Entity information:
Income Taxes
Since inception, the Company has operated solely within the United States.
The following summarizes the provision from income taxes (in thousands):
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current
 
 
 
 
 
Federal
$
(25,974
)
 
$
(26,978
)
 
$
(15,296
)
State
(9,122
)
 
(4,077
)
 
(3,350
)
Deferred
 
 
 
 
 
Federal
(26,663
)
 
(1,395
)
 
(5,259
)
State
(1,174
)
 
(2,400
)
 
(2,901
)
 
$
(62,933
)
 
$
(34,850
)
 
$
(26,806
)

Income taxes differ from the amounts computed by applying the applicable federal statutory rates due to the following (in thousands):
 
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
2017
 
2016
 
2015
Provision for federal income taxes at the statutory rate
$
(42,240
)
 
$
(35,986
)
 
$
(30,473
)
(Increases)/decreases in tax resulting from:
 
 
 
 
 
Provision for state income taxes, net of federal income tax benefits
(6,692
)
 
(4,210
)
 
(4,063
)
Rate adjustment - new tax reform legislation
(23,126
)
 
—

 
—

Change in valuation allowance
—

 
—

 
1,626

Domestic production activities deduction
2,868

 
2,481

 
2,087

Nondeductible items-other
(94
)
 
(58
)
 
(52
)
Non-controlling interests
3,366

 
2,895

 
1,024

Change in RBIL estimate
—

 
—

 
1,771

Tax credits
(160
)
 
166

 
1,272

Stock based compensation
281

 
27

 
—

Other, net
2,864

 
(165
)
 
2

 
$
(62,933
)
 
$
(34,850
)
 
$
(26,806
)

      
On December 22, 2017, President Donald Trump signed into law “H.R.1” (the “Tax Cuts and Jobs Act”), which among other items reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018. Also on December 22, 2017, the Securities & Exchange Commission Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for accounting for effects of the Tax Cuts and Jobs Act for which the accounting under ASC 740, “Income Taxes” (“ASC 740”) is incomplete. Under SAB 118, to the extent that accounting for certain income tax effects of the Tax Cuts and Jobs Act is incomplete but that the Company is able to determine a reasonable estimate, it must record a provisional estimate in its consolidated financial statements. If a reasonable estimate cannot be determined, ASC 740 should continue to be applied on the basis of the tax laws that were in effect prior to the passage of the Tax Cuts and Jobs Act.
The Company recognized the income tax effects of the Tax Cuts and Jobs Act in accordance with SAB 118. As such, the Company’s financial results for the year ended December 31, 2017 reflect the income tax effects for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The Company has recognized the tax impact related to the revaluation of deferred tax assets and liabilities, resulting in $23.1 million of additional income tax expense for the year ended December 31, 2017. The Company has also recorded a provisional amount in relation to the treatment of AMT credits in its consolidated financial statements for the year ended December 31, 2017.
The Company did not identify any items for which the income tax effects of the Tax Cuts and Jobs Act have not been completed and a reasonable estimate could not be determined as of December 31, 2017. The ultimate impact of AMT credits may differ from the provisional amount, possibly materially, due to, among other things, additional analysis, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Cuts and Jobs Act.
The Company’s effective income tax rate was 52.1%, and 33.9% for the year ended December 31, 2017 and 2016, respectively. The significant drivers of the effective tax rate are revaluation of deferred tax assets and liabilities discussed above, allocation of income to noncontrolling interests and the domestic production activities deduction.
Temporary differences giving rise to deferred income taxes consist of the following (in thousands):
 
 
December 31,
 
2017
 
2016
Deferred tax assets
 
 
 
Impairment and other reserves
$
33,883

 
$
53,806

Compensation deductible for tax purposes when paid
5,093

 
9,161

AMT credit carryover
1,384

 
1,384

Unused recognized built-in loss
10,706

 
18,651

Net operating loss
3,488

 
3,172

Effect of book/tax differences for general and administrative
4,508

 
6,427

Other
806

 
694

 
59,868

 
93,295

Deferred tax liabilities
 
 
 
Effect of book/tax differences for joint ventures
(1,343
)
 
(2,706
)
Effect of book/tax differences for capitalized interest
(6,478
)
 
(11,103
)
Fixed assets and intangibles
(1,850
)
 
(1,716
)
Goodwill and other intangibles
(1,998
)
 
(1,541
)
Other
(284
)
 
(478
)
 
(11,953
)
 
(17,544
)
Total deferred tax assets, net
$
47,915

 
$
75,751

    
Management assesses its deferred tax assets to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At December 31, 2017 the Company had no valuation allowance recorded.
As of December 31, 2012, the Company had generated significant deferred tax assets through its operations, but as a result of the Company's ongoing assessments had determined that it was not more likely than not that the Company would be able to utilize these assets.  As a result, the Company had recorded a full valuation allowance against the $200.0 million deferred tax asset balance.  During the quarter ended December 31, 2013, the Company determined that it would be able to utilize $95.6 million of its deferred tax assets, and recognized an income tax benefit in its results of operations in this amount.  This conclusion was based upon the operating results of the Company, most notably three consecutive quarters of net income, reduced interest expense as a result of the 2012 restructure, and eight consecutive quarters of period over period growth in net new home orders, home closings, and dollar value of backlog, in addition to continued improving conditions in the single family home market. Since 2013, the Company's operating results have demonstrated consistent improvement with significant growth in revenues and net income, which has allowed it to realize approximately $20.0 million in deferred tax assets through December 31, 2017.
The Company's analysis demonstrated that even under the stress tested forecasts of future results which considered the potential impact of the negative evidence noted above, the Company would continue to generate sufficient taxable income in future periods to realize the majority of its deferred tax assets. This fact, coupled with other positive evidence described above, significantly outweighed the negative evidence and based on this analysis management concluded, in accordance with ASC 740, that it was more likely than not that the majority of its deferred tax assets as of December 31, 2013 would be realized. At December 31, 2017, the Company had no remaining federal net operating loss carryforwards and $49.9 million remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031. In addition, as of December 31, 2017, the Company had unused federal and state built-in losses of $48.5 million and $7.5 million, respectively. The 5 year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire at the end of 2032. The Company had AMT credit carryovers of $1.4 million at December 31, 2017, which if not previously utilized are allowable as refundable credits under the Jobs and Tax Act through 2022. However, the refundability of the credit will be determined through additional guidance to properly interpret the interaction between Internal Revenue Code Section 383 with the Jobs and Tax Act.
ASC 740 prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes. As of December 31, 2017 and 2016, the Company had no significant uncertain tax positions.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Due to the Company’s net operating losses incurred, the Company is subject to U.S. federal income tax examinations for calendar tax years ended 2012 and forward and subject to various state income tax examinations for calendar tax years ended 2008 and forward. The Company is currently under examination by the Internal Revenue Service for the 2013 and 2014 tax years and a California examination is pending for the 2014 tax year.