Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES

Income tax (benefit) expense consists of the following:
 
Year Ended December 31,
 
2019
 
2018
 
2017
Current:
 
 
 
 
 
  Federal
$
148

 
$
6,146

 
$
(1,250
)
  State and Local
3,411

 
477

 
360

    Total Current Income Tax Expense (Benefit)
3,559

 
6,623

 
(890
)
Deferred:
 
 
 
 
 
  Federal
28,939

 
(68,907
)
 
148,997

  State and Local
9,268

 
(11,147
)
 
19,521

    Total Deferred Income Tax Expense (Benefit)
38,207

 
(80,054
)
 
168,518

Total Income Tax (Benefit) Expense
$
41,766

 
$
(73,431
)
 
$
167,628



New Residential intends to qualify as a REIT for each of its tax years through December 31, 2019. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

New Residential operates various securitization vehicles and has made certain investments, particularly its investments in MSRs (Note 6), Servicer Advance Investments (Note 7) and REO (Note 9), through taxable REIT subsidiaries (“TRSs”) that are subject to regular corporate income taxes which have been provided for in the provision for income taxes, as applicable.

The increase in the expense for income taxes for the year ended December 31, 2019 is primarily due to deferred tax expense generated by MSR income and loan origination income attributable to New Residential TRSs.

The increase in the benefit for income taxes for the year ended December 31, 2018 is primarily due to the release of valuation allowances on deferred tax assets and increase in other deferred tax benefits attributable to New Residential’s TRSs.

The difference between New Residential’s reported provision for income taxes and the U.S. federal statutory rate of 21% is as follows:
 
December 31,
 
2019
 
2018
 
2017
Provision at the statutory rate
21.00
 %
 
21.00
 %
 
35.00
 %
Non-taxable REIT income
(16.26
)%
 
(25.44
)%
 
(21.72
)%
State and local taxes
2.36
 %
 
(1.19
)%
 
1.76
 %
Change in valuation allowance
 %
 
(2.31
)%
 
0.85
 %
Change in federal tax rate
 %
 
 %
 
(0.92
)%
Other
0.66
 %
 
(0.30
)%
 
(0.17
)%
Total provision
7.76
 %
 
(8.24
)%
 
14.80
 %


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are presented below:
 
December 31,
 
2019
 
2018
Deferred tax assets:
 
 
 
Net operating losses and tax credit carryforwards(A)
$
79,897

 
$
41,713

Basis differences for REO and other assets
16,279

 
8,453

Unrealized mark to market
10,084

 
36,758

Other
1,194

 
3,087

Total deferred tax assets
107,454

 
90,011

Less valuation allowance

 

Net deferred tax assets
$
107,454

 
$
90,011

 
 
 
 
Deferred tax liabilities:
 
 
 
Mortgage servicing rights
$
(65,582
)
 
$

Basis difference for partnership and other investments
(29,022
)
 
(24,179
)
Fixed asset depreciation
(4,181
)
 

Total deferred tax (liability)
$
(98,785
)
 
$
(24,179
)
 
 
 
 
Net deferred tax assets (liability)
$
8,669

 
$
65,832


(A)
As of December 31, 2019, New Residential’s TRSs had approximately $328.0 million of net operating loss carryforwards for federal and state income tax purposes which may be available to offset future taxable income, if and when it arises. Approximately, $9.1 million of these federal and state net operating loss carryforwards will begin to expire in 2034. The utilization of the net operating loss carryforwards to reduce future income taxes will depend on the TRSs ability to generate sufficient taxable income prior to the expiration of the carryforward period.

In assessing the realizability of deferred tax assets, New Residential 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 temporary differences become deductible. As of December 31, 2019, we believe it is more likely than not that we will fully realize our deferred tax assets.

New Residential and its TRSs file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, New Residential is no longer subject to tax examinations by tax authorities for tax years ended prior to December 31, 2016. New Residential recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations. As of December 31, 2019, New Residential has no material uncertainties to be recognized. New Residential does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date.

Common stock distributions were taxable as follows:
Year
Dividends
per Share
 
Ordinary
Income
 
Long-term
Capital
Gain
 
Return
of
Capital
2019(A)
$
1.87

 
77.53
%
 
15.82
%
 
6.65
%
2018(B)
1.60

 
78.03
%
 
1.03
%
 
20.94
%
2017(C)
1.94

 
66.64
%
 
7.83
%
 
25.53
%


(A)
The entire $0.50 per share dividend declared in December 2019 and paid in January 2020 is treated as received by stockholders in 2020.
(B)
The entire $0.50 per share dividend declared in December 2018 and paid in January 2019 is treated as received by stockholders in 2019.
(C)
The entire $0.50 per share dividend declared in December 2017 and paid in January 2018 is treated as received by stockholders in 2018.

Series A Preferred stock distributions were as follows:
Year
Dividends
per Share
 
Ordinary
Income
 
Long-term
Capital
Gain
 
Return
of
Capital
2019
$
0.69

 
84.18
%
 
15.82
%
 
%

Series B Preferred stock distributions were as follows:
Year
Dividends
per Share
 
Ordinary
Income
 
Long-term
Capital
Gain
 
Return
of
Capital
2019
$
0.45

 
84.18
%
 
15.82
%
 
%