On December 22, 2017, the President of the United States signed into law comprehensive tax reform legislation commonly known as Tax Cuts and Jobs Act (the “Tax Act”), which introduces significant changes to the United States tax law. The Tax Act provides numerous provisions including, but not limited to, a reduction to the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, a temporary provision allowing 100% expensing of qualifying capital improvements, a one-time transition tax on foreign earnings, a general elimination of U.S. federal income taxes on dividends received from foreign subsidiaries and a new provision designed to tax global intangible low-taxed income (“GILTI”).

Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided accounting guidance for the Tax Act. SAB 118 provided a measurement period similar to a business combination whereby a company recognizes provisional amounts to the extent that they are reasonably estimable and adjusts them over time as more information becomes available, not to extend beyond one year from the Tax Act enactment date. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act for which the accounting under ASC 740 is complete. To the extent

For the year ended December 31, 2017, the Company recorded a provisional amount for certain enactment-date effects of the Tax Act by applying the guidance in SAB 118 for the effects of the following aspects: remeasurement of deferred tax assets and liabilities, one-time transition tax, and tax on GILTI. As of December 31, 2018, the accounting for all enactment-date income tax effects of the Tax Act was complete resulting in an adjustment to income tax expense of $1.2 million, which increased the effective tax rate for the year ended December 31, 2018 by 1.3%.

In connection with our initial analysis of the Tax Act impact during 2017, we recorded a provisional decrease to net deferred tax assets of $261.3 million with a corresponding increase to deferred tax expense to account for the change in the federal tax rate to 21%. The Company’s computations were complete as of December 22, 2018, and a change of $0.3 million was recorded in the current year for the remeasurement of our net deferred tax assets. Beginning in 2018, the new federal rate of 21% has been reflected in the current federal tax expense within our Consolidated Statement of Operations.

Additionally, there was a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). The application of the transition tax was relevant to certain undistributed and previously untaxed post-1986 foreign earnings and profits from our management service contract with Casino Rama located in Orillia, Ontario. The Company recognized a provisional tax expense of $2.6 million related to the transition tax in 2017 and the new law allows a Company to pay this liability over an eight-year period without interest. Upon further analysis of the Tax Act and published guidance issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service, we finalized our calculations of the transition tax liability during 2018. We increased our December 31, 2017 provisional amount by $0.9 million, which is included as a component of income tax expense. We have elected to pay our transition tax over the eight-year period provided in the Tax Act. As of December 31, 2018, the remaining balance of our transition tax obligation was $3.2 million, which will be paid over the next seven years. The Tax Act also contained a new GILTI tax provision and due to the complexity and timing of the enactment, the Company did not record any provisional amount in the December 31, 2017 Consolidated Financial Statements, or make a policy decision regarding whether to record deferred taxes related to GILTI. In accordance with U.S. GAAP, the Company has made an accounting policy election to treat taxes due under the GILTI tax provision as a current period expense. The GILTI provision resulted in a current period expense of $0.3 million.

The following table summarizes the tax effects of temporary differences between the Consolidated Financial Statements carrying amount of assets and liabilities and their respective tax basis, which are recorded at the prevailing enacted tax rate that will be in effect when these differences are settled or realized. These temporary differences result in taxable or deductible amounts in future years. The Company assessed all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize our existing net deferred tax assets. In connection with the failed spin-off-leaseback, the Company continued to record real estate assets and a financing obligation of $2.0 billion and $3.5 billion, respectively, on November 1, 2013, which resulted in a substantial increase to our net deferred tax assets of $599.9 million. ASC 740 suggests that additional scrutiny should be given to deferred taxes of an entity with cumulative pre-tax losses during the most recent three years. Positive evidence of sufficient quantity and quality is required to overcome such significant negative evidence to conclude that a valuation allowance is not warranted.



	December 31,
(in thousands)	2018			2017
Deferred tax assets:
Stock-based compensation expense	$	8,998		$	15,038
Accrued expenses	42,897			39,474
Loan to the JIVDC	—			26,237
Financing obligations associated with Master Leases	1,919,718			900,311
Unrecognized tax benefits	6,732			6,565
Investments in unconsolidated affiliates	3,579			—
Net operating losses, interest limitation and tax credit carryforwards	122,785			59,842
Gross deferred tax assets	2,104,709			1,047,467
Less: Valuation allowance	(89,508		)	(113,699		)
Net deferred tax assets	2,015,201			933,768
Deferred tax liabilities:
Property and equipment, non-Master Leases	(47,308		)	(33,148		)
Property and equipment, Master Leases	(1,599,907		)	(469,363		)
Investments in unconsolidated affiliates	—			(1,218		)
Undistributed foreign earnings	(349		)	(2,061		)
Intangibles	(287,025		)	(37,035		)
Net deferred tax liabilities	(1,934,589		)	(542,825		)
Noncurrent deferred tax assets, net	$	80,612		$	390,943

We recorded a $1.0 billion increase in gross deferred income tax assets and $1.4 billion increase in gross deferred tax liabilities in connection with the acquisition of Pinnacle, which were primarily related to temporary differences associated with the financing obligation on the Pinnacle Master Lease, acquired net operating losses, and property and equipment assumed under the Pinnacle Master Lease, as amended. Pinnacle properties will now be included in our consolidated federal and state tax returns, which impacted our effective tax rate in certain jurisdictions in the fourth quarter 2018.

The realizability of the net deferred tax assets is evaluated quarterly by assessing the need for a valuation allowance and by adjusting the amount of the allowance, if necessary. The Company gives appropriate consideration to all available positive and negative evidence including projected future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. The evaluation of both positive and negative evidence is a requirement pursuant to ASC 740 in determining the net deferred tax assets will be realized. In the event the Company determines that the deferred income tax assets would be realized in the future in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded, which would reduce the provision for income taxes.

For the three months ended December 31, 2017, there were no material changes to our core business operations that altered our prior interim conclusion to release the valuation allowance against the federal and state net deferred tax assets for the portion that is more-likely-than-not to be realized. As such, the Company released $741.9 million of its total valuation allowance for the year ended December 31, 2017 due to the positive evidence outweighing the negative evidence thereby allowing the Company to achieve the “more-likely-than-not” realization standard. Moreover, the Company continued to experience significant three-year cumulative pretax income of $185.5 million as of December 31, 2018 supporting the position that a federal valuation allowance is not necessary excluding the valuation allowance recorded on the federal capital loss carryforwards. During the three months ended December 31, 2018, we released a partial valuation allowance on a capital loss carryforward in the amount of $22.4 million that offset the capital gain realized on the Plainridge Park Casino Sale-Leaseback. This reversal is reflected in our income tax benefit within the Consolidated Statements of Operations. The Company continued to maintain a valuation allowance of $89.5 million as of December 31, 2018 primarily related to certain state filing groups where we continue to be in a cumulative three-year pretax loss position.

Following the ownership changes of the Tropicana Las Vegas and more recently the Pinnacle Acquisition, the Company had $252.8 million of total federal net operating loss carryforwards and a Section 163(j) interest limitation carryforward of $18.0 million. The portion of tax attributes that will expire on various dates from 2020 through 2037 is $182.1 million. The remaining tax attributes do not expire. The utilization of indefinite federal net operating loss carryforwards is limited to 80% of taxable income in any given year. As management receives additional information during the measurement period, the tax attributes acquired from Pinnacle may be adjusted through goodwill and accounted for in the period they arise. All acquired tax attributes are subject to limitations under the Internal Revenue Code and underlying Treasury Regulations, however, we believe it is more-likely-than-not that the benefit from these tax attributes will be realized.

For state income tax reporting, the Company had gross state net operating loss carryforwards aggregating approximately $835.2 million available to reduce future state income taxes, primarily for the Commonwealth of Pennsylvania and the States of Missouri, New Mexico, Louisiana, Iowa, Illinois, and Ohio localities as of December 31, 2018. The tax benefit associated with these net operating loss carryforwards was approximately $53.2 million. Due to statutorily limited operating loss carryforwards and income and loss projections in the applicable jurisdictions, a valuation allowance has been recorded to reflect the net operating losses which are not presently expected to be realized in the amount of $32.1 million. If not used, substantially all the carryforwards will expire at various dates from December 31, 2019 to December 31, 2038. The increase in total gross state net operating loss carryforwards was largely due to the tax attributes acquired upon closing the Pinnacle Acquisition. Following the ownership change, the Company acquired approximately $382.0 million of gross state net operating loss carryforwards available to reduce future state income taxes.

Overall, the Company’s valuation allowance decreased year-over-year by a net amount of $24.2 million, primarily due to the partial recognition of a capital loss carryforward associated with the loan to the JIVDC that offset the capital gain recognized from the Plainridge Park Casino Sale-Leaseback. The tax effects of the Pinnacle Acquisition were immaterial to the Company’s valuation allowance; however, they are preliminary and subject to change during the measurement period. A change in purchase accounting may affect the recorded deferred tax assets and liabilities and our effective rate in a future period.



	For the year ended December 31,
(in thousands)	2018			2017			2016
Current tax benefit (expense)
Federal	$	(15,336	)	$	(16,318	)	$	(8,721	)
State	(6,402		)	(6,062		)	(3,489		)
Foreign	(1,349		)	2,981			9,639
Total current	(23,087		)	(19,399		)	(2,571		)
Deferred tax benefit (expense)
Federal	14,576			480,712			(4,701		)
State	10,945			39,255			(3,279		)
Foreign	1,159			(2,061		)	(756		)
Total deferred	26,680			517,906			(8,736		)
Total income tax benefit (expense)	$	3,593		$	498,507		$	(11,307	)



	For the year ended December 31,
	2018		2017		2016
Percent of pretax income
Federal statutory rate	21.0	%	35.0	%	35.0	%
State and local income taxes - net of federal benefits	(6.2	)	6.3		1.2
Nondeductible expenses	6.9		(16.0	)	0.3
Goodwill impairment	—		(20.5	)	—
Compensation	(3.8	)	29.5		(1.5	)
Contingent liability settlement	—		22.9		0.6
Foreign	(0.1	)	11.3		(8.5	)
Valuation allowance	(20.3	)	2,962.3		(17.1	)
Tax Act - deferred rate change	—		(1,043.5	)	—
Other miscellaneous items	(1.5	)	3.3		(0.6	)
Total effective tax rate	(4.0	)%	1,990.6	%	9.4	%



	For the year ended December 31,
(in thousands)	2018			2017			2016
Amount of pretax income
Federal statutory rate	$	(18,883	)	$	8,765		$	(42,216	)
State and local income taxes - net of federal benefits	5,615			1,567			(1,498		)
Nondeductible expenses	(6,161		)	(4,018		)	(371		)
Goodwill impairment	—			(5,131		)	—
Compensation	3,369			7,376			1,817
Contingent liability settlement	—			5,740			(756		)
Foreign	117			2,840			10,268
Valuation allowance	18,275			741,872			20,675
Tax Act - deferred rate change	—			(261,329		)	—
Other miscellaneous items	1,261			825			774
Total income tax benefit (expense)	$	3,593		$	498,507		$	(11,307	)



(in thousands)	Unrecognized tax benefits
Unrecognized tax benefits as of January 1, 2017	$	26,792
Additions based on current year positions	2,979
Additions based on prior year positions	2,836
Decreases due to settlements and/or reduction in reserves	(1,322		)
Currency translation adjustments	(119		)
Settlement payments	(216		)
Unrecognized tax benefits as of December 31, 2017	30,950
Additions based on current year positions	—
Additions based on prior year positions	775
Decreases due to settlements and/or reduction in reserves	(2,005		)
Currency translation adjustments	(39		)
Settlement payments	—
Unrecognized tax benefits as of December 31, 2018	$	29,681

The Company is required under ASC 740 to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period, as well as the cumulative amounts recorded within the Consolidated Balance Sheets. The Company will continue to classify any income tax related penalties and interest accrued related to unrecognized tax benefits in the income tax provisions within the Consolidated Statements of Operations.

During the year ended December 31, 2018, the Company did not record any new tax reserves, and accrued interest or penalties related to current year uncertain tax positions. The tax reserves acquired through the Pinnacle Acquisition were immaterial and as such we did not disclose separately in the reconciliation above. In regard to prior year tax positions, the Company recorded $0.8 million of tax reserves and accrued interest and reversed $2.2 million of previously recorded tax reserves and accrued interest for uncertain tax positions that are anticipated to settle and/or close within the next 12 months. We recognize accrued interest and penalties related to uncertain tax positions as a component of income taxes. The unrecognized tax benefits of $30.4 million are included in “Noncurrent tax liabilities” within the Company’s Consolidated Balance Sheets. Overall, the Company recorded a net tax expense of $0.5 million in connection with its uncertain tax positions for the year ended December 31, 2018.

Included in the liability for unrecognized tax benefits as of December 31, 2018 and 2017 were $23.6 million and $25.1 million, respectively, of tax positions that, if reversed, would affect the effective tax rate. Also included in the reserve as of December 31, 2018 and 2017, was less than $0.1 million and $0.1 million, respectively, of currency translation gain related to foreign currency tax positions and the settlement receivable on account.

During the years ended December 31, 2018 and 2017, the Company recognized approximately $0.5 million and $1.7 million, respectively, of interest and penalties, net of deferred taxes. In addition, due to settlements and/or reductions in previously recorded liabilities, the Company had reductions in previously accrued interest and penalties of $0.2 million, net of deferred taxes. These accruals are included in “Noncurrent tax liabilities” within the Company’s Consolidated Balance Sheets.