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 September 30, 2017 and December 31, 2016, approximately $779.8 million and $634.4 million, respectively, of assets, including $139.4 million and $181.0 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 nine months ended September 30, 2017 and 2016 (dollars in thousands):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2017				2016				2017				2016
Federal statutory tax rate	$	35,915	35.0	%	$	37,968	35.0	%	$	118,010	35.0	%	$	86,939	35.0	%
REIT and other non-taxable income		(26,242)	(25.5)	%		(35,541)	(32.7)	%		(99,668)	(29.6)	%		(83,676)	(33.7)	%
State income taxes		200	0.2	%		247	0.2	%		81	—	%		224	0.1	%
Federal benefit of state tax deduction		(70)	(0.1)	%		(86)	(0.1)	%		(28)	—	%		(78)	—	%
Other		13	—	%		79	0.1	%		(110)	—	%		58	—	%
Effective tax rate	$	9,816	9.6	%	$	2,667	2.5	%	$	18,285	5.4	%	$	3,467	1.4	%

During the three and nine months ended September 30, 2017, we recognized $28.2 million and $53.9 million, respectively, in earnings from unconsolidated entities related to our interest in an investor entity which owns equity in an online real estate company (see Note 7). Our investment in this entity is held within a TRS. In calculating our effective tax rate for the three and nine months ended September 30, 2017, these earnings were deemed to be both unusual in nature and infrequent in occurrence. As a result, pursuant to ASC 740, the income tax effect of these earnings, net of the related Manager incentive fee, was excluded from ordinary income and discretely calculated. This calculation resulted in a discrete income tax provision of $8.4 million and $18.3 million in our condensed consolidated statements of operations for the three and nine months ended September 30, 2017, respectively.