TAUBMAN CENTERS INC.

Income Taxes

Income Tax Expense (Benefit)

The Company’s income tax expense (benefit) for the years ended December 31, 2017, 2016, and 2015 consisted of the following:



	2017				2016				2015
Federal current	$	(2,509	)		$	2,238			$	1,931
Federal deferred	1,632			⁽¹⁾	(1,310		)		(34		)
Foreign current	849				404				628
Foreign deferred	158				293				(114		)
State current	(208		)		782				(528		)
State deferred	183				(195		)		(72		)
Total income tax expense	$	105			$	2,212			$	1,811
Add income tax benefit allocated to Gain on Dispositions ⁽²⁾									437
Income tax expense as reported on the Consolidated Statement of Operations and Comprehensive Income	$	105			$	2,212		⁽³⁾	$	2,248


(1)	Reflects $0.3 million of expense related to the restatement of the net Federal deferred tax asset at December 31, 2017 at the new 21% Federal corporate income tax rate under the 2017 Tax Act.


(2)	Amount represents a reduction of the income taxes incurred as part of the Company's sale of interests in International Plaza in January 2014, which is classified within Gain on Dispositions, Net of Tax on the Consolidated Statement of Operations and Comprehensive Income.


(3)	Includes $0.5 million of income taxes recognized at the time of conversion of a portion of the Company's investment in partnership units in Simon Property Group Limited Partnership to common shares of Simon Property Group (Note 7).

On December 22, 2017, the 2017 Tax Act was signed into law making significant changes to the Internal Revenue Code. The 2017 Tax Act reduces the corporate tax rate to 21% effective January 1, 2018. Consequently, the Company's Federal deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate. We have recorded a decrease related to the TRS net Federal deferred tax asset of $0.3 million, with a corresponding net adjustment to deferred income tax expense of $0.3 million for the year ended December 31, 2017. With the exception of the reduction in the corporate tax rate, the Company did not identify any other items for which the accounting for the income tax effects of the 2017 Tax Act have not been completed.

The 2017 Tax Act requires a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company believes that no such tax will be due as there are no accumulated foreign earnings applicable to the mandatory deemed repatriation.

Net Operating Loss Carryforwards

As of December 31, 2017, the Company had a foreign net operating loss carryforward of $6.5 million. Of the $6.5 million, $0.6 million had a carryforward period of 10 years, and the remaining had an indefinite carryforward period.

Deferred Taxes

Deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows:



	2017				2016
Deferred tax assets:
Federal	$	503		⁽¹⁾	$	3,230
Foreign	1,788				1,673
State	545				935
Total deferred tax assets	$	2,836			$	5,838
Valuation allowances	(1,620		)		(1,812		)
Net deferred tax assets	$	1,216			$	4,026
Deferred tax liabilities:
Federal
Foreign	$	1,517			1,124
State
Total deferred tax liabilities	$	1,517			$	1,124


(1)	Includes a $0.3 million reduction in the net Federal deferred tax asset due to the new 21% Federal corporate income tax rate under the 2017 Tax Act.

The Company believes that it is more likely than not the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager's profitability, the timing and amounts of gains on peripheral land sales, the profitability of Taubman Asia's operations, and other factors affecting the results of operations of the taxable REIT subsidiaries. The valuation allowances relate to net operating loss carryforwards and tax basis differences where there is uncertainty regarding their realizability.

Tax Status of Dividends

Dividends declared on the Company’s common and preferred stock and their tax status are presented in the following tables. The tax status of the Company’s dividends in 2017, 2016, and 2015 may not be indicative of future periods. The portion of the per share dividends paid in 2017 and each year detailed in each table below as capital gains (long term and unrecaptured Sec. 1250) are designated as capital gain dividends as required by Internal Revenue Code Section 857(b)(3)(c).



Year	Dividends per common share declared		Return of capital		Ordinary income		Long term capital gain		Unrecaptured Sec. 1250 capital gain
2017	$	2.5000	$	0.4775	$	1.3927	$	0.4397	$	0.1901
2016	2.3800		—		1.8427		0.3929		0.1444
2015	2.2600		0.0972		2.1621		0.0004		0.0003



Year	Dividends per Series J Preferred share declared		Ordinary income		Long term capital gain		Unrecaptured Sec. 1250 capital gain
2017	$	1.6250	$	1.0505	$	0.4011	$	0.1734
2016	1.6250		1.2581		0.2683		0.0986
2015	1.6250		1.6245		0.0003		0.0002



Year	Dividends per Series K Preferred share declared		Ordinary income		Long term capital gain		Unrecaptured Sec. 1250 capital gain
2017	$	1.5625	$	1.0101	$	0.3857	$	0.1667
2016	1.5625		1.2097		0.2580		0.0948
2015	1.5625		1.5620		0.0003		0.0002

Uncertain Tax Positions

The Company expects no significant increases or decreases in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2017. The Company has no material interest or penalties relating to income taxes recognized in the Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2017, 2016, and 2015 or in the Consolidated Balance Sheet as of December 31, 2017 and 2016. As of December 31, 2017, returns for the calendar years 2014 through 2017 remain subject to examination by U.S. and various state and foreign tax jurisdictions.