Income Taxes

12 Months Ended

Dec. 31, 2019

The Company is a Bermuda exempted company. Bermuda does not impose a corporate income tax. The Company is subject to taxation in certain foreign jurisdictions on a portion of its income attributable to such jurisdictions. The two main subsidiaries of Triton are TCIL and TAL. TCIL is a Bermuda exempted company and therefore no income tax is imposed. However, a portion of TCIL's income is subject to taxation in the U.S. and certain other foreign jurisdictions. TAL is a U.S. company and therefore is subject to taxation in the U.S.

The following table sets forth the total income taxes for the periods indicated (in thousands):



	December 31, 2019			December 31, 2018			December 31, 2017
Current taxes:
Bermuda	$	—		$	—		$	—
U.S.	(637		)	3,164			36
Foreign	1,166			1,072			839
	$	529		$	4,236		$	875
Deferred taxes:
Bermuda	$	—		$	—		$	—
U.S.	26,843			67,136			(94,079		)
Foreign	179			(731		)	(70		)
	27,022			66,405			(94,149		)
Total income taxes	$	27,551		$	70,641		$	(93,274	)

The components of income (loss) before income taxes for the periods indicated below were as follows (in thousands):



	December 31, 2019		December 31, 2018		December 31, 2017
Bermuda sources	$	241,985	$	128,905	$	134,849
U.S. sources	135,758		288,386		125,799
Foreign sources	3,087		10,022		(396		)
Income (loss) before income taxes	$	380,830	$	427,313	$	260,252

The difference between the Bermuda statutory income tax rate and the effective tax rate on the consolidated statements of operations for the periods indicated below were as follows:



	December 31, 2019		December 31, 2018		December 31, 2017
Bermuda tax rate	—	%	—	%	—	%
Change in enacted tax act	—	%	1.02	%	(53.55	)%
U.S. income taxed at other than the statutory rate	7.85	%	14.67	%	17.10	%
Effect of uncertain tax positions	0.17	%	0.07	%	0.21	%
Foreign income taxed at other than the statutory rate	0.14	%	0.18	%	0.10	%
Effect of permanent differences	0.12	%	0.28	%	0.04	%
Other discrete items	(1.05	)%	0.31	%	0.26	%
Effective income tax rate	7.23	%	16.53	%	(35.84	)%

Deferred income tax assets and liabilities are comprised of the following (in thousands):



	December 31, 2019		December 31, 2018
Deferred income tax assets:
Net operating loss carryforwards	$	71,138	$	60,173
Allowance for losses	141		98
Derivative instruments	4,899		934
Deferred income	395		359
Accrued liabilities and other payables	3,118		3,875
Total gross deferred tax assets	79,691		65,439
Less: Valuation allowance	—		—
Net deferred tax assets	$	79,691	$	65,439

Deferred income tax liabilities:
Accelerated depreciation	$	353,991	$	318,779
Goodwill and other intangible amortization	3,775		2,981
Derivative instruments	105		2,306
Deferred income	11,034		19,294
Deferred partnership income (loss)	11,786		967
Other	317		3,241
Total gross deferred tax liability	381,008		347,568
Net deferred income tax liability	$	301,317	$	282,129

The Company has not recorded a valuation allowance for deferred tax assets as of December 31, 2019 and December 31, 2018.

In assessing the potential future realization of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are deductible, the Company believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2019.

Certain income taxes on unremitted earnings have not been reflected on the consolidated financial statements because such earnings are intended to be permanently reinvested in those jurisdictions. Such earnings and related withholding taxes are estimated to be approximately $62.0 million and $18.0 million, respectively, at December 31, 2019.

The Tax Cuts and Jobs Act includes a tax on global intangible low-taxed income ("GILTI"), which taxes U.S shareholders on certain income earned by foreign subsidiaries. The Company has made an accounting policy election to account for the tax effects of the GILTI tax in the income tax provision in future periods as the tax arises.

Net operating loss carryforwards for U.S. federal income tax purposes of $331.0 million at December 31, 2019 are available to offset future U.S. taxable income. Of the total net operating loss carryforwards, $279.0 million are available to offset future U.S. taxable income from 2020 through 2037. The remaining $52.0 million are carried forward indefinitely but subject to a limitation of 80% of the year's U.S. taxable income.

The Company files income tax returns in several jurisdictions including the U.S. and certain U.S. states.

The following table summarizes unrecognized tax benefit amounts as follows (in thousands):



	December 31, 2019			December 31, 2018
Beginning balance at January 1	$	8,590		$	8,250
Increase (decrease) related to tax positions	(7,248		)	1,652
Lapse of statute of limitations	(333		)	(1,367		)
Foreign exchange adjustment	(51		)	55
Ending balance at December 31	$	958		$	8,590

As of December 31, 2019, the total amount of unrecognized tax benefits was $1.0 million, which reflects a reversal of a liability established on prior years' unrecognized tax benefits of $7.2 million. The Company determined during the third quarter of 2019 that a previously reserved tax position meets the 'more-likely-than-not' recognition threshold. The $7.2 million liability reversed during 2019 was fully offset by a corresponding receivable representing reimbursement from third parties. Therefore, the reversal has no impact on net income.

It is reasonably possible that the total amount of unrecognized tax benefits as of December 31, 2019 will decrease by $0.3 million within the next twelve months due to statute of limitations lapses. This reduction will impact income tax expense when recognized. The tax years 2016 through 2019 remain subject to examination by major tax jurisdictions.

The Company accrues interest and penalties related to income taxes in the provision for income taxes.

The following table summarizes interest and penalty expense as follows (in thousands):



	December 31, 2019			December 31, 2018			December 31, 2017
Interest expense (benefit)	$	193		$	98		$	144
Penalty expense (benefit)	$	(115	)	$	(158	)	$	(64	)

The following table summarizes the components of income taxes payable included in Accounts payable and other accrued expenses on the consolidated balance sheets were as follows (in thousands):



	December 31, 2019		December 31, 2018
Corporate income taxes payable	$	29	$	906
Unrecognized tax benefits	958		8,590
Interest accrued	215		922
Penalties	287		402
Income taxes payable	$	1,489	$	10,820