liabilities not yet deductible for tax |  | $ | 28,247 |  |  | $ | 21,742 |
Tax over book basis of certain assets |  |  | 1,451 |  |  |  | 1,665 |
Net operating loss and tax credit carryforwards |  |  | 5,130 |  |  |  | 5,483 |
Intangible contract value |  |  | 262 |  |  |  | 148 |
Other |  |  | 103 |  |  |  | 123 |
Total noncurrent deferred tax assets |  |  | 35,193 |  |  |  | 29,161 |
Less valuation allowance |  |  | (3,865 | ) |  |  | (3,986 | )
Total noncurrent deferred tax assets |  |  | 31,328 |  |  |  | 25,175 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |
Book over tax basis of certain assets |  |  | (11,478 | ) |  |  | (5,707 | )
Intangible value |  |  | (2,264 | ) |  |  | (2,370 | )
Other |  |  | (1,528 | ) |  |  | (2,151 | )
Total noncurrent deferred tax liabilities |  |  | (15,270 | ) |  |  | (10,228 | )
Net total noncurrent deferred tax assets |  | $ | 16,058 |  |  | $ | 14,947 |
A reconciliation of the income tax provision at the statutory income tax rate and the effective tax rate as a percentage of income from continuing operations before income taxes for the years ended December 31, 2019, 2018, and 2017 is as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Statutory federal rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 35.0 | %
Dividends paid deduction |  |  | (18.9 | ) |  |  | (18.6 | ) |  |  | (31.3 | )
State taxes, net of federal tax benefit |  |  | 1.2 |  |  |  | 1.0 |  |  |  | 1.2 |
Permanent differences |  |  | 1.2 |  |  |  | 1.0 |  |  |  | 0.6 |
Charges associated with adoption of tax reform |  |  | — |  |  |  | 0.6 |  |  |  | 2.4 |
Tax benefit of equity-based compensation |  |  | 0.1 |  |  |  | 0.5 |  |  |  | (0.5 | )
Other items, net |  |  | (0.6 | ) |  |  | (0.5 | ) |  |  | (0.2 | )
|  |  | 4.0 | % |  |  | 5.0 | % |  |  | 7.2 | %
CoreCivic's effective tax rate was 4.0%, 5.0%, and 7.2% during 2019, 2018, and 2017, respectively. As a REIT, CoreCivic is entitled to a deduction for dividends paid, resulting in a substantial reduction in the amount of federal income tax expense it recognizes. Substantially all of CoreCivic's income tax expense is incurred based on the earnings generated by its TRSs. CoreCivic's overall effective tax rate is based on its taxable income primarily generated by its TRSs. The Company's consolidated effective tax rate could fluctuate in the future based on changes in estimates of taxable income, the relative amounts of taxable income generated by the TRSs and the REIT, the implementation of additional tax planning strategies, changes in federal or state tax rates or laws affecting tax credits available to the Company, changes in other tax laws, changes in estimates related to uncertain tax positions, or changes in state apportionment factors, as well as changes in the valuation allowance applied to the Company's deferred tax assets that are based primarily on the amount of state net operating losses and tax credits that could expire unused. CoreCivic had no liabilities for uncertain tax positions as of December 31, 2019 and 2018. CoreCivic recognizes interest and penalties related to unrecognized tax positions in income tax expense. CoreCivic does not currently anticipate that the total amount of unrecognized tax positions will significantly change in the next twelve months. CoreCivic's U.S. federal income tax returns for tax years 2016 through 2018 remain subject to examination by the IRS. All states in which CoreCivic files income tax returns follow the same statute of limitations as the federal government, with the exception of the following states whose open tax years include 2015 through 2018: Arizona, California, Colorado, Kentucky, Minnesota, New Jersey, Texas, and Wisconsin. In October 2019, the Company received notification that the IRS intended to commence an audit of the federal income tax return of the Company's REIT for the year ended December 31, 2017. The IRS has begun its audit. Audit outcomes and the timing of any settlements of asserted income tax liabilities, if any, are subject to significant uncertainty. The generally applicable statute of limitations for assessments of United States federal income taxes remains open for tax years 2016 to present.

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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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