Drive Shack Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

INCOME TAXES

INCOME TAXES

9 Months Ended

Sep. 30, 2017

The provision for income taxes consists of the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017		2016
Current:
Federal	$	(2	)	$	(37	)	$	1,047	$	27
State and Local	—			(1		)	—		20
Total Current (Benefit) Provision	$	(2	)	$	(38	)	$	1,047	$	47
Deferred:
Federal	$	—		$	—		$	—	$	83
State and Local	—			—			—		14
Total Deferred Provision	$	—		$	—		$	—	$	97

Total (Benefit) Provision for Income Taxes	$	(2	)	$	(38	)	$	1,047	$	144

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 December 31, 2016. The change in tax status has had no effect on the Company’s Consolidated Financial Statements as the corresponding net deferred tax asset created as a result of the tax status change has been fully offset with a valuation allowance.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of September 30, 2017 are presented below:



	September 30, 2017			December 31, 2016
Deferred tax assets:
Allowance for loan losses	$	379		$	358
Depreciation and amortization	39,804			38,598
Accrued expenses	2,285			2,885
Interest	6,391			16,503
Net operating losses	151,107			162,629
Capital losses	9,241			—
Other	3,151			2,036
Total deferred tax assets	212,358			223,009
Less valuation allowance	(152,288		)	(133,192		)
Net deferred tax assets	$	60,070		$	89,817
Deferred tax liabilities:
Leaseholds	12,780			13,681
Cancellation of debt	47,290			75,632
Other	—			504
Total deferred tax liabilities	$	60,070		$	89,817
Net deferred tax assets	$	—		$	—

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 September 30, 2017 as management does not believe that it is more likely than not that the deferred tax assets will be realized.