Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax (benefit) expense consists of the following:
Year Ended December 31,
2020 2019 2018
Current:
  Federal $ (2,197) $ 148  $ 6,146 
  State and Local 4,084  3,411  477 
    Total Current Income Tax Expense (Benefit) 1,887  3,559  6,623 
Deferred:
  Federal 17,516  28,939  (68,907)
  State and Local (2,487) 9,268  (11,147)
    Total Deferred Income Tax Expense (Benefit) 15,029  38,207  (80,054)
Total Income Tax (Benefit) Expense $ 16,916  $ 41,766  $ (73,431)

New Residential intends to qualify as a REIT for each of its tax years through December 31, 2020. 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 business segments, including servicing, origination, and MSR related investments, 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. Refer to Note 4 (Segment Reporting) for further details.

The decrease in income tax expense for the year ended December 31, 2020 is primarily driven by deferred tax benefits resulting from changes in the fair value of loans and MSRs during the first quarter of 2020, offset by deferred and current tax expense generated from income in the servicing and origination business segments.

On March 27, 2020, the CARES Act was signed into law. The CARES Act provides economic relief to eligible businesses and individuals impacted by the COVID-19 pandemic and includes numerous tax provisions, such as the ability to carryback net operating losses to prior tax years. Pursuant to this new legislation, the Company filed a claim to carryback $23 million of net operating losses, resulting in a net tax benefit of $3 million. The Company is continuing to monitor and evaluate the impact of the CARES Act and other COVID-19-related legislation.

The increase in income tax expense 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 difference between New Residential’s reported provision for income taxes and the U.S. federal statutory rate of 21% is as follows:
December 31,
2020 2019 2018
Provision at the statutory rate 21.00  % 21.00  % 21.00  %
Non-taxable REIT income (26.30) % (16.26) % (25.44) %
State and local taxes 3.70  % 2.36  % (1.19) %
Change in valuation allowance —  % —  % (2.31) %
Change in federal tax rate —  % —  % —  %
Other 0.43  % 0.66  % (0.30) %
Total provision (1.17) % 7.76  % (8.24) %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are presented below:
December 31,
2020 2019
Deferred tax assets:
Net operating losses and tax credit carryforwards(A)
$ 5,636  $ 79,897 
Basis Differences related to assets and investments
18,868  16,279 
Unrealized mark to market 75  10,084 
Other 630  1,194 
Total deferred tax assets 25,209  107,454 
Less valuation allowance —  — 
Net deferred tax assets $ 25,209  $ 107,454 
Deferred tax liabilities:
Mortgage servicing rights $ (16,189) $ (65,582)
Basis Differences related to assets and investments (12,539) (29,022)
Fixed asset depreciation (1,231) (4,181)
Other (3,109) — 
Total deferred tax (liability) $ (33,068) $ (98,785)
Net deferred tax assets (liability) $ (7,859) $ 8,669 
(A)As of December 31, 2020, New Residential’s TRSs had approximately $15.0 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, $13.8 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, 2020, the Company believes it is more likely than not that it will fully realize its 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, 2017. 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, 2020, 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
2020(A)
$ 0.62  78.01  % —  % 21.99  %
2019(B)
1.87  77.53  % 15.82  % 6.65  %
2018(C)
1.60  78.03  % 1.03  % 20.94  %
(A)The entire $0.20 per share dividend declared in December 2020 and paid in January 2021 is treated as received by stockholders in 2021.
(B)The entire $0.50 per share dividend declared in December 2019 and paid in January 2020 is treated as received by stockholders in 2020.
(C)The entire $0.50 per share dividend declared in December 2018 and paid in January 2019 is treated as received by stockholders in 2019.

Series A Preferred stock distributions were as follows:
Year Dividends
per Share
Ordinary
Income
Long-term
Capital
Gain
Return
of
Capital
2020(A)
$ 1.88  100  % —  % —  %
2019 $ 0.69  84.18  % 15.82  % —  %
(A)The entire $0.47 per share dividend declared in December 2020 and paid in January 2021 is treated as received by stockholders in 2021.

Series B Preferred stock distributions were as follows:
Year Dividends
per Share
Ordinary
Income
Long-term
Capital
Gain
Return
of
Capital
2020(A)
$ 1.78  100  % —  % — 
2019 $ 0.45  84.18  % 15.82  % —  %