Note 18—Income Taxes

We have approximately $1.6 billion in net operating loss carryforwards ("NOL carryforwards"); however, we currently have a valuation allowance against this and substantially all of our other deferred taxed assets. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future results of operations and tax planning strategies in making this assessment. Based upon the level of historical taxable income, significant book losses during the current and prior periods and projections for future results of operations over the periods in which the deferred tax assets are deductible, among other factors, management concluded that we did not meet the “more likely than not” requirement in order to recognize deferred tax assets and therefore, a valuation allowance has been recorded for substantially all of our net deferred tax assets at December 31, 2016 and 2015.

In connection with our emergence from bankruptcy on August 31, 2012, we experienced an ownership change as defined under Section 382 of the Code. Section 382 generally places a limit on the amount of NOL carryforwards and other tax attributes arising before an ownership change that may be used to offset taxable income after an ownership change. We believe that we have qualified for an exception to the general limitation rules. This exception under Code Section 382(l)(5) provides for substantially less restrictive limitations on our NOL carryforwards; however, the NOL carryforwards would have been eliminated if we had experienced another ownership change within the two year period following our Bankruptcy. Our amended and restated certificate of incorporation places restrictions upon the ability of certain equity interest holders to transfer their ownership interest in us. These restrictions are designed to provide us with the maximum assurance that another ownership change does not occur that could adversely impact our NOL carryforwards.

During the years ended December 31, 2016, 2015 and 2014, no adjustments were recognized for uncertain tax benefits.

Our net taxable income must be apportioned to various states based upon the income tax laws of the states in which we derive our revenue. Our NOL carryforwards will not always be available to offset taxable income apportioned to the various states. The states from which our refining, retail and logistics revenues are derived are not the same states in which our NOLs were incurred; therefore we expect to incur state tax liabilities on the net income of refining, retail and logistics operations.

During 2016, we recorded a benefit for the release of $8.6 million of our valuation allowance to offset future temporary differences associated with the 5.00% Convertible Senior Notes. During 2015, we recorded a benefit for the release of $16.8 million of our valuation allowance as we expect to be able to utilize a portion of our NOL carryforwards to offset future taxable income of Mid Pac. During 2017 and thereafter, we will continue to assess the realizability of our deferred tax assets based on consideration of actual and projected operating results and tax planning strategies. Should actual operating results improve, the amount of the deferred tax asset considered more likely than not to be realizable could be increased.

Income (loss) before income taxes related to our foreign operations was a loss of $1.4 million, $0.9 million and $1.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Income tax expense (benefit) consisted of the following (in thousands):



	Year Ended December 31,
	2016			2015			2014
Current:
U.S.—Federal	$	—		$	—		$	—
U.S.—State	23			—			(264		)
Foreign	—			(299		)	(80		)
Deferred:
U.S.—Federal	(7,046		)	(14,685		)	(14		)
U.S.—State	(889		)	(1,804		)	(177		)
Foreign	—			—			80
Total	$	(7,912	)	$	(16,788	)	$	(455	)

Income tax expense was different from the amounts computed by applying U.S. Federal income tax rate of 35% to pretax income as a result of the following:



	Year Ended December 31,
	2016		2015		2014
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.6	%	3.2	%	1.3	%
Expiration of capital loss carryover	(17.6	)%	(25.5	)%	—	%
Change in valuation allowance	9.2	%	25.3	%	(38.8	)%
Permanent items	(5.7	)%	(7.6	)%	3.6	%
Provision to return adjustments	(7.8	)%	(0.8	)%	(0.1	)%
Actual income tax rate	14.7	%	29.6	%	1.0	%

Deferred tax assets (liabilities) are comprised of the following (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Net operating loss	$	611,631		$	522,541
State deferred tax assets	159			9,160
Capital loss carryforwards	—			12,193
Property and equipment	23,203			27,372
Investment in Laramie Energy	—			42,986
Contingent consideration	—			9,653
Other	10,709			9,234
Total deferred tax assets	645,702			633,139
Valuation allowance	(613,866		)	(621,220		)
Net deferred tax assets	31,836			11,919
Deferred tax liabilities:
Investment in Laramie Energy	20,600			—
Convertible notes	6,866			—
Intangible assets	2,671			9,834
Other	2,331			2,023
State liabilities	6			62
Total deferred tax liabilities	32,474			11,919
Total deferred tax liability, net	$	(638	)	$	—

We have NOL carryforwards as of December 31, 2016 of $1.6 billion for federal income tax purposes. If not utilized, the NOL carryforwards will expire during 2027 through 2035. We also have Alternative Minimum Tax Credit Carryovers of $785 thousand. These credits do not expire; however, we must first generate regular taxable income before they can be used.

During 2016, we amended our federal income tax returns for 2012, 2013 and 2014 to properly reflect amortization deductions with respect to certain development costs related to our investment in Laramie Energy that should have been claimed in those years. The impact of the corrected returns was an increase to the deferred tax asset related to our net operating loss and a corresponding decrease in the deferred tax asset related to our investment in Laramie Energy of approximately $59 million.