Income Taxes

The Company elected to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 1997. In January 1998, the Company completed its reorganization into an UPREIT structure under which substantially all of the Company's real estate assets are owned by the Operating Partnership. Presently, substantially all interests in the Operating Partnership are owned by the Company and a wholly owned subsidiary. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distributes annually at least 90% of its "REIT taxable income," subject to certain adjustments and excluding any net capital gain to its stockholders. It is management's current intention to adhere to these requirements and maintain the Company's REIT status, and the Company believes that it was in compliance with all REIT requirements at December 31, 2015. As a REIT, the Company generally will not be subject to corporate level U.S. federal income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to U.S. federal income taxes on its undistributed taxable income.

The Operating Partnership is a pass-through entity generally not subject to U.S. federal and state income taxes, as all of the taxable income, gains and deductions are passed through its partners. However, the Operating Partnership is subject to certain income taxes in Texas.

In addition, the Company has elected to treat certain consolidated subsidiaries as TRSs, which are tax paying entities for income tax purposes and are taxed separately from the Company. TRSs may participate in non-real estate related activities and/or perform non-customary services for customers and are subject to U.S. federal and state income tax at regular corporate tax rates. The income tax benefit (expense) and related income tax assets and liabilities are based on actual and expected future income.

As of December 31, 2015 and 2014, the Company recorded net deferred tax assets of $4.2 million and $4.6 million, respectively, related to the TRSs. Deferred tax assets generally represent items that can be used as a tax deduction in the Company's tax returns in future years for which the Company has already recorded a tax benefit in its consolidated statement of operations.

The significant components of the net deferred tax assets (liabilities) as of December 31, 2015 and 2014 are as follows (in thousands):



	December 31,
	2015			2014
	(In thousands)
Deferred tax assets
Capitalizable transaction costs	$	667		$	784
Contingent consideration	1,198			1,411
Management contracts	2,022			2,377
Other	1,112			466
Total deferred tax assets	4,999			5,038

Deferred tax liabilities
Cost method investment	(670		)	(469		)
Other	(123		)	—
Total deferred tax liabilities	(793		)	(469		)
Total deferred tax assets, net	$	4,206		$	4,569

The table of deferred tax assets and liabilities as shown above does not include deferred tax assets for the REIT's NOLs. As of December 31, 2015, the Company had NOL carryforwards for U.S. federal income tax purposes of $252.2 million (including $85.8 million of NOLs from the Mergers). On December 10, 2012, the Company believes a change in ownership pursuant to Section 382 of the Code occurred. Accordingly, $160.8 million of NOLs in existence as of December 10, 2012 are subject to an annual Section 382 limitation of $15.4 million. The historic NOLs of TPGI are also subject to Section 382 limitation. The Company's NOL carryforwards (including NOLs of TPGI) are subject to varying expiration dates beginning in 2018 through 2033.

FASB ASC 740-10-30 ("ASC 740-10-30") "Accounting for Income Taxes" subsection "Initial Measurement," requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. In determining whether the deferred tax asset is realizable, the Company considers all available positive and negative evidence, including future reversal of existing taxable temporary differences, carryback potential, tax-planning strategies and its ability to generate sufficient taxable income in future years. As of December 31, 2015, the Company recorded a full valuation allowance against its deferred tax asset associated with the REIT's NOLs due to the uncertainty of future utilization. The utilization of these NOLs can cause the Company to incur a small alternative minimum tax.

The components of income tax benefit (expense) for the years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):



	For the Year Ended
	December 31,
	2015			2014			2013
Current:
Federal	$	(854	)	$	(2,876	)	$	(488	)
State	(686		)	(2,026		)	(67		)
Total current	(1,540		)	(4,902		)	(555		)
Deferred:
Federal	124			3,868			1,582
State	(487		)	895			378
Total deferred	(363		)	4,763			1,960
Total income tax (expense) benefit	$	(1,903	)	$	(139	)	$	1,405

The reconciliation of income tax expense computed at the U.S. statutory income tax rate and the income tax expense in the consolidated statements operations is shown below (in thousands):



	For the Years Ended December 31,
	2015					2014					2013
	Amount			Percentage		Amount			Percentage		Amount			Percentage
Pre-tax income (loss) from continuing operations	$	(32,853	)	34.0	%	$	(11,654	)	34.0	%	$	12,485		34.0	%
REIT earnings without income tax provision	22,745			(23.5	)%	12,121			(35.4	)%	(13,083		)	(35.6	)%
Noncontrolling interest	9,312			(9.6	)%	430			(1.3	)%	2,588			7.0	%
State income tax, net of federal tax benefit	(778		)	0.8	%	(1,090		)	3.2	%	185			0.5	%
Effect of permanent differences	(6		)	—	%	(41		)	0.1	%	(291		)	(0.8	)%
Valuation allowance	—			—	%	479			(1.4	)%	(479		)	(1.3	)%
Other - Peachtree	—			—	%	(422		)	1.2	%	—			—	%
Other	(323		)	0.3	%	38			(0.1	)%	—			—	%
Total income tax (expense) benefit	$	(1,903	)	2.0	%	$	(139	)	0.3	%	$	1,405		3.8	%

The Company's U.S. federal income tax returns for tax years 2012 through 2015 remain open and subject to examination by the taxing authorities.

FASB ASC 740-10-25, "Accounting for Income Taxes" subsection "Recognition," clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits as components of income tax expense. As of December 31, 2015, there is no interest or penalty associated with unrecognized tax benefits.

As of December 31, 2015, the Company has recorded unrecognized tax benefits of approximately $6.9 million, acquired as part of the Mergers and, if recognized, would not affect its effective tax rate. The Company has sufficient NOLs to utilize for current or future tax liabilities.

A reconciliation of the Company’s unrecognized tax benefits as of December 31, 2015 and 2014 (in thousands):



	December 31,
	2015		2014
	(In thousands)
Unrecognized Tax Benefits - Opening Balance	$	6,857	$	7,999
Gross increases - current period tax positions	—		—
Gross decreases - lapse of statute of limitations	—		(1,142		)
Unrecognized Tax Benefits - Ending Balance	$	6,857	$	6,857

The following characterizes distributions paid per common share for the years ended December 31, 2015, 2014 and 2013 (Unaudited):



	2015				2014				2013
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Ordinary income	$	0.2689	35.9	%	$	0.7141	95.2	%	$	0.4425	69.4	%
Capital gain	—		—		0.0359		4.8	%	—		—
Unrecaptured Section 1250 gain	—		—		—		—		0.0831		13.0	%
Return of capital	0.4811		64.1	%	—		—		0.1119		17.6	%
	$	0.7500	100.0	%	$	0.7500	100.0	%	$	0.6375	100.0	%

On December 19, 2013, the Company completed the Mergers. As set forth in the Merger Agreement, the parties to the Parent Merger intended that the Parent Merger be treated as a reorganization within the meaning of Section 368(a) of the Code. Assuming that, as intended, the Parent Merger qualified as a reorganization, because TPGI was a C corporation, the Company is subject to the rules applicable to REITs acquiring assets with "built-in gain" from C corporations in reorganizations. Pursuant to these rules, the Company is subject to corporate income tax to the extent that unrealized gain on historic TPGI assets (determined at the time of the Parent Merger) is recognized in taxable dispositions of such assets in the ten-year period following the Parent Merger.