| Income Taxes | Note 16 — Income Taxes The Company is subject to U.S. federal, foreign, state and local corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of income are set forth below: For the Years Ended December 31, 2016 2015 2014 (in thousands) Current taxes: U.S. federal $ 19,392 $ 15,995 $ 12,256 State and local 1,939 3,624 2,415 Foreign 13,245 4,136 5,778 Total current tax expense 34,576 23,755 20,449 Deferred taxes: U.S. federal (4,530 ) (2,252 ) 1,454 State and local (321 ) (759 ) 493 Foreign (2,606 ) (3,047 ) 1,686 Total deferred tax (benefit) expense (7,457 ) (6,058 ) 3,633 Total tax expense $ 27,119 $ 17,697 $ 24,082 The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for financial accounting and reporting for income taxes. Deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred taxes are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Further, the Company intends to indefinitely reinvest its non-U.S. subsidiary earnings outside of the United States, and deferred taxes have not been provided on the cumulative undistributed earnings of its foreign subsidiaries. If the Company were to repatriate all non-U.S. subsidiary earnings as of December 31, 2016 , it would result in approximately $9.1 million of additional U.S. federal tax. Significant components of the Company's net deferred tax assets and liabilities are set forth below: As of December 31, 2016 2015 (in thousands) Deferred tax assets: Compensation and benefits $ 32,021 $ 30,680 Depreciation and amortization 2,483 2,637 Cumulative translation adjustment 20,361 17,503 Operating loss carryforwards 4,944 3,906 Capital loss carryforwards 1,938 2,426 Foreign tax credit carryforwards — 312 Other financial accruals 2,299 1,346 Valuation allowances (1,938 ) (2,738 ) Total deferred tax assets 62,108 56,072 Deferred tax liabilities: Unrealized gain on investments 659 242 Other financial accruals 3,008 1,338 Total deferred tax liabilities 3,667 1,580 Net deferred tax asset $ 58,441 $ 54,492 Based on the Company's historical taxable income and its expectation for taxable income in the future, management expects that its largest deferred tax asset, which relates principally to compensation expense deducted for book purposes but not yet deducted for tax purposes, will be realized as offsets to future taxable income. The Company’s deferred taxes for operating loss carryforwards relate to losses incurred in foreign jurisdictions. In 2016, certain foreign jurisdictions partially or wholly utilized their operating loss carryforwards while other jurisdictions increased or created new operating loss carryforwards. However, all foreign jurisdictions with operating loss carryforwards were profitable in prior years or were profitable in the current year. When assessing the need for a valuation allowance, management evaluates each foreign jurisdiction separately and considers items such as estimated future taxable income, cost bases, and other various factors. Based on all available information, the Company has determined that it is more likely than not that it will realize the benefit of these operating loss carryforwards in future periods; therefore, a valuation allowance has not been established for these deferred tax assets. At December 31, 2016 , the Company had foreign operating loss carryforwards, which in aggregate totaled $16.1 million , and may be carried forward for nine years and longer. Due to the Company’s operating loss carryforward position, tax benefits related to share-based payments generally booked through equity accounts may not be recorded until such time as the benefit is realized as a reduction in the Company’s actual taxes paid. As of December 31, 2016 , the current taxes payable would have been decreased by $0.8 million if the Company had been able to realize these benefits in its filed tax returns. Under ASC 740, valuation allowances are established against deferred tax assets when management determines it is more likely than not that all or some portion of a deferred tax asset will not be realized. The Company has a valuation allowance against a deferred tax asset related to a capital loss carryforward in the United Kingdom. This capital loss was realized from the sale of an investment in the United Kingdom and can be carried forward indefinitely but can only be utilized against capital gain in the same jurisdiction. Since the Company has nominal remaining investments in the United Kingdom and considers it more likely than not that the Company will not generate a capital gain in the United Kingdom, the Company has established a full valuation allowance against this related deferred tax asset. As of December 31, 2016, the amount of the deferred tax asset and corresponding valuation allowance for the capital loss carryforward in the United Kingdom was $1.9 million . This amount is less than the prior year due to movement in the foreign currency exchange rate. Any gain or loss resulting from the translation of deferred taxes for foreign affiliates has been included in the foreign currency translation adjustment incorporated as a component of other comprehensive income, net of tax, in the consolidated statements of changes in stockholders' equity. Income taxes receivable of $1.4 million and $3.6 million as of December 31, 2016 and 2015, respectively, were included in other receivables in the consolidated statements of financial condition. The Company is subject to the income tax laws of the United States, its states and municipalities, and those of the foreign jurisdictions in which the Company operates. These laws are complex, and the manner which they apply to the taxpayer's facts is sometimes open to interpretation. Management must make judgments in assessing the likelihood that a tax position will be sustained upon examination by the taxing authorities based on the technical merits of the tax position. In the normal course of business, the Company may be under audit in one or more of its jurisdictions in an open tax year for that particular jurisdiction. As of December 31, 2016 , the Company does not expect any material changes in its tax provision related to any current or future audits. The Company recognizes tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements. The Company performed an analysis of its tax positions as of December 31, 2016 , and determined that there was no requirement to accrue any material additional liabilities. Also, when present as part of the tax provision calculation, interest and penalties have been reported as interest expense and other operating expenses in the consolidated statements of income. A reconciliation of the statutory U.S. federal income tax rate of 35.0% to the Company’s effective income tax rate is set forth below: For the Years Ended December 31, 2016 2015 2014 U.S. statutory tax rate 35.0 % 35.0 % 35.0 % Increase related to state and local taxes, net of U.S. income tax benefit 1.3 4.7 3.3 Benefits and taxes related to foreign operations (6.2 ) 0.7 (3.3 ) Other 0.8 0.5 0.7 Effective income tax rate 30.9 % 40.9 % 35.7 % |
