Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

NOTE 10 - INCOME TAXES

Income before income taxes includes the following:

(Dollars in thousands)	2020		2019		2018
United States	$	(56,709)	$	(11,539)	$	(3,493)
Foreign		(13,666)		13,081		19,983
Income (loss) before income taxes and equity earnings of unconsolidated joint ventures	$	(70,375)	$	1,542	$	16,490
Equity earnings of unconsolidated joint ventures:
United States		—		—		—
Foreign		(449)		792		974
Income (loss) before income taxes	$	(70,824)	$	2,334	$	17,464

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

(Dollars in thousands)	2020		2019		2018
Current income tax expense (benefit)
Federal	$	349	$	239	$	297
State		424		391		382
Foreign		(2,233)		5,648		6,158
Total		(1,460)		6,278		6,837
Deferred income tax expense (benefit)
Federal		(3,263)		17,277		(3,991)
State		(5)		6,204		22
Foreign		(239)		(922)		430
Total		(3,507)		22,559		(3,539)
Total income tax expense (benefit)	$	(4,967)	$	28,837	$	3,298

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)	2020		2019
Deferred Tax Assets:
Net operating loss carry-forwards	$	21,498	$	9,398
Alternative minimum tax credit carry-forwards		—		661
Foreign Tax Credit		3,743		3,114
Compensation and employee benefits		3,255		3,731
Deferred revenue		2,552		2,912
Accrued expenses		9,691		4,385
Accrued taxes		2,313		2,193
Lease obligations		64,859		68,320
Land and property		4,842		7,886
Total Deferred Tax Assets		112,753		102,600
Deferred Tax Liabilities:
Lease liabilities		(60,886)		(64,551)
Intangibles		(429)		(352)
Other		(1,020)		(307)
Total Deferred Tax Liabilities		(62,335)		(65,210)
Net deferred tax assets before valuation allowance		50,418		37,390
Valuation allowance		(47,056)		(33,946)
Net deferred tax asset	$	3,362	$	3,444

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, 2020, 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. Accordingly, we recorded an increase to valuation allowance of $13.1 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, 2020, we had the following carry-forwards:

approximately $45.6 million in Federal loss carry-forwards with no expiration date;

approximately $19.7 million in California loss carry-forwards expiring in 2040;

approximately $17.0 million in Hawaii loss carry-forwards expiring in 2040;

approximately $1.9 million in New Jersey state loss carry-forwards expiring in 2040;

approximately $48.8 million in New York state loss carry-forwards substantially expiring in 2034;

approximately $48.7 million in New York city loss carry-forwards substantially expiring in 2034; and,

approximately $13.4 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)	2020		2019		2018
Expected tax provision	$	(14,873)	$	490	$	3,668
Increase (decrease) in tax expense resulting from:
Foreign tax rate differential		(1,159)		1,269		1,874
Change in valuation allowance		11,424		19,950		(451)
State and local tax provision		418		6,595		378
Tax rate change		(1,397)		—		—
Prior year adjustment		877		85		40
Unrecognized tax benefits		246		257		438
Impact of Tax Act		—		—		(2,265)
GILTI		—		103		193
Foreign Tax Credit		—		(81)		(846)
Other		(503)		169		269
Total income tax expense (benefit)	$	(4,967)	$	28,837	$	3,298

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 not indefinitely reinvested. Due to the 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, 2020, 2019, and 2018:

(Dollars in thousands)	2020		2019		2018
Unrecognized tax benefits – gross beginning balance	$	4,082	$	4,709	$	3,123
Gross increase (decrease) - prior year tax positions		(1,996)		(148)		2,304
Gross increase (decrease) - current year tax positions		—		—		—
Settlements		—		(479)		(718)
Unrecognized tax benefits – gross ending balance	$	2,086	$	4,082	$	4,709

As of December 31, 2020 and 2019, if recognized, $2.1 million and $4.1 million respectively, of the unrecognized tax benefits would impact the Company’s effective tax rate.

During the year ended December 31, 2020, we recorded an increase to tax interest of $0.7 million, resulting in a total $10.9 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 2020, 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, 2020, federal income tax returns for 2017 and after are open for examination. California worldwide unitary income tax returns for 2016 and after are open for examination. Income tax returns filed in Puerto Rico for calendar year 2016 and 2017 are open for examination. Australia income tax returns for calendar years 2016 and after are open for examination. Generally, New Zealand returns for calendar years 2015 and after remain open for examination.