Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Expense (Benefit)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows a Federal net operating loss (NOL) incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Our taxable REIT subsidiary had a NOL carryforward of $9.7 million from its 2018 tax year that will now be carried back to prior tax years to claim a net Federal tax refund of $3.2 million. During the three months ended March 31, 2020, the expected tax refund was recorded as a receivable and the net Federal tax benefit of $1.4 million was recorded as an income tax benefit to reflect the effective 35% corporate tax rate applicable to the prior years of the NOL carryback as compared to the 21% corporate tax rate at which the benefit was originally recorded. The net Federal deferred tax asset was reduced by $1.8 million to reflect full utilization of the 2018 Federal NOL in the carryback claim and the use of additional investment tax credits.

The CARES Act also includes a technical correction to the Tax Cuts and Jobs Act of 2017 providing for shorter depreciable lives and potential use of bonus depreciation on qualifying improvement property fixed asset additions in 2018 and in future tax years. The Company is currently evaluating the impact of this provision and will record any benefit in the second quarter of 2020.

Our income tax expense (benefit) for the three months ended March 31, 2020 and 2019 consisted of the following:



	Three Months Ended March 31
	2020				2019
Federal current	$	57			$	—
Federal deferred	(1,099		)		193
Foreign current	688				120
Foreign deferred	1,037			⁽¹⁾	115
State current	9				19
State deferred	64				92
Total income tax expense	$	756			$	539

(1)

During the three months ended March 31, 2020, we recognized $1.1 million of foreign deferred tax expense (10% tax rate) as we are no longer able to assert indefinite reinvestment in CityOn.Xi'an due to the sale of 50% of our interest to funds managed by Blackstone (Note 2). The tax expense is related to an excess of the Investment in the UJV under GAAP accounting over the tax basis of our investment.

Deferred Taxes

Deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 were as follows:



	2020				2019
Deferred tax assets:
Federal	$	2,310		⁽¹⁾	$	4,385		⁽²⁾
Foreign	2,111				2,020
State	1,323				1,388
Total deferred tax assets	$	5,744			$	7,793
Valuation allowances	(2,772		)	⁽³⁾	(2,761		)	⁽⁴⁾
Net deferred tax assets	$	2,972			$	5,032
Deferred tax liabilities:
Foreign ⁽⁵⁾	$	5,939			$	4,449
Total deferred tax liabilities	$	5,939			$	4,449


(1)	Includes a $3.0 million Federal investment tax credit carryforward.


(2)	Includes a $4.4 million Federal investment tax credit carryforward.


(3)	Includes a $1.7 million valuation allowance against Foreign deferred tax assets, and a $1.1 million valuation allowance against State deferred tax assets.


(4)	Includes a $1.7 million valuation allowance against Foreign deferred tax assets, and a $1.1 million valuation allowance against State deferred tax assets.


(5)	The foreign deferred tax liability relates to shareholder level withholding taxes from Korea and China on undistributed profits and an excess of the Investments in the UJVs under GAAP accounting over the tax basis of our investments.

We believe that it is more likely than not that the results of future operations will generate sufficient taxable income to recognize the net deferred tax assets. These future operations are primarily dependent upon the Manager’s profitability, the timing and amounts of gains on peripheral land sales, the profitability of Taubman Asia's operations, and other factors affecting the results of operations of the taxable REIT subsidiaries. The valuation allowances relate to NOL carryforwards and tax basis differences where there is uncertainty regarding their realizability.