NYCB 2017 Annual Report

116 In March 2014, tax legislation was enacted that changed the manner in which financial institutions and their affiliates are taxed in New York State. In April 2015, similar legislation was enacted for New York City. Most of the provisions were effective for fiscal years beginning in 2015. The most significant changes affecting the Company were as follows: • The tax rate applied to apportioned New York State taxable income was reduced from 7.1% to 6.5%, effective for fiscal years beginning in 2016. For financial institutions with total assets below $100 billion, the New York City statutory tax rate dropped from 9% to 8.85%. • Tax is now determined by measuring the apportioned income of the combined group of all domestic affiliates that participate in a unitary business relationship. • Taxable income is apportioned based on the location of t he taxpayer’s customers, with special rules for income from certain financial transactions. • Thrift institutions that maintain a qualified residential loan portfolio are entitled to a specially computed modification that reduces taxable income. • New York City taxable income is reduced by net interest income earned on residential portfolio loans that are secured by rent-regulated units or situated in low-income communities in New York City. This benefit is gradually phased out for financial institutions with total assets between $100 billion and $150 billion. • An alternative tax of 0.15% on apportioned capital is imposed to the extent that it exceeds the tax on apportioned income. The New York State alternative tax is capped at $5 million for a tax year and is gradually phased out over six years. The New York City alternative tax is capped at $10 million for a tax year and is not phased out. • A reduction to taxable income from the utilization of a net operating loss carryforward is determined without reference to, nor limitation based on, a federal tax deduction of such carryforward. The Company invests in affordable housing projects through limited partnerships that generate federal Low Income Housing Tax Credits. The balances of these investments, wh ich are included in “Other assets” in the Consolidated Statements of Condition, were $46.2 million and $42.4 million, respectively, at December 31, 2017 and 2016, and included commitments of $23.9 million and $21.9 million that are expected to be funded over the next four years. The Company elected to apply the proportional amortization method to these investments. Recognized in the determination of income tax (benefit) expense from operations for the years ended December 31, 2017, 2016, and 2015 were $4.5 million, $4.0 million, and $3.2 million, respectively, of affordable housing tax credits and other tax benefits, and an offsetting $3.1 million, $3.0 million, and $2.4 million, respectively, for the amortization of the related investments. No impairment losses were recognized in relation to these investments for the years ended December 31, 2017, 2016, and 2015. GAAP prescribes a recognition threshold and measurement attribute for use in connection with the obligation of a company to recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2017, the Company had $33.7 million of unrecognized gross tax benefits. Gross tax benefits do not reflect the federal tax effect associated with state tax amounts. The total amount of net unrecognized tax benefits at December 31, 2017 that would have affected the effective tax rate, if recognized, was $26.6 million. Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of income tax expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). During the years ended December 31, 2017, 2016, and 2015, the Company recognized income tax expense attributed to interest and penalties of $1.8 million, $1.2 million, and $1.1 million, respectively. Accrued interest and penalties on tax liabilities were $8.9 million and $6.9 million, respectively, at December 31, 2017 and 2016.