17.	Income Taxes

The Company elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that the Company distribute at least 90% of its taxable income to its shareholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes to its shareholders. As the Company distributed sufficient taxable income for each of the three years ended December 31, 2014, no U.S. federal income or excise taxes were incurred.

If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain foreign, state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income. In addition, the Company has a TRS that is subject to federal, state and local income taxes on any taxable income generated from its operational activity.

In order to maintain its REIT status, the Company must meet certain income tests to ensure that its gross income consists of passive income and not income from the active conduct of a trade or business. The Company utilizes its TRS to the extent certain fee and other miscellaneous non-real estate-related income cannot be earned by the REIT. In addition, the Company is subject to income tax on any taxable income generated from its operations in Puerto Rico.

At December 31, 2014, 2013 and 2012, the tax cost basis of assets was $10.6 billion, $10.4 billion and $8.7 billion, respectively. For the years ended December 31, 2014, 2013 and 2012, the Company recorded a net payment of $1.6 million, $1.9 million and $1.1 million, respectively, related to taxes. These amounts reflect taxes paid to federal and state authorities for franchise and other taxes.

The following represents the combined activity of the Company’s TRS and its taxable activity in Puerto Rico (in thousands):

	For the Year Ended December 31,
TRS	2014		2013		2012
Book income (loss) before income taxes	$	12,104	$	6,705	$	(16,934	)
Current	$	—	$	—	$	—
Deferred		—		—		—
Total expense	$	—	$	—	$	—

	For the Year Ended December 31,
Puerto Rico	2014			2013			2012
Book loss before income taxes	$	(11,040	)	$	(9,919	)	$	(19,738	)
Current	$	—		$	673		$	—
Deferred		—			—			—
Total expense	$	—		$	673		$	—

At December 31, 2014 and 2013, the Company had combined net deferred tax assets of $84.5 million and $86.5 million, respectively. The net deferred tax asset at December 31, 2014, included $36.4 million attributed to TRS net operating loss carryforwards that expire in varying amounts between the years 2022 through 2034 and $48.3 million of Puerto Rico special partnership loss carryforwards with no expiration date.

The differences between total income tax expense or benefit and the amount computed by applying the statutory income tax rate to income before taxes with respect to its TRS activity and its Puerto Rico activity were as follows (in thousands):

	For the Year Ended December 31,
TRS	2014			2013			2012
Statutory rate of 34% applied to pre-tax income (loss)	$	4,115		$	2,280		$	(5,757	)
Effect of state and local income taxes, net of federal tax benefit		605			335			(847	)
Valuation allowance (decrease) increase		(6,144	)		(1,725	)		16,808
Other		1,424			(890	)		(10,204	)
Total expense	$	—		$	—		$	—
Effective tax rate		0.00	%		0.00	%		0.00	%

	For the Year Ended December 31,
Puerto Rico	2014			2013			2012
Statutory rate of 39%^(A) applied to pre-tax loss	$	(4,306	)	$	(3,869	)	$	(5,921	)
Valuation allowance increase		4,194			6,714			7,049
Statutory rate increase		—			(2,189	)		—
Other		112			17			(1,128	)
Total expense	$	—		$	673		$	—
Effective tax rate		0.00	%		(6.79	)%		0.00	%

(A)	Act No. 40-2013, the “Tax Burden Redistribution and Adjustment Act,” was passed on June 30, 2013, which increased the corporate statutory rate in Puerto Rico from 30% to 39% retroactive to January 1, 2013.

Deferred tax assets and liabilities of the Company’s TRS and Puerto Rico were as follows (in thousands):

	For the Year Ended December 31,
	2014			2013			2012
Deferred tax assets – TRS	$	67,085		$	73,182		$	75,450
Deferred tax assets – Puerto Rico		53,394			50,061			34,041
Deferred tax liabilities – TRS		(539	)		(492	)		(1,035	)
Deferred tax liabilities – Puerto Rico		(35,437	)		(36,298	)		(26,992	)
Valuation allowance – TRS		(66,546	)		(72,690	)		(74,415	)
Valuation allowance – Puerto Rico		(17,957	)		(13,763	)		(7,049	)
Net deferred tax asset^(A)	$	—		$	—		$	—

(A)	The components of the net deferred tax assets are primarily attributable to net operating losses, Puerto Rico special partnership losses and interest expense, subject to limitations and basis differentials in assets due to purchase price accounting.

Reconciliation of GAAP net income (loss) attributable to DDR to taxable income is as follows (in thousands):

	For the Year Ended December 31,
	2014			2013			2012
GAAP net income (loss) attributable to DDR	$	117,282		$	(10,175	)	$	(25,822	)
Plus: Book depreciation and amortization^(A)		341,391			296,008			247,084
Less: Tax depreciation and amortization^(A)		(210,850	)		(194,889	)		(185,230	)
Book/tax differences on losses from capital transactions		(313,855	)		(148,066	)		(122,101	)
Joint venture equity in earnings (loss), net^(A)		96,860			15,156			(23,885	)
Dividends from subsidiary REIT investments		463			503			480
Deferred income		(12,545	)		4,910			8,471
Compensation expense		(6,103	)		(5,626	)		(11,325	)
Impairment charges		68,703			73,577			153,142
Senior convertible notes - accretion adjustment		11,377			10,789			10,884
Miscellaneous book/tax differences, net		(14,745	)		(9,268	)		(2,755	)
Taxable income before adjustments		77,978			32,919			48,943
Less: Capital gains		(48,015	)		—			(48,943	)
Taxable income subject to the 90% dividend requirement	$	29,963		$	32,919		$	—

(A)	Depreciation expense from majority-owned subsidiaries and affiliates, which is consolidated for financial reporting purposes but not for tax reporting purposes, is included in the reconciliation item “Joint venture equity in earnings (loss), net.”

Reconciliation between cash dividends paid and the dividends paid deduction is as follows (in thousands):

	For the Year Ended December 31,
	2014			2013			2012
Dividends paid	$	239,294		$	193,101		$	153,617
Plus: Deemed dividends on convertible debt		12,026			9,987			7,875
Less: Dividends designated to prior year		(6,608	)		(7,030	)		(6,967	)
Plus: Dividends designated from the following year		5,594			6,608			7,030
Less: Return of capital		(172,328	)		(169,747	)		(112,612	)
Dividends paid deduction	$	77,978		$	32,919		$	48,943

The dividends declared in the fourth quarter with respect to the Company’s common shares for the years ended December 31, 2014, 2013 and 2012, have been allocated and reported to shareholders in the subsequent year. The tax characterization of common share dividends per share as reported to shareholders for the three years ended December 31, 2014, is summarized as follows:

2014 Dividends	Date Paid	Gross Ordinary Income		Capital Gain Distributions		Return of Capital		Total Dividends
4th quarter 2013	1/7/2014	$	0.012391	$	0.019856	$	0.102753	$	0.135000
1st quarter	4/8/2014		0.014227		0.022798		0.117975		0.155000
2nd quarter	7/8/2014		0.014227		0.022798		0.117975		0.155000
3rd quarter	10/10/2014		0.014227		0.022798		0.117975		0.155000
4th quarter	1/6/2015		—		—		—		—
		$	0.055072	$	0.088250	$	0.456678	$	0.600000

2013 Dividends	Date Paid	Gross Ordinary Income		Capital Gain Distributions		Return of Capital		Total Dividends
4th quarter 2012	1/4/2013	$	0.003589	$	—	$	0.116411	$	0.120000
1st quarter	4/2/2013		0.004038		—		0.130962		0.135000
2nd quarter	7/2/2013		0.004038		—		0.130962		0.135000
3rd quarter	10/8/2013		0.004038		—		0.130962		0.135000
4th quarter	1/7/2014		—		—		—		—
		$	0.015703	$	—	$	0.509297	$	0.525000

2012 Dividends	Date Paid	Gross Ordinary Income		Capital Gain Distributions		Return of Capital		Total Dividends
4th quarter 2011	1/6/2012	$	—	$	0.012200	$	0.067800	$	0.080000
1st quarter	4/3/2012		—		0.018300		0.101700		0.120000
2nd quarter	7/6/2012		—		0.018300		0.101700		0.120000
3rd quarter	10/2/2012		—		0.018300		0.101700		0.120000
4th quarter	1/4/2013		—		—		—		—
		$	—	$	0.067100	$	0.372900	$	0.440000