Income Taxes
The Company is taxed and operates in a manner that will allow the Company continue to qualify as a REIT for U.S. federal income tax purposes beginning with the Company’s short taxable year commencing immediately prior to the Company’s separation from InvenTrust and ending on December 31, 2016. So long as it maintains its qualification as a REIT, the Company generally will not be subject to U.S. federal income tax on taxable income that is distributed currently to stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders each year. If the Company fails to continue to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and would not be able to re-elect REIT status during the four years following the year of the failure. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and U.S. federal income and excise taxes on its undistributed income.
Prior to the Distribution, the Company was a qualified REIT subsidiary (“QRS”) of InvenTrust, which had elected to be taxed as a REIT and had operated in a manner intended to qualify as a REIT under the Code. As a QRS, the Company was disregarded as a separate entity from InvenTrust for U.S. federal income tax purposes. All assets, liabilities and items of income, deduction and credit of the Company were treated for U.S. federal income tax purposes as those of InvenTrust.
As discussed above a REIT has a requirement to distribute at least 90% of its taxable income (subject to certain adjustments) to its stockholders each year. For the year ended December 31, 2016, the Company had a taxable loss and did not have a distribution requirement. It is the Company’s intention to adhere to the REIT distribution requirements for the year ended December 31, 2017, including applying the throwback provisions under IRC §858 (a), to maintain its REIT status and obtain a full dividends paid deduction.
The Company’s subsidiary, MB REIT (Florida), Inc. (“MB REIT”), previously elected and operated so as to qualify to be taxed as a REIT under the Code. On December 15, 2015, MB REIT redeemed all of the outstanding shares of its Series B Preferred Stock and became a wholly owned subsidiary of InvenTrust. At that time, MB REIT became a QRS of InvenTrust and ceased to be treated as a separate REIT for U.S. federal income tax purposes. As a result of certain pre-Distribution reorganization transactions, following the Distribution, MB REIT is currently disregarded as a separate entity from the Company for U.S. federal income tax purposes and is a QRS of the Company. All assets, liabilities and items of income, deduction and credit of MB REIT are treated for U.S. federal income tax purposes as those of the Company.
During the years ended December 31, 2017, 2016 and 2015, respectively, an income tax expense of $148, $241, and $51 was included on the combined consolidated statements of operations. The Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the twelve months ended December 31, 2017, 2016 and 2015, there was $155, $0 and $0 U.S. federal excise tax accrual recorded.
On December 22, 2017, the Act was passed into law, which resulted in significant U.S. federal income tax reform. The Company conducted a review of the Acts impact to Highlands and determined there was no impact to the Company's accounting for the income tax as of December 31, 2017.
Uncertain Tax Positions
The Company had no unrecognized tax benefits as of or during the three year period ended December 31, 2017. 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 combined consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 or in the consolidated balance sheets as of December 31, 2017 and 2016. As of December 31, 2017, the Company's, including its predecessors', 2016, 2015 and 2014 tax years remain subject to examination by U.S. and various state tax jurisdictions.