INCOME TAXES

The table below represents the components of income (loss) from continuing operations before the provision for income taxes. The Company generally invests in foreign real estate through domestic partnerships and, as such, the (loss) income for foreign jurisdictions generally represents the results of its foreign corporations. Additionally, the table below is not reflective of the cash tax results of the Company.



	Year ended December 31,
(Dollars in millions)	2013			2012			2011
Domestic	$	27.1		$	(3.4	)	$	(14.9	)
Foreign	(10.6		)	10.2			20.0
Total	$	16.5		$	6.8		$	5.1

The (benefit from) provision for income taxes consisted of the following:



	Year ended December 31,
(Dollars in millions)	2013			2012			2011
Federal
Current	$	(0.1	)	$	—		$	—
Deferred	5.2			(2.7		)	(4.5		)
	5.1			(2.7		)	(4.5		)
State
Current	—			—			—
Deferred	(0.1		)	1.4			(0.1		)
	(0.1		)	1.4			(0.1		)
Foreign
Current	0.3			0.5			2.6
Deferred	(2.4		)	0.6			—
	(2.1		)	1.1			2.6
Total	$	2.9		$	(0.2	)	$	(2.0	)

A reconciliation of the statutory federal income tax rate of 34% with Kennedy Wilson’s effective income tax rate is as follows:



	Year ended December 31,
(Dollars in millions)	2013			2012			2011
Tax computed at the statutory rate	$	5.6		$	2.3		$	1.7
State income taxes, net of federal benefit	—			0.2			(0.1		)
Taxing authority settlement	—			—			0.8
Foreign rate differential	2.3			(2.4		)	(4.2		)
Noncontrolling interest and other	(6.9		)	(0.9		)	(0.4		)
Other	2.0			0.2			0.2
Valuation allowance	(0.1		)	0.4			—
Provision for (benefit from) income taxes	$	2.9		$	(0.2	)	$	(2.0	)

Cumulative tax effects of temporary differences are shown below at December 31, 2013 and 2012:



	Year ended December 31,
(Dollars in millions)	2013		2012
Deferred tax assets:
Accrued reserves	$	0.2	$	0.2
Stock option expense	1.3		3.1
Net operating loss carryforward and credits	42.9		26.3
Total deferred tax assets	44.4		29.6
Deferred tax liabilities:
Depreciation and amortization	6.2		7.9
Prepaid expenses and other	0.4		1.5
Investment basis and reserve differences	50.3		32.4
Foreign currency translation	3.9		6.2
Capitalized interest	2.3		2.3
Valuation allowance	0.3		0.4
Marketable securities	0.4		1.2
Hedging transactions	4.7		0.4
Total deferred tax liabilities	68.5		52.3
Net deferred tax liability	$	24.1	$	22.7

Based upon the level of historical taxable income and projections for future taxable income over the periods which Kennedy Wilson’s gross deferred tax assets are deductible, management believes it is more likely than not Kennedy Wilson will realize the benefits of these deductible differences at December 31, 2013.

As of December 31, 2013 Kennedy Wilson had federal net operating losses of $114.4 million. These net operating losses begin to expire in the year 2030. As of December 31, 2013 there were also California net operating loss carryforwards of approximately $73.2 million. The California net operating losses begin to expire after the year 2028. In addition, Kennedy Wilson has $5.7 million of other state net operating losses. We believe that it is more likely than not that certain state net operating losses will expire before the Kennedy Wilson can realize the benefit of the losses. We have provided a valuation allowance of $0.1 million as of December 31, 2013 for certain state net operating losses. As of December 31, 2013, Kennedy Wilson had $6.7 million of foreign net operating losses carryforwards of which $1.1 million begin to expire in 2030 and $5.6 that have no expiration date.

Presently a deferred tax liability for undistributed earnings of subsidiaries located outside the United States has not been recorded. These earnings may become taxable upon a payment of a dividend or as a result of a sale or liquidation of the subsidiaries. At this time the Company does not have plans to repatriate income from its foreign subsidiaries, however to the extent that the Company is able to repatriate such earnings in a tax free manner, or in the event of a change in the capital situation or investment strategy, it is possible that the foreign subsidiaries may pay a dividend which would impact our effective tax rate. Unremitted earnings of foreign subsidiaries, which have been, or are intended to be permanently invested, aggregated approximately $8.4 million as of December 31, 2013. If these subsidiaries' earnings were repatriated to the United States additional US domestic taxes of $2.5 million would be incurred.

There were no gross unrecognized tax benefits at December 31, 2013 and December 31, 2012. Management has considered the likelihood and significance of possible penalties associated with Kennedy Wilson's current and intended filing positions and has determined, based on its assessment, that such penalties, if any, would not expected to be significant.

Kennedy Wilson's federal income tax returns remain open to examination for the years 2010 through 2012.

For income tax purposes, distributions paid to common stockholders and preferred shareholder are return of capital for the year ended December 31, 2013.