Income Taxes

We have elected to be treated as a REIT under the provisions of the Internal Revenue Code, which requires that we distribute at least 90% of our taxable income annually to our stockholders and comply with certain other requirements. In addition to paying federal and state taxes on any retained income, we may be subject to taxes on “built in gains” on sales of certain assets. Our taxable REIT subsidiaries are subject to federal, state, local and/or foreign income taxes.

Our provision (benefit) for income taxes consists of the following (in thousands):



	Year Ended December 31,
	2014		2013			2012
Current - Federal	$	—	$	—		$	—
State	269		257			348
Foreign	208		70			—
	477		327			348
Deferred - Federal	3,933		(1,626		)	(5,374		)
State	1,105		(167		)	(1,456		)
Foreign	121		353			(311		)
	5,159		(1,440		)	(7,141		)
Income tax provision (benefit) from continuing operations	$	5,636	$	(1,113	)	$	(6,793	)
Income tax provision from discontinued operations	$	—	$	1,097		$	747

A reconciliation of the statutory federal tax provision to our income tax provision (benefit) is as follows (in thousands):



	Year Ended December 31,
	2014			2013			2012
Statutory federal tax provision (35)%	$	59,155		$	7,950		$	(8,703	)
Tax impact of REIT election	(52,937		)	(8,641		)	3,290
State income tax provision (benefit), net of federal tax benefit	893			58			(720		)
Foreign income tax benefit	(1,603		)	(552		)	(694		)
Foreign tax rate adjustment	—			—			—
Other	128			72			34
Income tax provision (benefit) from continuing operations	$	5,636		$	(1,113	)	$	(6,793	)

We are required to pay franchise taxes in certain jurisdictions. We recorded approximately $0.4 million of franchise taxes during each of the years ended December 31, 2014, 2013 and 2012, which are classified as corporate expenses in the accompanying consolidated statements of operations.

Deferred income taxes are recognized for temporary differences between the financial reporting bases of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are paid. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realizable based on consideration of available evidence, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. Deferred tax assets are included in prepaid and other assets and deferred tax liabilities are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets. The total deferred tax assets and liabilities are as follows (in thousands):



	2014			2013
Deferred income related to key money	$	8,636		$	9,406
Net operating loss carryforwards	31,178			28,663
Alternative minimum tax credit carryforwards	72			129
Other	601			1,228
Deferred tax assets	40,487			39,426
Land basis difference recorded in purchase accounting	(4,260		)	(4,260		)
Depreciation and amortization	(12,947		)	(6,738		)
Deferred tax liabilities	(17,207		)	(10,998		)
Deferred tax asset, net	$	23,280		$	28,428

We believe that we will have sufficient future taxable income, including future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies to realize existing deferred tax assets. Deferred tax assets of $9.3 million are expected to be recovered against reversing existing taxable temporary differences. The remaining deferred tax assets of $31.2 million, primarily consisting of net operating loss carryforwards, are dependent upon future taxable earnings of the TRS. The net operating loss carryforwards expire in 2028, 2029, 2033 and 2034.

The Frenchman's Reef & Morning Star Marriott Beach Resort is owned by a subsidiary that has elected to be treated as a TRS, and is subject to U.S. Virgin Islands (USVI) income taxes. We were party to a tax agreement with the USVI that reduced the income tax rate to approximately 7%. This arrangement expired in February 2015. We are diligently working to extend this agreement, which, if extended, would relate back to the date of expiration, but we may not be successful. If the arrangement is not extended, we are subject to an income tax rate of 37.4%.