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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
INCOME TAXES |
13. | INCOME TAXES
As discussed in Note 1, the Company has operated in compliance with REIT requirements for federal income tax purposes from January 1, 2013 through December 31, 2020. During the years the Company elected REIT status, the Company was required to distribute at least 90 percent of its taxable income (including dividends paid to it by its TRSs) and did not pay federal income taxes on the amount distributed to its stockholders. In addition, the Company was required to meet a number of other organizational and operational requirements, which the Company continued to meet through the year ending December 31, 2020. 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 has included 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 was not subject to federal income taxes on the Company's REIT taxable income and gains that it distributed 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 completed its accounting for the TCJA and 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. Income tax expense (benefit) is comprised of the following components (in thousands):
|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current income tax expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (1,928 | ) |  | $ | 5,324 |  |  | $ | 10,481 |
State |  |  | 1,369 |  |  |  | 3,677 |  |  |  | 2,308 |
|  |  | (559 | ) |  |  | 9,001 |  |  |  | 12,789 |
Deferred income tax expense (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 3,878 |  |  |  | (489 | ) |  |  | (3,422 | )
State |  |  | 1,067 |  |  |  | (673 | ) |  |  | (1,014 | )
|  |  | 4,945 |  |  |  | (1,162 | ) |  |  | (4,436 | )
Income tax expense |  | $ | 4,386 |  |  | $ | 7,839 |  |  | $ | 8,353 |
Income tax expense during 2020 included $3.1 million, recorded in the first quarter of 2020, that had been deferred during the construction period of the Lansing Correctional Facility, which was owned by a TRS of the Company until it converted to a qualified REIT subsidiary ("QRS") upon completion of construction in the first quarter of 2020. Because ownership of this facility reverts to the state of Kansas upon expiration of the twenty-year lease, the construction and subsequent lease of the facility to the State was a deemed sale for federal and state income tax purposes. The gain on sale was reported as a deferred tax asset based on the percentage of completion method over the construction period. This deferred tax asset was revalued to zero upon conversion of the TRS to a QRS. Significant components of CoreCivic's deferred tax assets and liabilities as of December 31, 2020 and 2019, are as follows (in thousands):
|  | December 31, |
|  | 2020 |  |  | 2019 |
Noncurrent deferred tax assets: |  |  |  |  |  |  |  |
Asset reserves and liabilities not yet deductible for tax |  | $ | 21,482 |  |  | $ | 28,247 |
Tax over book basis of certain assets |  |  | 1,001 |  |  |  | 1,451 |
Net operating loss and tax credit carryforwards |  |  | 3,782 |  |  |  | 5,130 |
Intangible contract value |  |  | 699 |  |  |  | 262 |
Other |  |  | 68 |  |  |  | 103 |
Total noncurrent deferred tax assets |  |  | 27,032 |  |  |  | 35,193 |
Less valuation allowance |  |  | (848 | ) |  |  | (3,865 | )
Total noncurrent deferred tax assets |  |  | 26,184 |  |  |  | 31,328 |
Noncurrent deferred tax liabilities: |  |  |  |  |  |  |  |
Book over tax basis of certain assets |  |  | (11,305 | ) |  |  | (11,478 | )
Intangible value |  |  | (2,149 | ) |  |  | (2,264 | )
Other |  |  | (1,617 | ) |  |  | (1,528 | )
Total noncurrent deferred tax liabilities |  |  | (15,071 | ) |  |  | (15,270 | )
Net total noncurrent deferred tax assets |  | $ | 11,113 |  |  | $ | 16,058 |
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, 2020, 2019, and 2018 is as follows:
|  | 2020 |  |  | 2019 |  |  | 2018 |
Statutory federal rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Dividends paid deduction |  |  | (24.9 | ) |  |  | (18.9 | ) |  |  | (18.6 | )
State taxes, net of federal tax benefit |  |  | 1.9 |  |  |  | 1.2 |  |  |  | 1.0 |
Permanent differences |  |  | 2.2 |  |  |  | 1.2 |  |  |  | 1.0 |
Charges associated with adoption of tax reform |  |  | — |  |  |  | — |  |  |  | 0.6 |
Deferred tax expense on Kansas lease structure |  |  | 5.2 |  |  |  | — |  |  |  | — |
Tax benefit of equity-based compensation |  |  | 1.1 |  |  |  | 0.1 |  |  |  | 0.5 |
Other items, net |  |  | 0.8 |  |  |  | (0.6 | ) |  |  | (0.5 | )
|  |  | 7.3 | % |  |  | 4.0 | % |  |  | 5.0 | %
CoreCivic's effective tax rate was 7.3%, 4.0%, and 5.0% during 2020, 2019, and 2018, respectively. During the years the Company elected REIT status, CoreCivic was 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 during the years the Company elected REIT status was incurred based on the earnings generated by its TRSs. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferral of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The accelerated depreciation methods for qualified improvement property significantly reduced the Company's taxable income and, therefore, its distribution requirement as a REIT for 2020. Additionally, as of December 31, 2020, the Company has deferred payment of $29.6 million of employer-side social security payments. Half of these deferrals will be due December 31, 2021, with the other half due December 31, 2022. On August 5, 2020, the Company announced that the BOD unanimously approved a plan to revoke its REIT election and become a taxable C Corporation, effective January 1, 2021. As a result, the Company will no longer be required to operate under REIT rules, including the requirement to distribute at least 90% of its taxable income to its stockholders, which will provide the Company with greater flexibility to use its free cash flow. Beginning January 1, 2021, the Company will be subject to federal and state income taxes on its taxable income at applicable tax rates, and will no longer be entitled to a tax deduction for dividends paid. The revocation of the Company's REIT election will also result in a revaluation of its net deferred tax liabilities, resulting in a material income tax charge in the period the Company has completed all significant actions necessary to revoke its REIT election, currently expected to occur in the first quarter of 2021. The Company currently estimates the charge to be $100.0 million to $135.0 million. The Company continued to operate as a REIT for the 2020 tax year, and existing REIT requirements and limitations, including those established by the Company’s organizational documents, remained in place until January 1, 2021. The Company's consolidated effective tax rate could fluctuate in the future based on changes in estimates of taxable income, 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, 2020 and 2019. 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 2017 through 2019 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 2016 through 2019: Arizona, California, Colorado, Kentucky, Minnesota, New Jersey, Texas, and Wisconsin. In October 2019, the Company received notification that the Internal Revenue Service ("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 also conducted audit procedures related to the Company's TRSs for the same year. The Company received notice in January 2021 that the audit was complete with no material findings.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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