INCOME TAXES

The Company elected to be treated as a REIT with the filing of its U.S. federal income tax return for the taxable year beginning January 1, 2011. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of its taxable ordinary income. In addition, the Company is required to meet certain asset and income tests. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income that it distributes to its stockholders. The Company also elected to treat certain of its consolidated subsidiaries as taxable REIT subsidiaries, which are subject to federal, state and foreign income taxes.

The Company is subject to corporate income tax on built-in gains (the excess of fair market value over tax basis on properties held by Sabra as of the date Sabra elected to be taxed as a REIT, or January 1, 2011) on taxable dispositions of properties acquired in the Company’s separation from Sun occurring within a specified period (generally five years) following the election to be taxed as a REIT. This built-in gains tax is generally not payable on dispositions of property to the extent the proceeds from such dispositions are reinvested in qualifying like-kind replacement property as defined under various provisions of the Code. The Company does not expect to dispose of any properties held by Sabra at the Separation Date if such a disposition would result in the imposition of a material tax liability. Gains from asset dispositions occurring more than five years after the acquisition will not be subject to this corporate-level tax. As a result, the Company has not recorded a deferred tax liability associated with this corporate-level tax.

As a result of acquisitions in Canada during 2015, the Company is subject to income taxes under the laws of Canada. The Company recorded a $1.3 million, $0.7 million and $0.7 million income tax benefit during the years ended December 31, 2017, 2016 and 2015, respectively, with respect to its Canadian operations. Due to uncertainty over the Company’s ability to utilize this income tax benefit in future periods, the Company recorded a valuation allowance of $1.2 million, $0.7 million and $0.7 million against the deferred tax benefit during the years ended December 31, 2017, 2016 and 2015, respectively.

The following is a reconciliation of the Company’s beginning and ending unrecognized tax benefits (in thousands):



Balance at December 31, 2015	$	24,212
Additions (reductions) based on prior years’ tax positions	(24,212		)
Additions (reductions) based on 2016 tax positions	—
Balance at December 31, 2016	$	—

Additions (reductions) based on prior years’ tax positions	—
Additions (reductions) based on 2017 tax positions	—
Balance at December 31, 2017	$	—

During the 2016 fiscal year, the full amount of unrecognized tax benefits was released due to the lapse of applicable statute of limitations. The balance of unrecognized tax benefits did not change in fiscal year 2017, and the Company does not anticipate that the balance of unrecognized tax benefits will change materially in fiscal year 2018. The Company classifies interest and penalties from significant uncertain tax positions as interest expense and operating expenses, respectively, in its consolidated financial statements. During the years ended December 31, 2017, 2016 and 2015, the Company did not incur any such interest or penalties. With certain exceptions, the tax year 2014 and thereafter remain open to examination by the major taxing jurisdictions with which the Company files tax returns.