Income Taxes

The income tax expense (benefit) related to continuing operations consists of the following:



	11 Months Ended			Years Ended
	December 31, 2013			January 31, 2013			January 31, 2012
	(in thousands)
Current
Federal	$	(2,480	)	$	(54,871	)	$	(15,745	)
State	2,154			(6,413		)	(1,194		)
	(326		)	(61,284		)	(16,939		)
Deferred
Federal	(4,432		)	48,289			(38,689		)
State	(4,576		)	(1,730		)	(12,057		)
	(9,008		)	46,559			(50,746		)
Total income tax benefit	$	(9,334	)	$	(14,725	)	$	(67,685	)

The effective tax rate for income taxes from continuing operations varies from the federal statutory rate of 35% due to the following items:



	11 Months Ended			Years Ended
	December 31, 2013			January 31, 2013			January 31, 2012
	(dollars in thousands)
Loss before income taxes	$	(205,929	)	$	(88,872	)	$	(119,568	)
Net gain on change in control of interests	2,762			6,766			—
Equity in earnings (loss) of unconsolidated entities, net of impairment	109,163			44,631			(61,039		)
Less: Noncontrolling interests	71,510			1,539			(2,167		)
Loss from continuing operations, including noncontrolling interest, before income taxes	(22,494		)	(35,936		)	(182,774		)
Income taxes computed at the statutory rate	(7,873		)	(12,578		)	(63,971		)
Increase (decrease) in tax resulting from:
State taxes, net of federal benefit	(2,994		)	(5,312		)	(6,907		)
State net operating loss, net of federal benefit	2,845			1,667			2,474
General business credits	(1,638		)	(947		)	446
Valuation allowance	(5,205		)	(2,048		)	(6,414		)
Charitable contributions	3,356			2,628			2,204
Permanent adjustments	(18		)	3,037			38
Conversion/Exchange of senior debt	1,667			—			3,780
Other items	526			(1,172		)	665
Total income tax benefit	$	(9,334	)	$	(14,725	)	$	(67,685	)
Effective tax rate	41.50		%	40.98		%	37.03		%
The components of the deferred income tax expense (benefit) for continuing operations are as follows:
Excess of tax over financial statement depreciation and amortization	$	(8,059	)	$	19,811		$	17,095
Costs on land and rental properties under development expensed for tax purposes	4,818			11,048			34,333
Revenues and expenses recognized in different periods for tax and financial statement purposes	132,330			49,915			(48,152		)
Difference between tax and financial statements related to unconsolidated entities	(5,246		)	207			(18,674		)
Impairment of real estate and land held for divestiture	(147,325		)	(16,178		)	(40,346		)
Deferred state taxes, net of federal benefit	(743		)	885			(3,408		)
Utilization of (addition to) tax loss carryforward excluding effect of stock options	21,916			(16,230		)	10,974
Valuation allowance	(5,205		)	(2,048		)	(6,414		)
General business credits	(520		)	(947		)	446
Alternative Minimum Tax credits	(974		)	96			3,400
Deferred income tax expense (benefit)	$	(9,008	)	$	46,559		$	(50,746	)

The components of the deferred income tax liability are as follows:



	Temporary Differences						Deferred Tax
	December 31, 2013			January 31, 2013			December 31, 2013			January 31, 2013
	(in thousands)
Depreciation	$	424,595		$	493,489		$	164,671		$	191,390
Capitalized costs	395,733			1,018,375			153,508			394,956
Tax loss carryforward	(99,138		)	(161,758		)	(34,698		)	(56,615		)
State loss carryforward, net of federal benefit	—			—			(21,170		)	(23,974		)
Valuation allowance	—			—			48,077			53,282
Federal tax credits and other carryforwards	—			—			(56,274		)	(58,094		)
Other comprehensive loss	(125,099		)	(168,585		)	(48,517		)	(65,382		)
Basis in unconsolidated entities	367,892			199,359			142,680			77,317
Other	370,743			(83,747		)	137,617			(38,474		)
Total	$	1,334,726		$	1,297,133		$	485,894		$	474,406

Income taxes paid (refunded) were $5,541,000, $(296,000) and $3,743,000 for the 11 months ended December 31, 2013 and the years ended January 31, 2013 and 2012, respectively. At December 31, 2013, the Company had a federal net operating loss carryforward for tax purposes of $150,758,000 that will expire in the years ending December 31, 2028 through December 31, 2033, a charitable contribution deduction carryforward of $18,125,000 that will expire in the years ending December 31, 2014 through December 31, 2017, General business credit carryovers of $21,680,000 that will expire in the years ending December 31, 2018 through December 31, 2033, and an alternative minimum tax (“AMT”) credit carryforward of $28,570,000 that is available until used to reduce federal tax to the AMT amount.

The Company’s policy is to consider a variety of tax-deferral strategies, including tax deferred exchanges, when evaluating its future tax position. The Company has a full valuation allowance against the deferred tax asset associated with its charitable contributions. The Company has a valuation allowance against its general business credits, other than those general business credits which are eligible to be utilized to reduce future AMT liabilities. The Company has a valuation allowance against certain of its state net operating losses and state bonus depreciation deferred assets. These valuation allowances exist because management believes it is more likely than not that the Company will not realize these benefits.

The Company applies the “with-and-without” methodology for recognizing excess tax benefits from the deduction of stock-based compensation. The net operating loss available for the tax return, as is noted in the paragraph above, is greater than the net operating loss available for the tax provision due to excess deductions from stock-based compensation reported on the return, as well as the impact of adjustments to the net operating loss under accounting guidance on accounting for uncertainty in income taxes. As of December 31, 2013, the Company has not recorded a net deferred tax asset of approximately $18,064,000 from excess stock-based compensation deductions taken on the tax return for which a benefit has not yet been recognized in the Company’s tax provision.



	December 31, 2013			January 31, 2013
	(in thousands)
Deferred tax liabilities	$	1,423,173		$	1,832,038
Deferred tax assets	985,356			1,410,914
Less: valuation allowance ⁽¹⁾	(48,077		)	(53,282		)
	937,279			1,357,632
Net deferred tax liability	$	485,894		$	474,406


(1)	The valuation allowance is related to state net operating losses and bonus depreciation, general business credits and charitable contributions.

Accounting for Uncertainty in Income Taxes

Unrecognized tax benefits represent those tax benefits related to tax positions that have been taken or are expected to be taken in tax returns that are not recognized in the financial statements because management has either concluded that it is not more likely than not that the tax position will be sustained if audited by the appropriate taxing authority or the amount of the benefit will be less than the amount taken or expected to be taken in its income tax returns.

As of December 31 and January 31, 2013, the Company had unrecognized tax benefits of $968,000 and $584,000, respectively. The Company recognizes estimated interest payable on underpayments of income taxes and estimated penalties as components of income tax expense. As of December 31 and January 31, 2013, the Company had approximately $299,000 and $164,000, respectively, of accrued interest and penalties related to uncertain income tax positions. The Company recorded income tax expense relating to interest and penalties on uncertain tax positions of $135,000, $10,000 and $54,000 for the 11 months ended December 31, 2013 and the years ended January 31, 2013 and 2012, respectively.

The Company files a consolidated United States federal income tax return. Where applicable, the Company files combined income tax returns in various states and it files individual separate income tax returns in other states. The Company’s federal consolidated income tax returns for the year ended January 31, 2011 and subsequent years are subject to examination by the Internal Revenue Service. Certain of the Company’s state returns for the years ended January 31, 2003 through January 31, 2010 and all state returns for the year ended January 31, 2011 and subsequent years are subject to examination by various taxing authorities.

A reconciliation of the total amounts of the Company’s unrecognized tax benefits, exclusive of interest and penalties, is depicted in the following table:



	Unrecognized Tax Benefit
	December 31, 2013			January 31, 2013
	(in thousands)
Beginning balance, February 1	$	584		$	788
Gross increases (decreases) for tax positions of prior years	527			(107		)
Settlements	—			(97		)
Lapse of statutes of limitation	(143		)	—
Unrecognized tax benefits balance at December 31 January 31, 2013	$	968		$	584

The total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized as of December 31 and January 31, 2013, is $629,000 and $286,000, respectively. Based upon the Company’s assessment of the outcome of examinations that are in progress, the settlement of liabilities, or as a result of the expiration of the statutes of limitation for certain jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns will change from those recorded at December 31, 2013. Due to the reasons above, the entire $968,000 of unrecognized benefits could decrease during the next twelve months.