INCOME TAXES

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 12. INCOME TAXES

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

For financial reporting purposes, income before income taxes were: 

	Years Ended December 31,
	2018		2017			2016
		(In thousands)
Income (loss) from continuing operations before income taxes	$	183,902	$	(8,696	)	$	(2,363	)

The expense (benefit) for income taxes consists of:

	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Current:
Federal	$	42,231		$	(3,044	)	$	—
State		1,210			10			—
Deferred and Other:
Federal		(42,231	)		3,044			46
State		—			170			—
Total Tax Expense	$	1,210		$	180		$	46

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

	Years Ended December 31,
	2018			2016			2015
	(In thousands)
Income Tax Expense (Benefit) at Federal Statutory Rate	$	38,619		$	(3,044	)	$	(827	)
State and Local Income Taxes Net of Federal Tax Benefit		1,210			180			—
Permanent tax differences		(224	)		—			—
Temporary tax differences
Installment note on land sale		(2,875	)		(1,918	)
Allowance for losses on note receivables		(712	)		(2,372	)
Deferred gains		(7,041	)		(10,758	)
Basis differences on fixed assets		22,110			9,284
Other basis/timing differences		(7,646	)		5,764
Use/generation on net operating loss carryforwards		(42,231	)		3,044			873
Reported Income Tax  Expense	$	1,210		$	180		$	46
Effective Tax Rate		0.7	%		N/A			N/A

The company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2018, the Company’s tax years for 2017, 2016, and 2015 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2018, the Company is no longer subject to U.S federal, state, local, or foreign examinations by tax authorities for the years before 2014. 

The 2017 effective tax rate is driven primarily by the passing of the Tax Cuts and Jobs Act by congress. This act has reduced the statutory tax rate for corporations from 35% to 21% starting in 2018. As a result, the tax assets of ARI had to be re-priced to reflect the new rate for future years with the impact on the 2017 provision for income taxes.

Components of the Net Deferred Tax Asset or Liability

	Years Ended December 31,
	2018			2017
	(In thousands)
Deferred Tax Assets:
Allowance for losses on notes	$	2,879		$	3,591
Installment note on land sale		—			2,875
Deferred Gain		3,999			11,040
Net Operating Loss Carryforward		8,700			50,931
Total Deferred Tax Assets		15,578			68,437
Less: Valuation Allowance		(12,246	)		(42,995	)
Total Net Deferred Tax Assets		3,332			25,442
Deferred Tax Liabilities:
Deferred gain		—			—
Basis Differences for Fixed Assets		(3,332	)		(25,442	)
Total Deferred Tax Liability		(3,332	)		(25,442	)
Current Net Deferred Tax Asset		3,332			25,442
Long-Term Net Deferred Tax Liability		(3,332	)		(25,442	)
Net deferred tax asset (liability)	$	—		$	—

Operating Loss and Tax Credit Carryforwards

We have federal income tax net operating losses (NOLs) carryforwards related to our domestic operations of approximately $26 million on a standalone basis, which have an indefinite life. We also have state NOLs in many of the various states in which we operate.

Valuation Allowance Reversal

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. At December 31, 2018, 2017 and 2016 ARL had a net deferred tax asset due to tax deductions available to it in future years. However, as management could not determine that it was more likely than not that ARL would realize the benefit of the deferred tax asset, a valuation allowance was established.