NOTE 9 - INCOME TAXES

Income before income taxes includes the following:



(Dollars in thousands)	2019		2018		2017
United States	$	(11,539)	$	(3,493)	$	(5,466)
Foreign		13,081		19,983		38,820
Income (loss) before income taxes and equity earnings of unconsolidated joint ventures	$	1,542	$	16,490	$	33,354
Equity earnings of unconsolidated joint ventures:
United States		—		—		—
Foreign		792		974		815
Income (loss) before income taxes	$	2,334	$	17,464	$	34,169

Significant components of the provision for income taxes are as follows:



(Dollars in thousands)	2019		2018		2017
Current income tax expense (benefit)
Federal(1)	$	239	$	297	$	(7,846)
State		391		382		775
Foreign		5,648		6,158		7,079
Total		6,278		6,837		8
Deferred income tax expense (benefit)
Federal		17,277		(3,991)		3,567
State		6,204		22		(2,351)
Foreign		(922)		430		2,069
Total		22,559		(3,539)		3,285
Total income tax expense (benefit)	$	28,837	$	3,298	$	3,293

(1)

The 2017 amount includes a federal tax benefit of $7,785 related to changes in unrecognized tax benefits and related interest.

Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. The components of the deferred tax assets and liabilities are as follows:



	December 31,
(Dollars in thousands)	2019		2018
Deferred Tax Assets:
Net operating loss carry-forwards	$	9,398	$	8,199
Alternative minimum tax credit carry-forwards		661		1,117
Foreign Tax Credit		3,114		2,715
Compensation and employee benefits		3,731		3,906
Deferred revenue		2,912		2,266
Accrued expenses		4,385		7,126
Accrued taxes		2,193		2,086
Lease obligations		68,320		—
Land and property		7,886		7,372
Total Deferred Tax Assets		102,600		34,787
Deferred Tax Liabilities:
Lease liabilities		(64,551)		—
Intangibles		(352)		(1,256)
Other		(307)		(367)
Total Deferred Tax Liabilities		(65,210)		(1,623)
Net deferred tax assets before valuation allowance		37,390		33,164
Valuation allowance		(33,946)		(6,720)
Net deferred tax asset	$	3,444	$	26,444

We record net deferred tax assets to the extent we believe these assets will more-likely-than-not be realized. In making such determination, we considered all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. As of December 31, 2019, based on all available evidence, we believe the U.S. and state deferred tax assets as well as New Zealand loss carry-forwards do not support a conclusion of being more-likely-than-not to be realized, except for the carried forward tax credits relating to the U.S. alternative minimum tax. Accordingly, we recorded an increase to valuation allowance of $27.2 million. We reassess the valuation allowance quarterly and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded.

As of December 31, 2019, we had the following carry-forwards:

approximately $3.6 million in Federal loss carry-forwards with no expiration date;

approximately $1.2 million in U.S. alternative minimum tax credit carry-forwards with no expiration date and $661,000 is refundable in 2020;

approximately $5.3 million in California loss carry-forwards expiring in 2038;

approximately $4.1 million in Hawaii loss carry-forwards expiring in 2038;

approximately $0.3 million in New Jersey state loss carry-forwards expiring in 2039;

approximately $44.1 million in New York state loss carry-forwards substantially expiring in 2034;

approximately $44.0 million in New York city loss carry-forwards substantially expiring in 2034; and,

approximately $8.8 million in available New Zealand loss carry-forwards with no expiration date.

We expect no substantial limitations on the future use of U.S. or foreign loss carry-forwards.

The provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated losses before taxes. The significant reason for these differences is as follows:



(Dollars in thousands)	2019		2018		2017
Expected tax provision	$	490	$	3,668	$	12,005
Increase (decrease) in tax expense resulting from:
Foreign tax rate differential		1,269		1,874		(2,160)
Change in valuation allowance		19,950		(451)		(905)
State and local tax provision		6,595		378		(560)
Prior year adjustment		85		40		(79)
Unrecognized tax benefits		257		438		(8,498)
Advance to Overseas Subsidiary		—		—		(7,620)
Impact of Tax Act		—		(2,265)		13,018
Non-taxable insurance proceeds		—		—		(1,871)
GILTI		103		193		—
Foreign Tax Credit		(81)		(846)		—
Other		169		269		(37)
Total income tax expense (benefit)	$	28,837	$	3,298	$	3,293

On December 22, 2017, the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law. The Tax Act significantly changed the U.S. corporate income tax law by lowering the statutory corporate tax rate from 35% to 21%, imposed a one-time mandatory repatriation tax on deferred earnings of foreign subsidiaries, and changed how foreign earnings are subject to U.S. tax.

As the result of the Tax Act and under the guidance of the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118, we recorded a provisional tax expense of approximately $13.0 million for the impact of the Tax Act in the fourth quarter of 2017. During the fourth quarter of 2018, upon finalizing the analysis of the impact from the Tax Act, we recorded a tax benefit of $2.3 million as an adjustment to the provisional estimate, for a net tax impact of $10.7 million. The $2.3 million is comprised of an adjustment of $1.2 million to the impact of the one-time mandatory repatriation tax on previously undistributed earnings of our foreign subsidiaries and $1.1 million from the re-measurement of federal net deferred tax liabilities resulting from the reduction in the U.S. statutory corporate tax rate.

The undistributed earnings of the Company's Australian subsidiaries are considered to be indefinitely reinvested cumulative to December 31, 2017. Accordingly, no provision for state income taxes has been provided on those undistributed earnings. Due to the 2017 enactment of the Tax Act, future repatriations of foreign earnings will generally not be subject to U.S. federal taxation but may incur minimal state taxes.

The following table is a summary of the activity related to unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2019, 2018, and 2017:



(Dollars in thousands)	2019		2018		2017
Unrecognized tax benefits – gross beginning balance	$	4,709	$	3,123	$	11,480
Gross increase (decrease) - prior year tax positions		(148)		2,304		(7,905)
Gross increase (decrease) - current year tax positions		—		—		—
Settlements		(479)		(718)		(452)
Unrecognized tax benefits – gross ending balance	$	4,082	$	4,709	$	3,123

As of December 31, 2019 and 2018, if recognized, $4.1 million and $4.7 million respectively, of the unrecognized tax benefits would impact the Company’s effective tax rate.

During the year ended December 31, 2018, we recorded an increase to tax interest of $430,000, resulting in a total $9.5 million in interest. During the year ended December 31, 2019, we recorded an increase to tax interest of $0.7 million, resulting in a total $10.2 million in interest.

It is difficult to predict the timing and resolution of uncertain tax positions. Based upon the Company’s assessment of many factors, including past experience and judgments about future events, it is probable that within the next 12 months the reserve for uncertain tax positions will increase within a range of $500,000 to $1.5 million. The reasons for such change include but are not limited to tax positions expected to be taken during 2019, revaluation of current uncertain tax positions, and expiring statutes of limitations.

Generally, changes to our federal and most state income tax returns for the calendar year 2015 and earlier are barred by statutes of limitations. The Internal Revenue Service (“IRS”) examined the tax return of Craig Corporation (“CRG”) for its tax year ended June 30, 1997. CRG was a stand-alone entity in the year of audit but is now a wholly owned subsidiary of the Company. In Tax Court, CRG and the IRS agreed to compromise the claims made by the IRS against CRG, and the court order was entered on January 6, 2011.

As of December 31, 2019, federal income tax returns for 2016 and after are open for examination, with the 2015 return being currently under examination. California worldwide unitary income tax returns for 2015 and after are open for examination. Income tax returns filed in Puerto Rico for calendar year 2015 and after are open for examination. Australia income tax returns for calendar years 2015 and after are open for examination. A review of Australian returns for 2014 and 2015 has been completed with final terms concluded during 2019. Generally, New Zealand returns for calendar years 2014 and after remain open for examination. An examination of New Zealand income tax returns for calendar year 2009 and after has been completed during 2019.