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Income Taxes

12 Months Ended

Dec. 31, 2019

We conduct our operations as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pays taxes at regular corporate income tax rates to the extent that it annually distributes less than 100% of its taxable income. We intend to meet those requirements and as a result, we generally will not be subject to federal income tax except for the TRS operations.

The TRS operations (represented by the four golf course businesses) are able to engage in activities resulting in income that would not be qualifying income for a REIT. As a result, certain of our activities which occur within our TRS operations are subject to federal and state income taxes. Accordingly, our tax provision and deferred tax analysis are primarily from the results of TRS activities.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (“Tax Reform Act”), was enacted on December 22, 2017, which significantly changed U.S. tax law by, among other things, a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. ASC 740, “Accounting for Income Taxes”, requires companies to recognize the effect of tax law changes in the period of enactment. Accordingly, in 2017 we recorded a reduction to our net deferred tax liability of $2.4 million, and a corresponding increase to income tax benefit during the period.

The composition of our income tax expense (benefit) was as follows:



	Year Ended December 31,														Period from October 6, 2017 to December 31, 2017
	2019							2018							Period from October 6, 2017 to December 31, 2017
(In thousands)	Current		Deferred			Total		Current		Deferred			Total		Current		Deferred			Total
Federal	$	1,100	$	46		$	1,146	$	1,693	$	(459	)	$	1,234	$	—	$	(1,909	)	$	(1,909	)
State	563		(4		)	559		126		81			207		11		(3		)	8
Income tax expense (benefit)	$	1,663	$	42		$	1,705	$	1,819	$	(378	)	$	1,441	$	11	$	(1,912	)	$	(1,901	)

At December 31, 2019 and 2018, the net effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were:



(In thousands)	December 31, 2019			December 31, 2018
Deferred tax assets:
Federal net operating loss	$	—		$	—
Accruals, reserves and other	96			117
Total deferred tax assets	96			117
Deferred tax liabilities:
Land, buildings and equipment, net	(3,478		)	(3,457		)
Total deferred tax liabilities	(3,478		)	(3,457		)
Net deferred tax liability	$	(3,382	)	$	(3,340	)

The following table reconciles our effective income tax rate to the historical federal statutory rate of 21% in 2019 and 2018 and 35% in 2017:



	Year Ended December 31, 2019					Year Ended December 31, 2018					Period from October 6, 2017 to December 31, 2017
(Amounts in thousands)	Amount			Percent		Amount			Percent		Amount			Percent
Federal income tax expense at statutory rate	$	116,757		21.0	%	$	112,326		21.0	%	$	15,414		35.0	%
REIT income not subject to federal income tax	(115,395		)	(20.8	)	(111,035		)	(20.8	)	(14,897		)	(33.8	)
Pre-tax gain attributable to taxable subsidiaries	1,362			0.3		1,291			0.2		517			1.2
State income taxes, net of federal benefits	542			0.1		187			—		5			—
Non-deductible expenses and other	(199		)	—		(37		)	—		—			—
Impact of Tax Reform on deferred tax liability	—			—		—			—		(2,423		)	(5.5	)
Income tax expense (benefit)	$	1,705		0.3	%	$	1,441		0.2	%	$	(1,901	)	(4.3	)%

We declared dividends of $1.17 per common share and $0.9975 per common share during the years ended December 31, 2019 and 2018, respectively. We did not declare any dividends during the period from October 6, 2017 through December 31, 2017. For U.S. Federal income tax purposes, the portion of the dividends allocated to stockholders for the years ended December 31, 2019 and 2018 are characterized as follows:



	Year Ended December 31,
($ per share)	2019		2018
Ordinary dividends	$	0.8465	$	0.9251
Section 199A dividends ⁽¹⁾	$	0.8159	$	0.9251
Qualified dividend ⁽¹⁾	$	0.0306	$	—

Non-dividend distribution	$	0.0985	$	—

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(1)	These amounts are a subset of, and are included in, the ordinary dividend amounts.

As of December 31, 2019, we had estimated NOLs of $151.6 million, generated by our REIT, that will expire in 2029, unless they are utilized by us prior to expiration.

As of December 31, 2019, the 2017, 2018 and 2019 tax years remain subject to examination by taxing authorities. Since our formation occurred in 2017, there are no prior tax years subject to examination.

Caesars Entertainment Outdoor

Income Tax Contingency [Line Items]

Income Taxes

Note 7 — Income Taxes

Income Tax (Provision)/Benefit

	(In thousands)
	Period from January 1, 2017 to October 5, 2017			Year Ended December 31, 2016			Year Ended December 31, 2015
Current:
Federal	$	(100	)	$	(111	)	$	(98	)
State	—			—			—

Deferred	98			111			101
Income Tax Benefit	$	(2	)	$	—		$	3

Since the Outdoor Business does not have a formal tax sharing agreement in place with Caesars Entertainment for federal income tax purposes, Caesars Entertainment pays all of the Outdoor Business’ federal income taxes. The Outdoor Business’ portion was approximately $100,000 for the period January 1, 2017 to October 5, 2017 and $111,000 and $98,000 for the years ended December 31, 2016 and 2015, respectively.

Income Tax Expense Reconciliation

	(In thousands)
	Period from January 1, 2017 to October 5, 2017			Year Ended December 31, 2016		Year Ended December 31, 2015
Expected federal tax at the statutory tax rate	$	—		$	—	$	—
Increases/(decreases) in tax resulting from:
State taxes, net of federal tax benefit	—			—		—
Federal tax credits	—			—		3
Other	(2		)	—		—
Income tax (expense)/benefit	$	(2	)	$	—	$	3

Temporary Differences Resulting in Deferred Tax Assets and Liabilities

	(In thousands)
	As of October 5, 2017			As of December 31, 2016
Deferred tax assets:
Federal net operating loss	$	5,561		$	5,847
State net operating loss	378			392
Federal tax credits	82			82
Other	8			9
Subtotal	6,029			6,330
Less: valuation allowance	1,930			1,930
Total deferred tax assets	4,099			4,400
Deferred tax liabilities:
Depreciation and other property related items	(9,006		)	(9,423		)
Accrued expenses	(37		)	(20		)
Total deferred tax liabilities	(9,043		)	(9,443		)
Net deferred tax liability	$	(4,944	)	$	(5,043	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

As of October 5, 2017 and December 31, 2016, we had federal NOL carryforwards of $19.2 million and $20.1 million, respectively. These NOL carryforwards will begin to expire in 2032. In addition, we have federal general business tax credit carryforwards of approximately $82 thousand which will begin to expire in 2032. As of October 5, 2017 and December 31, 2016, we had state NOL carryforwards of $15.1 million and $15.5 million, respectively. These NOL carryforwards will begin to expire in 2032.



Reconciliation of Unrecognized Tax Benefit
	(In thousands)
	Period from January 1, 2017 to October 5, 2017		Year Ended December 31, 2016		Year Ended December 31, 2015
Balance at beginning of period	$	1,309	$	1,309	$	1,309
Additions based on tax positions related to the current period	—		—		—
Balance at end of period	$	1,309	$	1,309	$	1,309

We classify reserves for tax uncertainties within accrued expenses and deferred credits and other in our balance sheets, separate from any related income tax payable or deferred income taxes. Reserve amounts related to potential income tax liabilities resulting from uncertain tax positions as well as potential interest or penalties associated with those liabilities.

We accrue interest and penalties related to unrecognized tax benefits in income tax expense. There were no adjustments to our accrual for the period ending October 5, 2017 and the years ending December 31, 2016 and 2015, respectively, for accrued interest or penalties. There are no unrecognized tax benefits included in the balances of unrecognized tax benefits as of October 5, 2017, December 31, 2016 and 2015 that, if recognized, would impact the effective tax rate.