Income Taxes

6 Months Ended

Jun. 30, 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 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. Additionally, the CARES Act permits bonus depreciation deductions for qualifying improvement property additions retroactive for tax years after 2017. As a result, our taxable REIT subsidiary had an amended total NOL of $12.8 million from its 2018 tax year that was carried back to prior tax years to claim a total Federal tax refund of $4.5 million ($3.4 million of which was received in June). The remaining $1.1 million Federal tax refund is recorded as a receivable, and a net Federal tax benefit of $1.9 million was recorded as an income tax benefit to reflect the effective 36% Federal tax recovery rate of the NOL carryback as compared to the 21% corporate tax rate at which the deferred items were originally recorded. The net Federal deferred tax asset has been reduced by $2.6 million in 2020 to reflect full utilization of the 2018 Federal NOL in the carryback claim, and the use of additional investment tax credits in 2019.

Our income tax expense (benefit) for the three and six months ended June 30, 2020 and 2019 consisted of the following:



	Three Months Ended June 30							Six Months Ended June 30
	2020				2019			2020				2019
Federal current	$	(57	)		116			$	—			$	116
Federal deferred	(827		)		428			(1,926		)		621
Foreign current	414				476			1,102				596
Foreign deferred	199			⁽¹⁾	1,320		⁽¹⁾	1,236			⁽¹⁾	1,435		⁽¹⁾
State current	7				22			16				41
State deferred	16				2			80				94
Total income tax expense (benefit)	$	(248	)		$	2,364		$	508			$	2,903

(1)

Due to the sale of 50% of our interests to funds managed by Blackstone (Note 2), we are no longer able to assert indefinite reinvestment in CityOn.Xi'an and CityOn.Zhengzhou. The foreign deferred tax expense (10% tax rate) is related to an excess of the Investment in the UJVs under GAAP accounting over the tax basis of our investments. During the three and six months ended June 30, 2020, we recognized $0.2 million and $1.3 million of foreign deferred tax expense, respectively, and recognized $1.7 million of foreign deferred tax expense for both the three and six months ended June 30, 2019.

Deferred Taxes

Deferred tax assets and liabilities as of June 30, 2020 and December 31, 2019 were as follows:



	2020				2019
Deferred tax assets:
Federal	$	1,845		⁽¹⁾	$	4,385		⁽²⁾
Foreign	2,147				2,020
State	1,657				1,388
Total deferred tax assets	$	5,649			$	7,793
Valuation allowances	(3,167		)	⁽³⁾	(2,761		)	⁽⁴⁾
Net deferred tax assets	$	2,482			$	5,032
Deferred tax liabilities:
Foreign ⁽⁵⁾	$	5,405			$	4,449
Total deferred tax liabilities	$	5,405			$	4,449


(1)	The Federal deferred tax asset is net of Federal deferred tax liabilities and includes a $2.8 million Federal investment tax credit carryforward.


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


(3)	Includes a $1.8 million valuation allowance against Foreign deferred tax assets, and a $1.4 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.