Income Taxes

Income Tax Provision

The components of our provision for income taxes attributable to continuing operations for the periods presented are as follows (in thousands):



	Years Ended December 31,
	2013			2012			2011
Federal
Current	$	8,274		$	18,142		$	17,820
Deferred	(13,029		)	(21,167		)	6,867
	(4,755		)	(3,025		)	24,687
State and Local
Current	4,970			12,303			9,079
Deferred	(3,665		)	(5,644		)	1,968
	1,305			6,659			11,047
Foreign
Current	7,144			3,138			1,480
Deferred	(2,442		)	—			—
	4,702			3,138			1,480
Total Provision	$	1,252		$	6,772		$	37,214

A reconciliation of the provision for income taxes with the amount computed by applying the statutory federal income tax rate to income before provision for income taxes for the periods presented is as follows (in thousands, except percentages):



	Years Ended December 31,
	2013					2012					2011
Income from continuing operations before income taxes	$	85,889				$	94,343				$	190,225
Pre-tax income attributable to pass-through subsidiaries	(96,314		)			(94,755		)			(111,664		)
Pre-tax (loss) income attributable to taxable subsidiaries	(10,425		)			(412		)			78,561
Federal provision at statutory tax rate (35%)	(3,649		)	(35.0	)%	(144		)	(35.0	)%	27,496			35.0	%
State and local taxes, net of federal benefit	(166		)	(1.6	)%	616			149.5	%	7,409			9.4	%
Amortization of intangible assets	492			4.7	%	465			112.9	%	486			0.6	%
Other	(302		)	(2.9	)%	1,069			261.2	%	272			0.4	%
Tax provision — taxable subsidiaries	(3,625		)	(34.8	)%	2,006			488.6	%	35,663			45.4	%
Current foreign taxes	7,144					3,138					1,480
Deferred foreign taxes	(2,442		)			—					—
Other state and local taxes	175					1,628					71
Total provision	$	1,252				$	6,772				$	37,214

Deferred Income Taxes

Deferred income taxes at December 31, 2013 and 2012 consist of the following (in thousands):



	At December 31,
	2013			2012
Deferred Tax Assets
Net operating loss carry-forwards	$	17,034		$	15,133
Unearned and deferred compensation	29,104			17,272
Basis differences — foreign investments	4,482			—
Other	10,565			10,832
Total deferred income taxes	61,185			43,237
Valuation allowance	(18,214		)	(15,133		)
Net deferred income taxes	42,971			28,104
Deferred Tax Liabilities
Basis differences — equity investees	(9,870		)	(13,251		)
Basis differences — foreign investments	(38,405		)	—
Receivables from affiliates	(30,248		)	(31,598		)
Other	(187		)	(583		)
Total deferred tax liabilities	(78,710		)	(45,432		)
Net Deferred Tax Liability	$	(35,739	)	$	(17,328	)

Our deferred tax assets and liabilities are primarily the result of temporary differences related to the following:

•

Basis differences between tax and U.S. GAAP for certain international real estate investments. For income tax purposes, in certain acquisitions, we assume the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the U. S. GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets, respectively in a business combination or asset acquisition;


•	Timing differences generated by differences in the U. S. GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight line rent, prepaid rents and intangible assets, as well as unearned and deferred compensation;


•	Receivables from affiliates that are long-term in nature and have not yet resulted in income for tax purposes but have been recorded as revenues under U.S. GAAP, such as deferred acquisition fees; and


•	Tax net operating losses in certain subsidiaries, including those domiciled in foreign jurisdictions, that may be realized in future periods if the respective subsidiary generates sufficient taxable income.

During the fourth quarter of 2013, we recorded an out-of-period adjustment to reflect deferred tax assets net of valuation allowances and deferred tax liabilities of $2.3 million and $37.5 million, respectively, associated with basis differences on certain foreign properties acquired in prior periods. In addition, this out-of-period adjustment included the recognition of a deferred tax provision of $2.0 million (Note 2).

As of December 31, 2013 and 2012, we had net operating losses, or NOLs, in foreign jurisdictions of approximately $61.7 million and $57.9 million, respectively, translating to a deferred tax asset before valuation allowance of $17.0 million and $15.1 million, respectively. Our NOLs began expiring in 2011 in certain foreign jurisdictions. The utilization of NOLs may be subject to certain limitations under the tax laws of the relevant jurisdiction. Management determined that, as of December 31, 2013 and 2012, $18.2 million and $15.1 million, respectively, of deferred tax assets related to losses in foreign jurisdictions did not satisfy the recognition criteria set forth in accounting guidance for income taxes and established a valuation allowance for this amount.

Included in Other assets, net in the consolidated balance sheet at December 31, 2013 is deferred tax assets of $3.3 million related to foreign investments. Included in Income taxes, net in the consolidated balance sheets at December 31, 2013 and 2012 are accrued income taxes totaling $4.9 million and $7.3 million, respectively, deferred income taxes totaling $39.0 million and $17.3 million, respectively, and uncertain tax positions totaling $0.1 million and $0.3 million, respectively. The uncertain tax positions, which we account for in accordance with ASC 740, Income Taxes, were acquired in the CPA^®:15 Merger.

Real Estate Ownership Operations

Effective February 15, 2012, we elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. As a REIT, we expect to derive most of our REIT income from our real estate operations under our Real Estate Ownership segment.

Investment Management Operations

We conduct our investment management services in our Investment Management segment through TRSs. A TRS is a subsidiary of a REIT that is subject to corporate federal, state, local and foreign taxes, as applicable. Our use of TRSs enables us to engage in certain businesses while complying with the REIT qualification requirements and also allows us to retain income generated by these businesses for reinvestment without the requirement to distribute those earnings. We conduct business in the U.S., Asia and the European Union, and as a result, we or one or more of our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and certain foreign jurisdictions. Certain of our inter-company transactions that have been eliminated in consolidation for financial accounting purposes are also subject to taxation. Periodically, shares in the Managed REITs that are payable to our TRSs in consideration of services rendered are distributed from TRSs to us.

Our tax returns are subject to audit by taxing authorities. Such audits can often take years to complete and settle. The tax years 2005 through 2013 remain open to examination by the major taxing jurisdictions to which we are subject.