Income Taxes

On December 22, 2017, the Tax Reform Act was signed into law. The new legislation contains several key changes to U.S. corporate tax laws that are expected to impact the Company, including a reduction of the corporate income tax rate from 35% to 21%, effective January 1, 2018. The new legislation also includes a variety of other changes such as the repeal of the alternative minimum tax, the introduction of new limitations on the tax deductibility of net operating losses, interest expenses, and executive compensation expenses, the acceleration of expensing of certain qualified property, and the introduction of new laws governing taxation of foreign earnings of U.S. entities, among others.

U.S. GAAP (Accounting Standards Codification Topic 740, Income Taxes) requires entities to recognize the effect of tax law changes in the reporting period that includes the enactment date. The income tax accounting effect of a change in tax law includes, for example, remeasuring deferred tax assets and liabilities at a new tax rate and evaluating whether a valuation allowance is needed for deferred tax assets. In response to the enactment of the Tax Reform Act, the Securities and Exchange Commission issued guidance in Staff Accounting Bulletin No. 118 ("SAB 118") to assist entities in applying ASC 740 to the new tax law. SAB 118 allows entities to record estimated provisional amounts during a measurement period in circumstances where an entity does not have the necessary information in reasonable detail to complete its accounting for a tax law change under ASC 740 prior to the issuance of its financial statements.

In accordance with ASC 740, the Company remeasured its deferred tax assets and liabilities as of December 31, 2017 to reflect the reduction in the corporate tax rate from 35% to 21%. This remeasurement resulted in a $713.7 million decrease in net deferred income tax liabilities and corresponding decrease in income tax expense as of and for the year ended December 31, 2017, which is reflected in the tables below. The Company also reassessed the realizability of its deferred tax assets, taking into consideration how the new tax law impacts future taxable income, and has recorded such assets at realizable value at December 31, 2017. The Company's accounting for the effects of the tax rate change on its deferred tax balances as well as other relevant aspects of the Tax Reform Act is complete and no provisional amounts have been recorded as allowed under SAB 118.

The items comprising the Company's benefit for income taxes are as follows for the periods presented:



	Year ended December 31,
In thousands	2017			2016			2015
Current income tax (provision) benefit:
United States federal (1)	$	7,781		$	22,941		$	—
Various states	—			(2		)	(24		)
Total current income tax (provision) benefit	7,781			22,939			(24		)
Deferred income tax (provision) benefit:
United States federal - taxation on operations	(81,054		)	182,422			140,578
United States federal - effect of US tax reform	713,655			—			—
Various states	(7,002		)	27,414			40,863
Total deferred income tax benefit	625,599			209,836			181,441
Benefit for income taxes	$	633,380		$	232,775		$	181,417

(1) The current federal income tax benefits for the years ended December 31, 2017 and 2016 represent alternative minimum tax refunds.

The benefit for income taxes differs from the amount computed by applying the United States statutory federal income tax rate to income (loss) before income taxes. The sources and tax effects of the difference are as follows:



	Year ended December 31,
	2017					2016					2015
In thousands, except rates	Amount			Rate		Amount			Rate		Amount			Rate

Expected income tax (provision) benefit based on US statutory tax rate of 35%	$	(54,623	)	35.0	%	$	221,359		35.0	%	$	187,280		35.0	%
State income taxes, net of federal benefit	(4,682		)	3.0	%	18,829			3.0	%	16,219			3.0	%
Effect of US tax reform legislation	713,655			(457.3	%)	—			—	%	—			—	%
Tax deficiency from stock-based compensation (1)	(3,932		)	2.5	%	—			—	%	—			—	%
Canadian valuation allowance (2)	(404		)	0.3	%	(1,044		)	(0.2	%)	(13,503		)	(2.5	%)
Effect of differing statutory tax rate in Canada	(194		)	0.1	%	(481		)	(0.1	%)	(5,239		)	(1.0	%)
Non-deductible compensation	(13,813		)	8.9	%	(3,471		)	(0.5	%)	(1,488		)	(0.3	%)
Other, net	(2,627		)	1.7	%	(2,417		)	(0.4	%)	(1,852		)	(0.3	%)
Benefit for income taxes	$	633,380		(405.8	%)	$	232,775		36.8	%	$	181,417		33.9	%


(1)	The Company recognized $3.9 million of tax deficiencies from stock-based compensation as income tax expense for the year ended December 31, 2017 in accordance with ASU 2016-09 as discussed in Note 1. Organization and Summary of Significant Accounting Policies–Adoption of new accounting pronouncements.


(2)	Represents valuation allowances recognized against all deferred tax assets associated with operating loss carryforwards generated by the Company's Canadian operations during the respective periods for which the Company does not expect to realize a benefit.

The components of the Company’s deferred tax assets and deferred tax liabilities as of December 31, 2017 and 2016 are reflected in the table below.



	December 31,
In thousands	2017			2016
Deferred tax assets
United States net operating loss carryforwards	$	604,423		$	478,975
Canadian net operating loss carryforwards	19,341			18,936
Alternative minimum tax carryforwards	7,781			16,663
Equity compensation	12,962			32,924
Non-cash losses on derivatives	—			21,064
Other	21,885			11,466
Total deferred tax assets	666,392			580,028
Canadian valuation allowance	(19,341		)	(18,936		)
Total deferred tax assets, net of valuation allowance	647,051			561,092
Deferred tax liabilities
Property and equipment	(1,903,451		)	(2,448,450		)
Other	(3,158		)	(2,947		)
Total deferred tax liabilities	(1,906,609		)	(2,451,397		)
Deferred income tax liabilities, net	$	(1,259,558	)	$	(1,890,305	)

As of December 31, 2017, the Company had federal and state net operating loss carryforwards of $2.39 billion and $3.40 billion, respectively. The federal net operating loss carryforward will begin expiring in 2033. The Company’s net operating loss carryforward in Oklahoma totaled $2.17 billion at December 31, 2017, which will begin to expire in 2027. The Company’s net operating loss carryforward in North Dakota totaled $1.07 billion at December 31, 2017, which will begin to expire in 2033. The Company has alternative minimum tax credit carryforwards of $7.8 million that are refundable by 2021. Any available statutory depletion carryforwards will be recognized when realized. The Company files income tax returns in the U.S. federal, U.S. state and Canadian jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to 2014.

The Company recorded valuation allowances of $0.4 million, $1.0 million and $13.5 million against Canadian deferred tax assets for the years ended December 31, 2017, 2016 and 2015, respectively. The Company's cumulative valuation allowance was $19.3 million as of December 31, 2017. Our Canadian subsidiary has generated operating loss carryforwards for which we do not believe we will realize a benefit. The amount of deferred tax assets considered realizable, however, could change if our subsidiary generates taxable income.