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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes |
15. | 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, 2017, 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 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. The tax cost basis of assets was $9.1 billion and $9.8 billion at December 31, 2017 and 2016, respectively. For the years ended December 31, 2017, 2016 and 2015, the Company recorded a net payment of $0.7 million, $1.0 million and $1.5 million, respectively, related to taxes. The net payment for the year ended December 31, 2015, does not include the 2015 Puerto Rico tax prepayment of $20.2 million. These amounts reflect taxes paid to federal and state authorities for franchise and other taxes. In 2015, in accordance with temporary legislation of the Puerto Rico Internal Revenue Code, the Company made a voluntary election to prepay $20.2 million of taxes related to the built-in gains associated with the real estate assets in Puerto Rico and restructured the ownership of its then 14 assets in Puerto Rico. The net balance sheet impact to the December 31, 2015 consolidated financial statements related to the restructuring was $16.8 million. The Company recorded a tax expense of $3.4 million during 2015 related to the 2% effective tax rate spread between the 12% tax payment and the 10% withholding tax rate. This election permitted the Company to step up its tax basis in the Puerto Rican assets to the current estimated fair value while reducing its effective capital gains tax rate from 29% to 12%. In 2017, the Company sold two of the assets in Puerto Rico and released $1.4 million of the prepaid tax asset. Also in 2017, the Company established a valuation allowance of $10.8 million on the remaining prepaid tax asset triggered by the change in asset hold-period assumptions related to its change in strategic direction for the Puerto Rico properties (Note 12). The Puerto Rico net prepaid tax of $4.0 million at December 31, 2017, is included in Other Assets (Note 5). In addition, effective January 1, 2015, the Company entered into a closing agreement with the Puerto Rico Secretary of Treasury that now treats the Company as a Puerto Rico REIT, eliminating the requirement to record current and deferred income taxes for 2015 and forward. To the extent the Company qualifies as a REIT under the IRS guidelines, the Company will not be subject to income tax. However, taxable distributions made to its shareholders will be subject to a 10% withholding tax, which is treated as additional dividend/equity and not an income tax on the Company’s financial statements. The following represents the combined activity of the Company’s TRS (in thousands):
|  | For the Year Ended December 31, |
|  | 2017 |  |  | 2016 |  |  | 2015 |
Book income (loss) before income taxes |  | $ | 11,180 |  |  | $ | 9,953 |  |  | $ | (1,446 | )
Current |  | $ | 459 |  |  | $ | 17 |  |  | $ | — |
Deferred |  |  | — |  |  |  | — |  |  |  | — |
Total income tax expense |  | $ | 459 |  |  | $ | 17 |  |  | $ | — |
The differences between total income tax expense and the amount computed by applying the statutory income tax rate to income before taxes with respect to its TRS activity were as follows (in thousands):
|  | For the Year Ended December 31, |
TRS |  | 2017 |  |  | 2016 |  |  | 2015 |
Statutory Rate |  |  | 34 | % |  |  | 34 | % |  |  | 34 | %
Statutory rate applied to pre-tax income |  | $ | 3,801 |  |  | $ | 3,384 |  |  | $ | (492 | )
State tax expense net of federal income tax |  |  | 254 |  |  |  | 498 |  |  |  | (72 | )
State deferred tax expense net of federal income tax |  |  | 724 |  |  |  | — |  |  |  | — |
Permanent items |  |  | (241 | ) |  |  | — |  |  |  | — |
Deferred tax impact of federal rate change |  |  | 19,391 |  |  |  | — |  |  |  | — |
Valuation allowance decrease based on impact of federal rate change(A) |  |  | (23,470 | ) |  |  | (4,039 | ) |  |  | (1,169 | )
Other |  |  | — |  |  |  | 174 |  |  |  | 1,733 |
Total expense |  | $ | 459 |  |  | $ | 17 |  |  | $ | — |
Effective tax rate |  |  | 4.11 | % |  |  | 0.17 | % |  |  | 0.00 | %
| (A) | For the year ended December 31, 2017, includes $19.4 million deferred tax impact of federal tax rate change.
Deferred tax assets and liabilities of the Company’s TRS were as follows (in thousands):
| For the Year Ended December 31, |
| 2017 |  |  | 2016 |
Deferred tax assets(A) | $ | 37,940 |  |  | $ | 61,742 |
Deferred tax liabilities |  | (72 | ) |  |  | (404 | )
Valuation allowance |  | (37,868 | ) |  |  | (61,338 | )
Net deferred tax asset | $ | — |  |  | $ | — |
| (A) | Primarily attributable to net operating losses, aggregating $24.9 million at December 31, 2017, and interest expense, subject to limitations and basis differentials in assets due to purchase price accounting. The TRS net operating loss carryforwards will expire in varying amounts between the years 2022 through 2035.
Reconciliation of GAAP net (loss) income attributable to DDR to taxable income is as follows (in thousands):
| For the Year Ended December 31, |
| 2017 |  |  | 2016 |  |  | 2015 |
GAAP net (loss) income attributable to DDR | $ | (241,685 | ) |  | $ | 60,012 |  |  | $ | (72,168 | )
Plus: Book depreciation and amortization(A) |  | 336,530 |  |  |  | 376,493 |  |  |  | 385,696 |
Less: Tax depreciation and amortization(A) |  | (214,298 | ) |  |  | (224,766 | ) |  |  | (228,882 | )
Book/tax differences on losses from capital transactions |  | (195,294 | ) |  |  | (155,170 | ) |  |  | (149,507 | )
Joint venture equity in earnings, net(A) |  | (9,537 | ) |  |  | (3,802 | ) |  |  | 8,491 |
Deferred income |  | (26,032 | ) |  |  | (8,352 | ) |  |  | (4,293 | )
Compensation expense |  | 4,093 |  |  |  | (5,237 | ) |  |  | (18,879 | )
Impairment charges |  | 406,580 |  |  |  | 110,906 |  |  |  | 280,930 |
Senior convertible notes – accretion adjustment |  | — |  |  |  | — |  |  |  | 9,954 |
Senior convertible notes – repurchase premium |  | — |  |  |  | — |  |  |  | (52,390 | )
Puerto Rico tax prepayment |  | 12,237 |  |  |  | — |  |  |  | (16,812 | )
Miscellaneous book/tax differences, net |  | 8,409 |  |  |  | (2,625 | ) |  |  | (10,204 | )
Taxable income before adjustments |  | 81,003 |  |  |  | 147,459 |  |  |  | 131,936 |
Less: Capital gains |  | — |  |  |  | — |  |  |  | — |
Taxable income subject to the 90% dividend requirement | $ | 81,003 |  |  | $ | 147,459 |  |  | $ | 131,936 |
| (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, net.”
Reconciliation between cash dividends paid and the dividends paid deduction is as follows (in thousands):
| For the Year Ended December 31, |
| 2017 |  |  | 2016 |  |  | 2015 |
Dividends paid | $ | 304,973 |  |  | $ | 293,031 |  |  | $ | 264,243 |
Plus: Deemed dividends on convertible debt |  | — |  |  |  | — |  |  |  | 14,159 |
Less: Dividends designated to prior year |  | (5,594 | ) |  |  | (5,594 | ) |  |  | (5,594 | )
Plus: Dividends designated from the following year |  | 8,383 |  |  |  | 5,594 |  |  |  | 5,594 |
Less: Return of capital |  | (226,759 | ) |  |  | (145,572 | ) |  |  | (146,466 | )
Dividends paid deduction | $ | 81,003 |  |  | $ | 147,459 |  |  | $ | 131,936 |

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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