Income Taxes

12 Months Ended

Dec. 31, 2019

The benefit (provision) for income taxes is comprised of the following:



	For the Years Ended December 31,
(in thousands)	2019			2018			2017
Federal:
Current	$	64		$	(113	)	$	2,200
Deferred	2,654			52,367			15,310
Total Federal	2,718			52,254			17,510
State:
Current	(449		)	(2,798		)	(995		)
Deferred (included in Federal above)	—			—			—
Total State	(449		)	(2,798		)	(995		)
Total	$	2,269		$	49,456		$	16,515

A reconciliation of the benefit (provision) for income taxes to the amount computed at the U.S. Federal statutory rate of 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017, is as follows:



	For the Years Ended December 31,
(in thousands)	2019			2018			2017
Tax benefit at U.S. statutory rate	$	56,742		$	121,320		$	205,777
State taxes, net of federal income tax	10,423			21,576			24,891
Valuation allowance	(60,376		)	5,713			(246,037		)
Goodwill impairment	—			(88,265		)	(78,515		)
Impact of the Tax Act	—			(6,042		)	114,716
Stock compensation	(2,639		)	(4,717		)	(4,093		)
Meals and entertainment	(416		)	(493		)	(726		)
Tax credits	(106		)	688			1,908
Other	(1,359		)	(324		)	(1,406		)
Total	$	2,269		$	49,456		$	16,515

Significant components of the Company's deferred tax assets and liabilities are as follows:



	As of December 31,
(in thousands)	2019			2018
Deferred income tax assets:
Financing lease obligations	$	156,913		$	165,703
Operating lease obligations	406,172			—
Operating loss carryforwards	330,983			298,255
Deferred lease liability	—			63,263
Accrued expenses	54,154			61,309
Tax credits	50,356			50,462
Capital loss carryforward	40,723			41,413
Intangible assets	11,160			10,133
Other	8,098			2,872
Total gross deferred income tax asset	1,058,559			693,410
Valuation allowance	(408,903		)	(336,417		)
Net deferred income tax assets	649,656			356,993
Deferred income tax liabilities:
Property, plant and equipment	(303,853		)	(334,145		)
Operating lease right-of-use assets	(328,100		)	—
Investment in unconsolidated ventures	(33,100		)	(41,219		)
Total gross deferred income tax liability	(665,053		)	(375,364		)
Net deferred tax liability	$	(15,397	)	$	(18,371	)

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act reformed the United States corporate income tax code, including a reduction to the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also eliminated alternative minimum tax ("AMT") and the 20-year carryforward limitation for net operating losses incurred after December 31, 2017, and imposes a limit on the usage of net operating losses incurred after such date equal to 80% of taxable income in any given year. The 80% usage limit will not have an economic impact on the Company until its current net operating losses are either utilized or expired. In addition, the Tax Act limits the annual deductibility of a corporation's net interest expense unless it elects to be exempt from such deductibility limitation under the real property trade or business exception. The Company elected the real property trade or business exception with the 2018 tax return. As such, the Company will be required to apply the alternative depreciation system ("ADS") to all current and future residential real property and qualified improvement property assets. This change impacts the current and future tax depreciation deductions and impacted the Company's valuation allowance accordingly. Additional information that may affect the Company's provisional amounts would include further clarification and guidance on how the Internal Revenue Service will implement tax reform and further clarification and guidance on how state taxing authorities will implement tax reform and the related effect on the Company's state and local income tax returns, state and local net operating losses, and corresponding valuation allowances.

A summary of the effect of the Tax Act is as follows:



(in thousands)	For the Year Ended December 31, 2017
Rate change - decrease in net deferred tax assets	$	108,070
Rate change - decrease in valuation allowance	(172,235		)
Impact on net operating loss usage	(50,551		)
Reduction of deferred tax asset - AMT credits	2,361
Total impact of the Tax Act on the Company's deferred taxes position	(112,355		)
Realization of AMT credits	(2,361		)
Net impact of the Tax Act on the Company's effective tax rate	$	(114,716	)

As of both December 31, 2019 and 2018, the Company had federal net operating loss carryforwards generated in 2017 and prior of approximately $1.2 billion which are available to offset future taxable income from 2020 through 2037. Additionally, as of December 31, 2019 and 2018, the Company had federal net operating loss carryforwards generated after 2017 of $174.9 million and $33.5 million, respectively, which have an indefinite life, but with usage limited to 80% of taxable income in any given year. The Company had capital loss carryforwards of $161.6 million as of December 31, 2019, which is available to offset future capital gains through 2023. The Company determined that a valuation allowance was required after consideration of the Company's estimated future reversal of existing timing differences as of December 31, 2019 and 2018. The Company does not consider estimates of future taxable income in its determination due to the existence of cumulative historical operating losses. For the year ended December 31, 2019, the Company recorded a provision of approximately $60.4 million from operations to reflect the required valuation allowance of $408.9 million as of December 31, 2019.

A summary of the change in the Company's valuation allowance is as follows:



	For the Years Ended December 31,
(in thousands)	2019			2018
Increase in valuation allowance before consideration of the Tax Act	$	60,376		$	(5,713	)
Increase due to the adoption of ASC 842	13,790			—
Other decrease during the year	(1,680		)	—
Total increase (decrease) in valuation allowance before consideration of the Tax Act	72,486			(5,713		)

Impact of the Tax Act on net operating loss usage	—			6,042
Total increase (decrease) in valuation allowance	$	72,486		$	329

The Company has recorded valuation allowances of $318.4 million and $245.3 million as of December 31, 2019 and 2018, respectively, against its federal and state net operating losses. The Company has recorded a valuation allowance against its capital loss carryforward of $40.7 million and $41.4 million as of December 31, 2019 and 2018, respectively. In accordance with ASC 740, Income Taxes, the Company has not considered the impact of the multi-part transaction with Healthpeak, including the sale of the Company's equity interest in the CCRC Venture, when determining the amount of valuation allowance to record against its net operating losses and capital loss carryforward as of December 31, 2019. The Company anticipates that the sale of its CCRC Venture will utilize all or a portion of the capital loss carryforward and a portion of its net operating losses. The Company also recorded a valuation allowance against federal and state credits of $49.8 million as of both December 31, 2019 and 2018.

As of December 31, 2019 and 2018, the Company had gross tax affected unrecognized tax benefits of $18.3 million and $18.5 million, respectively, of which, if recognized, would result in an income tax benefit recorded in the consolidated statement of operations. Interest and penalties related to these tax positions are classified as tax expense in the Company's consolidated financial statements. Total interest and penalties reserved is $0.1 million as of both December 31, 2019 and 2018. As of December 31, 2019, the Company's tax returns for years 2015 through 2018 are subject to future examination by tax authorities. In addition, the net operating losses from prior years are subject to adjustment under examination. The Company does not expect that unrecognized tax benefits for tax positions taken with respect to 2019 and prior years will significantly change in 2020.

A reconciliation of the unrecognized tax benefits is as follows:



	For the Years Ended December 31,
(in thousands)	2019			2018
Balance at January 1,	$	18,507		$	18,461
Additions for tax positions related to the current year	—			80
Reductions for tax positions related to prior years	(181		)	(34		)
Balance at December 31,	$	18,326		$	18,507