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INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13. INCOME TAXES

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

For financial reporting purposes, income before income taxes were:

		Years Ended December 31,
		2019				2018				2017
		(In thousands)
(Loss) income from continuing operations before income taxes		$	(21,743	)		$	183,902			$	(8,696	)

The (benefit) expense for income taxes consists of:

		Years Ended December 31,
		2019				2018				2017
		(In thousands)
Current:
Federal		$	—			$	42,231			$	(3,044	)
State			—				1,210				10
Deferred and Other:
Federal			—				(42,231	)			3,044
State							—				170
Total tax expense		$	—			$	1,210			$	180

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

		Years Ended December 31,
		2019				2018				2017
		(In thousands)
Income tax (benefit) expense at federal statutory rate		$	(4,566	)		$	31,739			$	(3,044	)
State and local income taxes net of federal tax (benefit) expense			—				1,210				180
Permanent tax differences			(2,499	)			(224	)			—
Temporary tax differences
Installment note on land sale			—				(2,875	)			(1,918	)
Allowance for losses on note receivables			(246	)			(712	)			(2,372	)
Deferred gains			(1,920	)			(7,041	)			(10,758	)
Basis differences on fixed assets			—				22,110				9,284
Other basis/timing differences			3,172				(766	)			5,764
Generation (use) on net operating loss carryforwards			6,059				(42,231	)			3,044
Reported Income Tax Expense		$	—			$	1,210			$	180
Effective Tax Rate			0.0	%			0.7	%			N/A

The company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, the Company’s tax years for 2018, 2017, and 2016 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2019, the Company is no longer subject to U.S federal, state, local, or foreign examinations by tax authorities for the years before 2016.

The 2019 and 2018 effective tax rate is driven primarily by the passing of the Tax Cuts and Jobs Act by congress. This act has reduced the statutory tax rate for corporations from 35% to 21% starting in 2018. As a result, the tax assets of ARI had to be re-priced to reflect the new rate for future years with the impact on the 2017 provision for income taxes.

Components of the Net Deferred Tax Asset or Liability

		Years Ended December 31,
		2019				2018
		(In thousands)
Deferred Tax Assets:
Allowance for losses on notes		$	2,751			$	2,879
Deferred Gain			5,200				3,999
Foreign currency translations			1,521				—
Net Operating Loss Carryforward			18,371				8,700
Total Deferred Tax Assets			27,843				15,578
Less: valuation allowance			(21,180	)			(12,246	)
Total Net Deferred Tax Assets		$	6,663			$	3,332

Deferred Tax Liabilities:
Deferred gain		$	—			$	—
Basis differences for fixed assets			(6,663	)			(3,332	)
Total Deferred Tax Liability		$	(6,663	)		$	(3,332	)
Current Net Deferred Tax Asset			6,663				3,332
Long-Term Net Deferred Tax Liability			(6,663	)			(3,332	)
Net deferred tax asset (liability)		$	—			$	—

Operating Loss and Tax Credit Carryforwards

We have federal income tax net operating losses (NOLs) carryforwards related to our domestic operations of approximately $53 million on a standalone basis, which have an indefinite life. We also have state NOLs in many of the various states in which we operate.

Valuation Allowance Reversal

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. At December 31, 2019, 2018 and 2017 ARL had a net deferred tax asset due to tax deductions available to it in future years. However, as management could not determine that it was more likely than not that ARL would realize the benefit of the deferred tax asset, a valuation allowance was established.