Income Taxes:
The Company would typically be subject to income tax expense computed at the federal statutory rate, however, due to its election as a REIT and the qualification of all required conditions to make such election, the Company is not subject to income taxes other than as discussed above in Note 2, “Significant Accounting Policies.” In 2016 the Company determined it did not satisfy the gross income test required to qualify as a REIT and as a result accrued an income tax liability of approximately $9.8 million as of December 31, 2015. The Company revised its estimate of this liability to $8.4 million as of December 31, 2016, which resulted in a $1.4 million income tax benefit during the year ending December 31, 2016.
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11. | Income Taxes (continued): |
As of December 31, 2016 and 2015, the Company recorded net current and long-term deferred tax assets related to depreciation differences, deferred income, and net operating losses at its TRS subsidiaries and properties under foreclosure elections as a result of certain tenant defaults and lease terminations. Because there are no historical earnings and no certainty that such deferred tax assets will be available to offset future tax liabilities, the Company has established a full valuation allowance as of December 31, 2016 and 2015. The components of the deferred taxes recognized in the accompanying consolidated balance sheets at December 31, 2016 and 2015 are as follows (in thousands):
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| | | | | | | | |
| | Year Ended December 31, |
| | 2016 | | 2015 |
Net operating losses | | $ | 109,236 |
| | $ | 107,655 |
|
Book/tax differences in deferred income | | 4,657 |
| | 5,302 |
|
Book/tax differences in acquired assets | | (39,054 | ) | | (36,732 | ) |
Total deferred tax asset | | 74,839 |
| | 76,225 |
|
Valuation allowance | | (74,839 | ) | | (76,225 | ) |
| | $ | — |
| | $ | — |
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The Company’s TRS subsidiaries had net operating loss carry-forwards for federal and state purposes of approximately $269.0 million and $264.6 million as of December 31, 2016 and 2015, respectively, to offset future taxable income. The estimated net operating loss carry-forwards will expire between 2025 and 2036.
The Company analyzed its material tax positions and determined that it has not taken any uncertain tax positions. In addition, the Company has determined that no significant differences exist between the total income tax expense or benefit and the amount computed by applying the statutory federal income rate to its TRS income before taxes and after consideration of the impact of the valuation allowance.