INCOME TAXES

Provision for Income Taxes

The components of current and deferred income tax expense are as follows (in thousands):



	Years Ended December 31,
	2017			2016		2015
Current expense:
Federal	$	999		$	158	$	—
State	1,733			2,076		819
Total current expense	2,732			2,234		819
Deferred expense (benefit):
Federal	36,569			13,146		8,412
State	(270		)	1		(60		)
Total deferred expense	36,299			13,147		8,352
Total income tax provision	$	39,031		$	15,381	$	9,171

The effective income tax rate for 2017 reflects the impact of compliance with the Tax Act, signed into law on December 22, 2017. The Company remeasured its deferred tax assets due to the change in federal statutory tax rate which resulted in additional tax expense of $19.0 million. Future implementation guidance from the Internal Revenue Service, clarifications of state tax law or the completion of the Company’s 2017 tax return filings could all affect the estimated financial statement impact of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company does not believe potential adjustments in future periods would materially impact the Company’s financial condition or results of operations.

Deferred Income Taxes

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



	December 31, 2017			December 31, 2016
Deferred tax assets:
Accrued bonuses	$	591		$	1,120
Accrued payroll	75			101
Stock-based compensation	268			291
Federal net operating loss carryover	14,078			40,800
State net operating loss carryover	1,353			1,147
Basis in partnerships	13,377			22,922
Warranty accrual	483			444
Inventory (Section 263A)	944			945
Accrued job costs	178			503
Reserve to complete	91			345
Alternative minimum tax credit carryover	1,145			158
Other	28			126
Deferred tax assets, gross	32,611			68,902
Valuation allowance	(1,346		)	(1,147		)
Deferred tax assets, net	$	31,265		$	67,755

Deferred tax liabilities:
Prepaid insurance	$	(17	)	$	(43	)
Other	(37		)	(114		)
Deferred tax liabilities	$	(54	)	$	(157	)

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 were included in the Company’s federal income tax filing.

As of December 31, 2017, the federal net operating loss carryforward was approximately $67.0 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 2014 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 tax year are subject to adjustment. The Colorado and Minnesota statutes of limitations remain open for our 2013 and subsequent tax years. The Nebraska statute of limitations remains open for our 2014 and subsequent tax years. Additionally, JBGL’s partnerships file returns in Texas and Georgia. The Georgia statute of limitations remains open for the 2014 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 2013 and subsequent tax years.

The Company is not presently under examination by the Internal Revenue Service or state tax authority.

Effective Tax Rate Reconciliation

The provision for income before income tax provision differs from the amount that would be computed by applying the statutory federal income tax rate of 35% to income before income tax provision as a result of the following (amounts in thousands):



	Years Ended December 31,
	2017			2016			2015
Tax on pre-tax book income (before reduction for noncontrolling interests)	$	22,483		$	17,693		$	12,151
Tax effect of noncontrolled earnings post Transaction	(3,630		)	(3,996		)	(3,577		)
State tax expense, net	1,213			1,153			533
Change in federal statutory tax rate	19,017			—			—
Other	(52		)	531			64
Total tax expense	$	39,031		$	15,381		$	9,171
Effective tax rate	60.8		%	30.4		%	26.4		%

Net Operating Losses and Valuation Allowances

As of December 31, 2017, we have federal net operating loss carryforwards of approximately $67.0 million that will expire beginning with the year ending 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 historical taxable income results through December 31, 2017, as well as forecasted income, management expects that the Company will generate sufficient taxable income to utilize all of the federal net operating loss carryforwards before they expire. The Company also has approximately $20.2 million of gross state net operating loss carryforwards in Minnesota and Nebraska with varying periods of expiration which the Company believes on a more-likely-than-not basis will not be utilized. The Company has approximately $0.2 million of gross Colorado state net operating loss carryforwards which will begin to expire beginning with the year ending December 31, 2028. Management expects that the Company will generate sufficient Colorado taxable income to utilize all of the Colorado state net operating loss carryforwards before they expire. The Transaction had no effect on the state net operating loss carryforward amount, the related valuation allowance or income tax expense. The Company maintains a gross deferred income tax asset in the amount of $1.3 million for the Minnesota and Nebraska state net operating loss carryforwards and a related valuation allowance in the amount of $1.3 million. In the Company’s assessment of the need for a valuation allowance, both positive and negative information was considered, including any available income tax planning.

The Company re-assessed the need for a valuation allowance as of December 31, 2017 and concluded, on a more-likely-than-not basis, that the deferred income tax asset related to the Colorado net operating loss carryforward would be realized, giving consideration to the current year and projected operating results of GB Challenger, LLC. As a result of the re-assessment, the Company released the previously recorded valuation allowance against the net deferred income tax assets at December 31, 2017, with an offset reducing deferred state income tax expense.

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



	Years Ended December 31,
	2017			2016
Valuation allowance at beginning of the year	$	1,147		$	1,161
Release of Colorado net operating loss valuation allowance	(8		)	—
Change in federal benefit tax rate - deferred	240			—
Expiration of state net operating losses	(33		)	(14		)
Valuation allowance at end of the year	$	1,346		$	1,147

Uncertain Tax Positions

The Company establishes reserves for uncertain tax positions that reflect management’s 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 considered 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 uncertain tax positions is as follows (in thousands):



	Years Ended December 31,
	2017			2016
Uncertain tax positions at beginning of year	$	249		$	—
Change related to Georgia state income taxes	(249		)	249
Uncertain tax positions at end of year	$	—		$	249

The interest and penalties expense related to uncertain tax positions reflected in the consolidated statements of income for the years ended December 31, 2017, 2016 and 2015 was $0, nil and $0 respectively. The corresponding liabilities in accrued expenses on the consolidated balance sheets were $0 and nil as of December 31, 2017 and 2016, respectively.