INCOME TAXES

The provision for income taxes consists of the following:



	Year Ended December 31,
	2014		2013
Current:
Federal	$	3,737	$	—
State and Local	2,799		—
Total Current Provision	6,536		—
Deferred:
Federal	12,853		—
State and Local	3,568		—
Total Deferred Provision	16,421		—
Total Provision for Income Taxes	$	22,957	$	—

New Residential intends to qualify as a REIT for the tax years ending December 31, 2013 and 2014. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements. New Residential was a wholly owned subsidiary of Newcastle until May 15, 2013 and, as a qualified REIT subsidiary, was a disregarded entity until such date. As a result, no provision or liability for U.S. federal or state income taxes has been included in the accompanying consolidated financial statements for the period from January 1, 2013 through May 15, 2013. New Residential distributed 100% of its 2013 REIT taxable income by the prescribed dates.

New Residential operates a securitization vehicle and has made certain investments, particularly its investments in servicer advances (Note 6) and REO (Note 7), through TRSs that are subject to regular corporate income taxes. In addition, some investments are held through limited partnership interests which may be subject to the New York City unincorporated business tax (“UBT”). Regular corporate income taxes on the TRSs and UBT have been provided for in the provision for income taxes, as applicable.

The increase in the provision for income taxes for the year ended December 31, 2014 is primarily due to an increase in taxable profits in entities subject to corporate income tax rates.

The difference between New Residential's reported provision for income taxes and the U.S. federal statutory rate of 35% is as follows:



	December 31,
	2014		2013
Provision at the statutory rate	35.00	%	35.00	%
Non-taxable REIT income	(31.12	)%	(35.00	)%
State and local taxes	0.69	%	—	%
Other	0.37	%	—	%
Total provision	4.94	%	—	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax liability as of December 31, 2014 are presented below:



Deferred tax assets:
Allowance for loan losses	$	962
Net operating losses	2,657
Other	134
Total deferred tax assets	3,753
Less valuation allowance	(3,619		)
Net deferred tax assets	$	134



Deferred tax liabilities:
Unrealized gains on servicer advances	$	15,248
Total deferred tax liability	$	15,248

Net deferred tax liability	$	15,114

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 31, 2014 New Residential recorded a valuation allowance related to net operating losses and loan loss reserves as management does not believe that it is more likely than not that the deferred tax assets will be realized.

The following table summarizes the change in the deferred tax asset valuation allowance:



Valuation allowance at December 31, 2013	$	493
Increase related to net operating losses and loan loss reserves	3,126
Other increase (decrease)	—
Valuation allowance at December 31, 2014	$	3,619

New Residential and its subsidiaries file income tax returns with the U.S. federal government and various state and local jurisdictions beginning with the tax year ending December 31, 2013. Generally, these income tax returns will be subject to tax examinations by tax authorities for a period of three years after the date of filing. As of December 31, 2014, New Residential recorded an increase to the income tax provision of $2.3 million for unrecognized tax benefits. The reserve for unrecognized tax benefits relates to state and local tax positions expected to be taken on the income tax returns. A reconciliation of the unrecognized tax benefits is as follows:



Balance at December 31, 2013	$	—
Additions for tax position of current year	2,258
Other Additions (Reductions)	—
Balance at December 31, 2014	$	2,258

New Residential records penalties and interest related to uncertain tax positions as a component of income tax expense, where applicable. As of December 31, 2014, New Residential did not accrue interest or penalties related to uncertain tax positions. New Residential believes there is a possibility that a significant change to the uncertain tax benefits could occur during the next 12 months. However, an estimate of such change is unavailable at this time. The total unrecognized tax benefits that, if recognized, would affect the effective tax rate was $2.3 million as of December 31, 2014.

Common stock distributions were taxable as follows:



Year	Dividends per Share		Ordinary Income		Long-term Capital Gain		Return of Capital
2014	$	1.58	84.78	%	15.22	%	—
2013	$	0.99	90.01	%	9.99	%	—