Annual report pursuant to Section 13 and 15(d)

Income Tax

v3.24.0.1
Income Tax
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Tax Income Tax
As discussed in Note 1, as a result of expanding opportunities in non-qualifying REIT assets, effective January 1, 2024, we have elected to revoke our REIT election, and will be taxed as a C Corporation beginning in tax year 2024. Commencing with the taxable year ended December 31, 2024, all of the Company’s taxable income will be subject to U.S. federal and state income tax at the applicable corporate tax rate. Dividends paid to stockholders will no longer be tax deductible. The Company will also no longer be subject to the REIT compliance requirements for assets, income, or distributions to stockholders among other REIT compliance requirements.
The Company anticipates that operating as a taxable C Corporation will provide the Company with flexibility to execute various strategic initiatives without the constraints of complying with REIT requirements, including increased investing in power generating, transportation, and alternative fuel assets that are not REIT qualifying. The Company’s transition to a taxable C Corporation is not expected to result in significant incremental current income tax expense in the near term due to the availability of net operating loss (“NOL”) carryforwards and tax credits typically offered by the assets in which we often invest.
We recorded an income tax benefit (expense) of approximately $(32) million for the year ended December 31, 2023, a $(7) million tax benefit (expense) for the year ended December 31, 2022, and an $(17) million tax benefit (expense) for the year for the year ended 2021. The federal income tax expense and benefits recorded were determined using a rate of 21%. Our deferred tax assets and liabilities were measured using a federal rate of 21%. As discussed in Note 1, commencing on January 1, 2024, the Company will be taxed as a C Corporation, and $33 million of our income tax expense for the year ended December 31, 2023 is the result of revaluing the Company’s REIT business related deferred tax assets and liabilities using a statutory rate of 21% due to the REIT election revocation. As a result of the revocation of our REIT election effective January 1, 2024, we have changed the presentation of our rate reconciliation to include both REIT and TRS activities in the current year. Prior year
presentation has been updated to conform to our current year presentation. Below is a reconciliation between the federal statutory rates and our effective tax rates for the years ended December 31:

2023 2022 2021
Federal statutory income tax rate 21  % 21  % 21  %
Changes in rate resulting from:
Share-based compensation 2  % 11  % (4) %
Equity method investments (6) % (9) % (1) %
Recognition of deferred tax liability from REIT revocation 18  % —  % —  %
REIT benefit / dividends paid deduction
 (14) % (32) % (8) %
Other 2  % 5  % 4  %
Valuation allowance (6) % 19  % —  %
Effective tax rate 17  % 15  % 12  %
Our deferred tax liability was $77 million and $44 million as of December 31, 2023 and 2022. Our deferred tax liability is included in accounts payable, accrued expenses and other on our consolidated balance sheet. Deferred income taxes represent the tax effect from continuing operations of the differences between the book and tax basis of assets and liabilities. Deferred tax assets (liabilities) include the following as of December 31:
2023 2022
  (in millions)
Net operating loss (NOL) carryforwards $ 163  $ 114 
Tax credit carryforwards 31  21 
Share-based compensation 6  3 
Other 4  1 
Valuation allowance —  (10)
Gross deferred tax assets 204  129 
Receivables basis difference $ (57) $ (20)
Equity method investments (224) (153)
Gross deferred tax liabilities (281) (173)
Net deferred tax liabilities $ (77) $ (44)
We have unused NOLs of $666 million and tax credits of approximately $31 million. Approximately $87 million of our NOLs will begin to expire in 2034. If we were to experience a change in control as defined in Section 382 of the Internal Revenue Code, our ability to utilize NOLs in the years after the change in control would be limited. Similar rules and limitation may apply for state tax purposes as well. Of our NOLs, $579 million were added in taxable years after 2017 which are not subject to expiration but are limited to 80% of taxable income. Our tax credits begin to expire in 2034.
We have no examinations in progress, none are expected at this time, and years 2020 through 2023 are open. As of December 2023 and 2022, we had no uncertain tax positions. Our policy is to recognize interest expense and penalties related to income tax matters as a component of general and administrative expense. There were no accrued interest and penalties as of December 31, 2023 and 2022, and no interest and penalties were recognized during the years ended December 31, 2023, 2022, or 2021.
For federal income tax purposes, the cash dividends paid for the years ended December 31, 2023 and 2022 are characterized as follows:
2023 2022
Common distributions
Ordinary income 52  % 31  %
Return of capital 6  % 69  %
Capital gain dividend
 42  % —  %
  100  % 100  %