AMERICAN CAMPUS COMMUNITIES INC

Income Taxes

As mentioned in Note 2, the Company qualifies as a REIT under the Code. As a REIT, the Company is not subject to federal income tax as long as it distributes at least 90% of its taxable income to its shareholders each year. Therefore, no provision for federal income taxes for the REIT has been included in the accompanying consolidated financial statements. If the Company fails to qualify as a REIT, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income and to federal income and excise taxes on its undistributed income. In addition, ACCOP is a flow-through entity and is not subject to federal income taxes at the entity level. Historically, the Company has incurred only state and local income, franchise and margin taxes.

The Company’s TRSs are subject to federal, state, and local income taxes. As such, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities of the TRSs for financial reporting purposes and the amounts used for income tax purposes. On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, making significant changes to the Internal Revenue Code including, but not limited to, reduction of the federal corporate income tax rate to 21%. The new rate will apply beginning on January 1, 2018, and is a significant decrease from the prior graduated rate structure, which included a 35% maximum. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected to reverse. As of December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Cuts and Jobs Act, however we have made a reasonable estimate of the effects on our existing deferred income tax balances below to reflect the impact of the rate reduction. We are still analyzing certain aspects of the Tax Cuts and Jobs Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In addition, our estimates may also be affected as we gain a more thorough understanding of the new tax law.



	December 31,
	2017			2016
Deferred tax assets:
Fixed and intangible assets	$	750		$	2,074
Net operating loss carryforwards	8,808			9,492
Prepaid and deferred income	1,459			2,417
Bad debt reserves	574			754
Accrued expenses and other	2,769			5,251
Stock compensation	2,017			2,866
Total deferred tax assets	16,377			22,854
Valuation allowance for deferred tax assets	(16,293		)	(22,688		)
Deferred tax assets, net of valuation allowance	84			166

Deferred tax liability:
Deferred financing costs	84			166

Net deferred tax liabilities	$	—		$	—

Significant components of the Company’s income tax provision are as follows:



	Year Ended December 31,
	2017			2016			2015
Current:
Federal	$	—		$	—		$	—
State	(989		)	(1,150		)	(1,242		)
Deferred:
Federal	—			—			—
State	—			—			—
Total provision	$	(989	)	$	(1,150	)	$	(1,242	)

TRS earnings subject to tax consisted of losses of approximately $8.4 million, $3.8 million and $3.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. The reconciliation of income tax for the TRSs computed at the U.S. statutory rate to income tax provision is as follows:



	Year Ended December 31,
	2017			2016			2015
Tax benefit at U.S. statutory rates on TRS income subject to tax	$	1,277		$	2,303		$	2,019
State income tax, net of federal income tax benefit	57			85			74
Effect of permanent differences and other	207			(88		)	(77		)
Deferred tax impact of tax reform	(9,206		)	—			—
Decrease (increase) in valuation allowance	7,665			(2,300		)	(2,016		)
TRS income tax provision	$	—		$	—		$	—

At December 31, 2017, the TRSs had net operating loss carryforwards (“NOLs”) of approximately $38.2 million for income tax purposes that begin to expire in 2026. These NOLs may be used to offset future taxable income generated by each of the respective TRSs. Due to the various limitations to which the use of NOLs are subject, the Company has applied a valuation allowance to the NOLs given the likelihood that the NOLs will expire unused. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states’ jurisdictions as required, and as of December 31, 2017, the 2016, 2015 and 2014 calendar tax years are subject to examination by the tax authorities.

The Company had no material unrecognized tax benefits for the years ended December 31, 2017, the 2016, and 2015, and as of December 31, 2017, the Company does not expect to record any material unrecognized tax benefits. Because no material unrecognized tax benefits have been recorded, no related interest or penalties have been calculated.

A schedule of per share distributions the Company paid and reported to its shareholders, which is unaudited, is set forth in the following table:



	Year Ended December 31,
Tax Treatment of Distributions:	2017		2016		2015
Ordinary income	$	0.8316	$	0.3541	$	0.4658
Long-term capital gain ⁽¹⁾	—		0.5145		0.5301
Return of capital	0.9084		0.7914		0.5841
Total per common share outstanding	$	1.7400	$	1.6600	$	1.5800

⁽¹⁾Unrecaptured Sec. 1250 gains of $0.5383 and $0.5281 were reported for the years ended December 31, 2016 and 2015, respectively. There was no unrecaptured Sec. 1250 gain reported for the year ended December 31, 2017.