INCOME TAXES

Provision for Income Taxes

The components of income before income taxes attributable to our operations are as follows (in thousands):



	Years Ended December 31,
	2016		2015			2014
Current:
Federal	$	158	$	—		$	—
State	2,076		819			485
Total current	2,234		819			485
Deferred
Federal	13,146		8,412			(23,308		)
State	1		(60		)	(2,030		)
Total deferred	13,147		8,352			(25,338		)
Total income tax provision (benefit)	$	15,381	$	9,171		$	(24,853	)

Deferred Income Taxes

The primary differences between the financial statement and tax bases of assets and liabilities are as follows (in thousands):



	December 31, 2016			December 31, 2015
Deferred tax assets:
Accrued bonuses	$	1,120		$	39
Accrued payroll	101			49
Stock-based compensation	291			125
Federal net operating loss carryover	40,800			55,622
State net operating loss carryover	1,147			1,161
Basis in partnerships	22,922			24,773
Warranty accrual	444			166
Inventory (Section 263A)	945			—
Accrued job costs	503			—
Reserve to complete	345			—
Alternative minimum tax credit carryover	158			—
Other	126			40
	68,902			81,975
Valuation allowance	(1,147		)	(1,161		)
Deferred tax assets, net	$	67,755		$	80,814

Deferred tax liabilities:
Prepaid insurance	$	(43	)	$	(34	)
Noncontrolling interests impact of M-1s	—			(117		)
Other	(114		)	—
Deferred tax liabilities, net	$	(157	)	$	(151	)

The Company assesses the recoverability of deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, management considers all available positive and negative evidence and available income tax planning to determine whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized in future periods. This assessment requires significant judgment and estimates involving current and deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated with certain assets and limitations surrounding the realization of deferred tax assets.

The Company files a federal corporate income tax return. The operations of JBGL subsequent to the Transaction Date was included in the Company’s federal income tax filing.

As of December 31, 2016, the federal net operating loss carryforward was approximately $116.6 million, which will begin to expire beginning with the year ending December 31, 2029. The U.S. federal statute of limitations remains open for our 2013 and subsequent tax years. Due to the carryover of the federal net operating losses for years 2008 and forward, income tax returns going back to the 2008 year are subject to adjustment. The Colorado and Minnesota statute of limitations remains open for our 2012 and subsequent tax years. The Nebraska statute of limitations remains open for our 2013 and subsequent tax years. Additionally, JBGL's partnerships filed returns in Texas and Georgia. The Georgia statute of limitations remains open for the 2013 and subsequent tax years. Any Georgia adjustments relating to returns filed by the partnerships would be borne by the partners. The Texas statute of limitations remains open for the 2012 and subsequent tax years.

The Company is not presently under examination by the Internal Revenue Service, nor has it been contacted.

Effective Tax rate Reconciliation

A reconciliation between our effective tax rate on income before income tax provision (benefit) and the U.S. federal statutory rate is as follows (amounts in thousands):



	Years Ended December 31,
	2016			2015			2014
Tax on pre-tax book income (before reduction for noncontrolling interests)	$	17,693		$	12,151		$	12,673
Pre-Transaction earnings taxed to partners	—			—			(10,634		)
Tax effect of non-controlled earnings post Transaction	(3,996		)	(3,577		)	(644		)
Change in partnership tax status	—			—			(25,244		)
Change in partnership tax status - state benefit	—			—			(1,320		)
State tax expense, net	1,153			533			315
Deferred other	—			(36		)	—
Other	531			100			1
Total tax expense	$	15,381		$	9,171		$	(24,853	)
	30.4		%	26.4		%	(68.6		)%

Net Operating Losses and Valuation Allowances

As of December 31, 2016, we have $116.6 million of federal net operating loss carryforwards that will expire beginning with the year ending in December 31, 2029. Our ability to utilize our net operating loss carryforwards depends on the amount of taxable income we generate in future periods. Based on our 2016, 2015 and 2014 taxable income results and projections of taxable income, management expects that the Company will generate sufficient taxable income to utilize substantially all of the federal net operating loss carryforwards before they expire. We also have approximately $21.3 million of state net operating loss carryforwards that have varying dates of expiration. We believe it is more-likely-than-not that the state loss carryforwards will expire prior to their utilization. As a result, a $21.3 million valuation allowance is recorded against the state loss carryforwards in full. The assessment of the need for a valuation allowance considered all available positive and negative information and available tax planning.

Prior to the Transaction Date, JBGL was not a taxable entity for U.S. federal income tax purposes. Taxes on its net income were borne by its members through the allocation of taxable income. Upon completion of the reverse recapitalization of Green Brick, JBGL became part of a consolidated taxable entity. The Transaction resulted in the change of JBGL’s tax status that resulted in the recognition of a one-time income tax benefit in the income statement of approximately $26.6 million in the year ended December 31, 2014.

BioFuel had approximately $182.3 million of federal net operating loss carryforwards and approximately $21.6 million of state net operating loss carryforwards as of the Transaction Date. The Company re-assessed the need for a valuation allowance as of the Transaction Date and concluded, on a more-likely-than-not basis, that the deferred income tax assets, except for the state loss carryforwards, would be realized, giving consideration to the historical, current year and projected operating results of JBGL. As a result of the re-assessment, the Company recorded $63.9 million of net deferred income tax assets at the Transaction Date, with an offset in additional paid-in-capital. The effect of the re-assessment had no impact on income tax expense.

The rollforward of valuation allowances is as follows (amounts in thousands):



	Years Ended December 31,
	2016			2015
Valuation allowance at beginning of the year	$	1,161		$	1,161
Expiration to state net operating losses	(14		)	—
Valuation allowance at end of the year	$	1,147		$	1,161

Uncertain Tax Positions

The company establishes reserves for uncertain tax positions that reflect its best estimate of deductions and credits that may not be sustained on a more-likely-than-not basis. In accordance with ASC 740, Income Taxes, the Company recognizes the effect of income tax positions only if those positions have a more-likely-than-not chance of being sustained by the Company. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. A reconciliation of the beginning and ending amount of total uncertain tax positions is as follows (in thousands):



Balance as of December 31, 2015	$	—
Increase related to Georgia state income tax	249
Balance as of December 31, 2016	$	249

The interest and penalties expense reflected in the consolidated statements of income for the years ended December 31, 2016, 2015 and 2014 was nil, $0 and $0 respectively. The corresponding liabilities in accrued expenses on the consolidated balance sheets was nil and $0 as of December 31, 2016 and 2015, respectively.