20. Income Taxes

Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.

Our TRSs engage in various real estate related operations, including special servicing of commercial real estate, originating and securitizing commercial mortgage loans, and investing in entities which engage in real estate related operations. The majority of our TRSs are held within the Investing and Servicing Segment. As of June 30, 2016 and December 31, 2015, approximately $867.8 million and $858.5 million, respectively, of the Investing and Servicing Segment’s assets, including $72.4 million and $185.6 million in cash, respectively, were owned by TRS entities. Our TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

The following table is a reconciliation of our U.S. federal income tax determined using our statutory federal tax rate to our reported income tax provision for the three and six months ended June 30, 2016 and 2015 (dollars in thousands):


	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2016				2015				2016				2015
Federal statutory tax rate	$	39,472	35.0	%	$	42,501	35.0	%	$	48,971	35.0	%	$	90,357	35.0	%
REIT and other non-taxable income		(39,171)	(34.7)	%		(40,510)	(33.3)	%		(48,135)	(34.4)	%		(75,482)	(29.2)	%
State income taxes		72	0.1	%		179	0.1	%		(23)	—	%		2,180	0.8	%
Federal benefit of state tax deduction		(25)	(0.1)	%		(63)	(0.1)	%		8	—	%		(763)	(0.3)	%
Valuation allowance		—	—	%		1,618	1.3	%		—	—	%		2,873	1.1	%
Other		358	0.3	%		67	0.1	%		(21)	—	%		578	0.2	%
Effective tax rate	$	706	0.6	%	$	3,792	3.1	%	$	800	0.6	%	$	19,743	7.6	%