Income Taxes

12 Months Ended

Dec. 31, 2018

The components of income tax expense for the following periods are as follows (in thousands):


	For the year ended
	December 31,
	2018		2017		2016
Current:
Federal	$	—	$	—	$	56
State	—		—		69
Current tax expense	$	—	$	—	$	125

Deferred:
Federal	28		(350)		380
State	—		(46)		46
Deferred tax benefit (expense)	28		(396)		426
Total tax benefit (expense)	$	28	$	(396)	$	301

The difference between income tax expense and the amount computed by applying the statutory federal income tax rate to the combined income of the Company's TRS before taxes were as follows (in thousands):


	For the year ended
	December 31,
	2018			2017			2016
Book income (loss) before income taxes of the TRS	$	(6,040)		$	(4,261)		$	974

Statutory rate of 21% for 2018 and 34% for prior years applied to pre-tax income	$	(1,268)		$	(1,449)		$	331
Effect of state and local income taxes, net of federal tax benefit	(200)			(108)			38
Tax reform impact	—			644			—
Provision to return adjustment	—			5			(406)
Permanent adjustments	12			13			16
Change in valuation allowance	1,456			1,289			(299)
Valuation allowance release	(28)			—			—
Other	—			2			19
Total income tax (benefit) expense	$	(28)		$	396		$	(301)

Effective tax rate	.46		%	(9.29)		%	(30.90)		%

On December 22, 2017, the TCJA was enacted. The TCJA includes a number of changes to the existing U.S. tax code, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Changes in tax rates and tax laws are accounted for in the period of enactment. Therefore, as a result of the TCJA being signed into law, the net deferred tax assets before valuation allowance were reduced by $0.6 million with a corresponding net adjustment to current year tax expense for the remeasurement of the Company’s U.S. net deferred tax assets. Our federal income tax expense for periods beginning in 2018 will be based on the new rate.

At December 31, 2018, our TRS had a gross deferred tax asset associated with future tax deductions of $0.1 million. At December 31, 2018 and 2017, the Company had valuation allowances against certain deferred tax assets totaling $3.3 million and $1.3 million, respectively. The increase in valuation allowance was primarily from the increase in the net operating losses incurred during the year. The tax effect of each type of temporary difference and carry forward that gives rise to the deferred tax asset as of December 31, 2018 and 2017 are as follows (in thousands):


	For the year ended
	December 31,
	2018		2017
Total deferreds:
Allowance for doubtful accounts	$	68	$	51

Accrued compensation	731		505
AMT credit	58		30



Total book to tax difference in partnership	(193)		(579)
Net operating loss	2,654		1,312
Valuation allowance	(3,260)		(1,289)

Net deferred tax asset	$	58	$	30

As of each reporting date, the Company's management considers new evidence, both positive and negative, that could impact management's view with regard to future realization of deferred tax assets. The Company's TRS is expecting increased taxable losses in 2019. As of December 31, 2018, the TRS continues to recognize a full valuation allowance equal to 100% of the gross deferred tax assets, with the exception of the AMT tax credit, due to the uncertainty of the TRS's ability to utilize these deferred tax assets. Management will continue to monitor the need for a valuation allowance.

During the third quarter of 2018, the Company was notified that the tax return of the Company's TRS was going to be examined by the Internal Revenue Service for the tax year ended December 31, 2016. The examination remains open. The Company believes it does not need to record a liability related to matters contained in the tax period open to examination. However, should the Company experience an unfavorable outcome in the matter, such outcome could have a material impact on its results of operations, financial position and cash flows.