Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the years ended December 31, 2023, 2022 and 2021, the Company qualified to be taxed as a REIT under the Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes its net taxable income to stockholders, and does not engage in prohibited transactions. The Company intends to distribute 100% of its REIT taxable income and comply with all requirements to continue to qualify as a REIT. The majority of states also recognize the Company’s REIT status. The Company’s TRSs file separate tax returns and are fully taxed as standalone U.S. C corporations. It is assumed that the Company will retain its REIT status and will incur no REIT level taxation as it intends to comply with the REIT regulations and annual distribution requirements.
Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. These activities include the designated portion of MSR treated as normal mortgage servicing, residential mortgage loans, certain derivative financial instruments and other risk-management instruments. The Company has designated its TRSs to engage in these activities.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, or the IRA, sweeping legislation addressing healthcare, climate change and renewable energy incentives, and inflation, among other priorities. The bill includes numerous tax provisions that impact corporations, including the implementation of a corporate alternative minimum tax as well as a 1% excise tax on certain stock repurchases and economically similar transactions. However, REITs are excluded from the definition of an “applicable corporation” and therefore are not subject to the corporate alternative minimum tax. Additionally, stock repurchases by REITs are specifically excepted from the 1% excise tax. The Company’s TRSs operate as standalone corporations and therefore could be adversely affected by the tax law changes. The Company’s analysis of the accounting implications of the IRA result in no impact being recorded to its 2023 financial statements. Technical corrections or other amendments to the IRA or administrative guidance interpreting the IRA may be forthcoming at any time. While the Company does not anticipate a material effect on its operations, it will continue to analyze and monitor the application of the IRA to its business.
The following table summarizes the tax provision (benefit) recorded primarily at the taxable subsidiary level for the years ended December 31, 2023, 2022 and 2021:
Year Ended
December 31,
(in thousands) 2023 2022 2021
Current tax provision (benefit) :
Federal $ 3,498  $ —  $ — 
State 4,976  (1,028) (1,768)
Total current tax provision (benefit)
8,474  (1,028) (1,768)
Deferred tax provision (benefit):
Federal 16,602  90,916  14,851 
State (2,098) 14,325  (8,891)
Total deferred tax provision
14,504  105,241  5,960 
Total provision for income taxes
 $ 22,978  $ 104,213  $ 4,192 

During the year ended December 31, 2023, the Company recognized a provision for income taxes of $23.0 million, which was primarily due to net income from MSR servicing activity, offset by net losses recognized on MSR and operating expenses in the Company’s TRSs. During the year ended December 31, 2022, the Company recognized a provision for income taxes of $104.2 million, which was primarily due to income from MSR servicing activity and net gains recognized on MSR, offset by net losses recognized on derivative instruments and operating expenses in the Company’s TRSs. During the year ended December 31, 2021, the Company recognized a provision for income taxes of $4.2 million, which was primarily due to income from MSR servicing activity and gains recognized on MSR, offset by net losses recognized on derivative instruments and operating expenses in the Company’s TRSs.
The Company’s taxable income before dividend distributions differs from its pre-tax net income for U.S. GAAP purposes primarily due to unrealized gains and losses, the deferral of capital losses for tax, differences in timing of income recognition due to market discount and original issue discount and the calculations surrounding each, dividends paid from the Company’s TRSs to the REIT, the utilization of net operating losses for tax and differences in treatment of compensation expense. These book to tax differences in the REIT are not reflected in the consolidated financial statements as the Company intends to retain its REIT status.
As of December 31, 2023, the Company had $253.0 million of net operating loss carryforwards for federal income tax purposes at the REIT, which may be utilized to offset future taxable income after consideration for the dividends paid deduction. These federal net operating loss carryforwards do not have an expiration date and can be carried forward indefinitely. As of December 31, 2023, the Company had $2.5 billion of net capital loss carryforwards for federal income tax purposes at the REIT, which may be utilized to offset future net gains from the sale of capital assets. These federal net capital loss carryforwards have an expiration date of five years of which the majority of these losses will expire between 2025 and 2027. The utilization of the net capital loss carryforwards will depend on the REIT’s ability to generate sufficient net capital gains prior to the expiration of the carryforward period.
The following is a reconciliation of the statutory federal and state rates to the effective rates, for the years ended December 31, 2023, 2022 and 2021:
Year Ended
December 31,
2023 2022 2021
(dollars in thousands) Amount Percent Amount Percent Amount Percent
(Benefit from) provision for income taxes at statutory federal tax rate
 $ (17,513) 21  % $ 68,135  21  % $ 40,198  21  %
State taxes, net of federal benefit, if applicable
 2,358  (3) % 10,478  3  % (8,420) (4) %
Permanent differences in taxable income from net income for U.S. GAAP purposes
 65,670  (79) % (93) —  % 15  —  %
REIT (loss) income not subject to corporate income tax
 (27,537) 33  % 25,693  8  % (27,601) (14) %
Provision for (benefit from) income taxes/ effective tax rate(1)
$ 22,978  (28) % $ 104,213  32  % $ 4,192  3  %
____________________
(1)The provision for income taxes is primarily recorded at the taxable subsidiary level.

The Company’s permanent differences in taxable income from net income (loss) for U.S. GAAP purposes in the year ended December 31, 2023 were primarily due to dividends paid from the Company’s TRSs to the REIT. Additionally, the Company’s recurring permanent differences in taxable income from net income (loss) for U.S. GAAP purposes in the years ended December 31, 2023, 2022 and 2021 were due to state taxes, net of federal benefit in the Company’s TRSs, the dividends paid deduction for tax, amortization of goodwill for tax and a difference in the compensation expense related to officer’s compensation limitation and restricted stock dividends and vesting.
The Company’s consolidated balance sheets, as of December 31, 2023 and December 31, 2022 contain the following current and deferred tax liabilities and assets, which are included in other assets, and are recorded at the taxable subsidiary level:
(in thousands) December 31,
2023		 December 31,
2022
Income taxes receivable (payable):
Federal income taxes receivable $ 52  $ — 
State and local income taxes (payable) receivable
 (735) 404 
Income taxes (payable) receivable, net
 (683) 404 
Deferred tax assets (liabilities):
Deferred tax asset 20,083  33,426 
Deferred tax liability (81,765) (80,603)
Total net deferred tax assets (liabilities) (61,682) (47,177)
Total tax assets (liabilities), net $ (62,365) $ (46,773)
Deferred Tax Assets and Liabilities
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes at the TRS level. Components of the Company’s deferred tax liabilities and assets as of December 31, 2023 and December 31, 2022 were as follows:
(in thousands) December 31,
2023		 December 31,
2022
Mortgage servicing rights $ (81,765) $ (80,492)
Net operating loss carryforward 18,224  32,301 
Other 1,859  1,014 
Total deferred tax assets (liabilities) (61,682) (47,177)
Valuation allowance —  — 
Total net deferred tax assets (liabilities) $ (61,682) $ (47,177)

As of December 31, 2023 and December 31, 2022, the Company had not recorded a valuation allowance for any portion of its deferred tax assets as it did not believe, at a more likely than not level, that any portion of its deferred tax assets would not be realized.
Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements of a contingent tax liability for uncertain tax positions. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these consolidated financial statements.