|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
The provision for income taxes (including discontinued operations) consists of the following:
On February 23, 2017, Drive Shack Inc. revoked its election to be treated as a REIT effective January 1, 2017. The Company operated in a manner intended to qualify as a REIT for federal income tax purposes through the tax year ending December 31, 2016.
Common stock distributions relating to 2016, 2015, and 2014 were taxable as follows:
During 2010 and 2009, Drive Shack Inc. repurchased an aggregate of $787.8 million face amount of its outstanding CDO debt and junior subordinated notes at a discount and recorded $521.1 million of aggregate gain. The gain recorded upon such cancellation of indebtedness is characterized as ordinary income for tax purposes. In compliance with current tax laws, Drive Shack Inc. has the ability to defer such ordinary income to future years and has deferred all or a portion of such gain for 2010 and 2009. However, cancellation of indebtedness income recognized on or after January 1, 2011 cannot be deferred and must generally be recognized as ordinary income in the year of such cancellation. During 2011, Drive Shack Inc. repurchased $188.9 million face amount of its outstanding CDO debt and notes payable at a discount and recorded $81.1 million of gain for tax purposes, of which only $66.1 million gain relating to $171.8 million face amount of debt repurchased was recognized for GAAP purposes. During 2012, Drive Shack Inc. repurchased $39.3 million face amount of Drive Shack Inc. CDO debt and notes payable at a discount and recorded a $24.1 million gain on extinguishment of debt for GAAP, of which only $23.2 million of gain relating to $34.1 million face amount of debt repurchased was recognized for tax purposes. During 2013, Drive Shack Inc. repurchased $35.9 million face amount of Drive Shack Inc. CDO debt and notes payable at a discount and recorded a $4.6 million gain on extinguishment of debt for GAAP and tax purposes. During 2014, Drive Shack Inc. did not repurchase any of the outstanding CDO debt and notes payable. During 2015, Drive Shack Inc. repurchased $11.5 million face amount of Drive Shack Inc. CDO debt and notes payable at a discount and recorded a $0.5 million gain on extinguishment of debt for GAAP and tax purposes.
In addition, Drive Shack Inc. may recognize material ordinary income from the cancellation of debt within its non-recourse financing, and structures, including its subprime securitizations, while losses on the related collateral may be recognized as capital losses. Through December 31, 2016, $164.8 million of debt in Drive Shack Inc.’s subprime securitizations has been cancelled as a result of losses incurred on the underlying assets in the securitization trusts.
As of December 31, 2015, Drive Shack Inc. had a net operating loss carryforward of approximately $526.2 million. The net operating loss carryforward can generally be used to offset future taxable income for up to 20 years. The amount of net operating loss carryforward as of December 31, 2016 is subject to the finalization of the 2016 tax returns. The net operating loss carryforward will begin to expire in 2029.
Drive Shack Inc. experienced an “ownership change” for purposes of Section 382 of the Code in January 2013. The provisions of Section 382 of the Code will impose an annual limit on the amount of net operating loss and net capital loss carryforwards that Drive Shack Inc. can use to offset future taxable income.
The Traditional Golf business is held through TRSs and, as such, is subject to regular corporate income taxes. At December 31, 2016, Drive Shack Inc.’s TRSs had approximately $68.1 million of net operating loss carryforwards for federal and state income tax purposes which may be available to offset future taxable income, if any. These federal and state net operating loss carryforwards will begin to expire in 2018. A significant portion of these net operating losses are subject to the limitations of Code Section 382. This section provides substantial limitations on the availability of net operating losses to offset current taxable income if significant ownership changes have occurred for federal tax purposes.
Drive Shack Inc. and its subsidiaries file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, Drive Shack Inc. is no longer subject to tax examinations by tax authorities for years prior to 2013. Drive Shack Inc. has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized. Drive Shack Inc. does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within the next twelve months.
The 2014 federal income tax return for one of Drive Shack Inc.’s subsidiaries is currently under examination. At this time, Drive Shack Inc. cannot estimate when the examination will conclude or the impact such examination will have on its Consolidated Financial Statements, if any.
Drive Shack Inc. is subject to significant tax risks. In light of the revocation of its REIT election, Drive Shack Inc. will be subject to U.S. federal corporate income tax (including any applicable alternative minimum tax), which could be material.
During the years ended December 31, 2016, 2015 and 2014, Drive Shack Inc.’s subsidiaries recorded approximately $0.2 million, $0.3 million and $(0.9) million, respectively, of income tax expense (benefit). Generally, the Drive Shack Inc.’s effective tax rate differs from the federal statutory rate as a result of state and local taxes.
The difference between Drive Shack Inc.'s reported provision for income taxes and the U.S. federal statutory rate of 35% is as follows:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of December 31, 2016 and 2015 are presented below:
In assessing the realizability 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 temporary differences become deductible.
Drive Shack Inc. recorded a valuation allowance against its deferred tax assets as of December 31, 2016 as management does not believe that it is more likely than not that the deferred tax assets will be realized.
The following table summarizes the change in the deferred tax asset valuation allowance:
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef