Income Taxes:

The Company was incorporated in the State of Delaware during May 2013 as a wholly-owned subsidiary of PICO for the purpose of facilitating the IPO, which became effective in July 2013, and to become a holding company owning, as its principal asset, membership interests in UCP, LLC. UCP, LLC is a holding company for the entities that directly or indirectly own and operate the Company’s business. Given that the Company was in its first year of operation during the period ended December 31, 2013, income tax disclosures relating to prior years were omitted because prior to July 2013 UCP, LLC was a "disregarded entity" for federal and state income tax purposes.

Because of the Company's current year loss and the full valuation allowance against the deferred tax assets, there was no provision for federal or state income taxes for the year ended December 31, 2013.

A reconciliation of income tax computed at the statutory federal income tax rate to the provision (benefit) for income taxes included in the accompanying statements of operations and comprehensive income or loss is as follows for the year ended December 31, 2013 (in thousands):



	2013

Income tax (benefit) provision at federal statutory rate	(35	)%
State income tax, net of federal benefit	(2	)%
Non-benefited losses from valuation allowance	17	%
Noncontrolling interest	19	%
Other permanent items	1	%
Effective tax rate	—	%

Total deferred tax assets and liabilities consist of the following as of December 31, 2013 (in thousands):




	2013
Deferred tax assets:
Net operating loss carry forwards	$	1,689
Outside basis difference in partnership	5,061
Valuation allowance	(6,750		)
Net deferred tax assets	$	—

The Company had deferred tax assets of approximately $6.8 million at December 31, 2013 relating principally to net operating losses and the deductible temporary differences attributable to the Company’s investment in UCP, LLC. In assessing the recoverability of deferred tax assets, Management considers whether it is more likely than not that the assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which those temporary differences become deductible.

The Company has considered the following possible sources of taxable income when assessing the realization of its deferred tax assets: (1) future reversals of existing taxable temporary differences; (2) taxable income in prior carryback years; (3) future taxable income exclusive of reversing temporary differences and carryforwards; and (4) tax planning strategies. Based upon the assessment of these possible sources of taxable income, there is not sufficient positive evidence to enable the Company to conclude that the benefits of its deferred tax assets will be realized. Therefore, the Company has recorded a full valuation allowance against its deferred tax assets as of December 31, 2013.

As of December 31, 2013, the Company recorded a valuation allowance of approximately $6.8 million. The Company will continue to assess the recoverability of its deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, management is required to consider all available positive and negative evidence to determine, whether, it is more likely than not that some portion or all of the deferred tax assets will be realized in future periods.

At December 31, 2013, the Company had net operating loss carry-forwards of approximately $4.1 million for federal and $4.1 million for California. The net operating loss carry-forwards, if not utilized, will begin to expire in 2033 for both federal and California purposes.

Measurement of uncertain tax positions is based on judgment regarding the largest amount that is greater than 50% likely of being realized upon the ultimate settlement with a taxing authority. As a result of the implementation of this guidance, the Company has not identified any uncertain tax positions and accordingly, has no unrecognized tax benefits as of the tax year ended December 31, 2013.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense. There were no accrued interest or penalties associated with any unrecognized tax benefits as of December 31, 2013.

The Company is subject to taxation in the U.S. and various state jurisdictions. There are no ongoing examinations by taxing authorities at this time. As the tax year ended December 31, 2013 is the first tax year of the Company, there is no open tax year in any jurisdiction.