|12 Months Ended|
Dec. 31, 2017
|Income Tax Disclosure [Abstract]|
The provision for income taxes consists of the following:
On February 23, 2017, the Company 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.
During 2010 and 2009, the Company 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, the Company 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, the Company 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, the Company repurchased $39.3 million face amount of the Company's 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 the Company's 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, the Company did not repurchase any of the outstanding CDO debt and notes payable. During 2015, the Company repurchased $11.5 million face amount of the Company's 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, the Company 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, 2017, $173.2 million of debt in the Company’s subprime securitizations has been cancelled as a result of losses incurred on the underlying assets in the securitization trusts.
As of December 31, 2016, the Company had a net operating loss carryforward of approximately $443.7 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, 2017 is subject to the finalization of the 2017 tax returns. The net operating loss carryforward will begin to expire in 2023.
As of December 31, 2017, the Company has a capital loss carryforward of approximately $23.1 million. The capital loss carryforward can generally be used to offset capital gains for up to 5 years. The net capital loss carryforward will begin to expire in 2022.
The Company 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 the Company can use to offset future taxable income.
The Company and its subsidiaries file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, the Company is no longer subject to tax examinations by tax authorities for years prior to 2014. The Company has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized. The Company 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 the Company’s subsidiaries is currently under examination. At this time, the Company cannot estimate when the examination will conclude or the impact such examination will have on its Consolidated Financial Statements, if any.
The Company is subject to significant tax risks. In light of the revocation of its REIT election, the Company is subject to U.S. federal corporate income tax (including any applicable alternative minimum tax), which could be material.
Generally, the Company’s effective tax rate differs from the federal statutory rate as a result of state and local taxes and changes in the valuation allowance.
The difference between the Company'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, 2017 and 2016 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.
The Company recorded a valuation allowance against its deferred tax assets as of December 31, 2017 as management does not believe that it is more likely than not that the deferred tax assets will be realized.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rates and eliminating the alternative minimum tax (“AMT”) for corporate taxpayers. The Company has accounted for the effects of the Tax Act for the year ended December 31, 2017 which relates to the re-measure of deferred tax assets and liabilities due to the reduction in the corporate income tax rate and has booked a non-recurring income tax receivable in the amount of $0.6 million due to refundable AMT credits. Due to the full valuation allowance, the re-measure of deferred tax assets and liabilities had no impact on the income tax provision for the year ended December 31, 2017.
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