21. 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 December 31, 2016 and 2015, approximately $634.4 million and $858.5 million, respectively, of the Investing and Servicing Segment’s assets, including $181.0 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.

Our income tax provision consisted of the following for the years ended December 31, 2016, 2015 and 2014 (in thousands):


	For the year ended December 31,
	2016		2015		2014
Current
Federal	$	8,878	$	15,095	$	28,677
Foreign		938		6,000		5,432
State		2,192		2,532		4,946
Total current		12,008		23,627		39,055
Deferred
Federal		(2,655)		(3,799)		(9,975)
Foreign		(447)		(1,973)		(3,400)
State		(562)		(649)		(1,584)
Total deferred		(3,664)		(6,421)		(14,959)
Total income tax provision	$	8,344	$	17,206	$	24,096

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are presented net by tax jurisdiction and are reported in other assets and other liabilities, respectively. At December 31, 2016 and 2015, our U.S. tax jurisdiction was in a net deferred tax asset position. Our European tax jurisdiction was in a net deferred tax liability position at December 31, 2015. There were no deferred taxes in our European tax jurisdiction at December 31, 2016. The following table presents each of these tax jurisdictions and the tax effects of temporary differences on their respective net deferred tax assets and liabilities (in thousands):


	December 31,
	2016		2015
U.S.
Deferred tax asset, net
Reserves and accruals	$	6,103	$	11,659
Domestic intangible assets		24,450		17,734
Investment securities and loans		(2,355)		(2,416)
Investment in unconsolidated entities		948		(362)
Deferred income		292		423
Net operating and capital loss carryforwards		804		2,967
Valuation allowance		—		(2,967)
Other U.S. temporary differences		356		343
		30,598		27,381
Europe
Deferred tax liability, net
European servicing rights		—		(583)
Net operating and capital loss carryforwards		5,533		7,606
Valuation allowance		(5,533)		(7,606)
Other European temporary differences		—		(346)
		—		(929)
Net deferred tax assets	$	30,598	$	26,452

Unrecognized tax benefits were not material as of and during the years ended December 31, 2016 and 2015. The Company’s tax returns are no longer subject to audit for years ended prior to January 1, 2013. The Company had pre-tax income from foreign operations of $14.1 million, $22.0 million and $13.5 million during the years ended December 31, 2016, 2015 and 2014, respectively.

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 years ended December 31, 2016, 2015 and 2014 (dollars in thousands):


	For the Year Ended December 31,
	2016				2015				2014
Federal statutory tax rate	$	131,598	35.0	%	$	164,286	35.0	%	$	183,622	35.0	%
REIT and other non-taxable income		(123,209)	(32.7)	%		(148,514)	(31.6)	%		(160,745)	(30.7)	%
State income taxes		1,634	0.4	%		1,800	0.4	%		3,149	0.6	%
Federal benefit of state tax deduction		(572)	(0.2)	%		(630)	(0.1)	%		(1,102)	(0.2)	%
Valuation allowance		(2,966)	(0.8)	%		445	0.1	%		1,315	0.3	%
Other		1,859	0.5	%		(181)	(0.1)	%		(2,143)	(0.4)	%
Effective tax rate	$	8,344	2.2	%	$	17,206	3.7	%	$	24,096	4.6	%

During the year ended December 31, 2016, we merged two of our TRSs. In doing so, $7.4 million of net operating loss carryforwards which were previously subject to a full valuation allowance became realizable. As a result, we reversed the valuation allowance, which caused a reduction of $3.0 million to our income tax provision in our consolidated statement of operations for the year ended December 31, 2016.

The changes in the valuation allowance associated with our deferred tax assets are as follows for the years ended December 31, 2016 and 2015 (amounts in thousands):


	2016		2015		2014
January 1 balance	$	10,573	$	11,200	$	11,750
Additions (releases) to income tax provision		(2,966)		445		1,315
Provision to return adjustments to deferred tax amounts		—		23		(822)
Foreign currency adjustments reflected in OCI		(417)		(770)		(1,086)
Release due to European servicing and advisory business divestiture		(1,585)		—		—
Other		(72)		(325)		43
December 31 balance	$	5,533	$	10,573	$	11,200