| Income Taxes | Note 15 — Income Taxes The Company is subject to U.S. federal, state and local, as well as foreign, corporate income taxes. The components of the provision for income taxes reflected on the consolidated statements of operations are set forth below: For the Years Ended December 31, 2021 2020 2019 (in thousands) Current taxes: U.S. federal $ (2,664) $ (2,794) $ 2,868 State and local 1,073 (306) 410 Foreign 4,482 11,535 4,982 Total current tax expense 2,891 8,435 8,260 Deferred taxes: U.S. federal 11,678 1,245 293 State and local 1,177 264 (534) Foreign 1,053 (1,517) (574) Total deferred tax (benefit) expense 13,908 (8) (815) Total tax expense $ 16,799 $ 8,427 $ 7,445 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 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. Due to a provision in the Tax Cuts and Jobs Act ("TCJA"), the Company was able to accelerate the deduction of certain costs associated with the completion of its New York City office space for the year ended December 31, 2021. In addition, the Company realized tax benefits from business interest deductions and net operating loss carryback provisions in the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. These tax benefits were partially deferred until the income tax return for the year ended December 31, 2020 was filed in 2021. Significant components of the Company’s net deferred tax assets and liabilities are set forth below: As of December 31, 2021 2020 (in thousands) Deferred tax assets: Compensation and benefits $ 17,290 $ 18,261 Depreciation and amortization — 642 Cumulative translation adjustment 11,679 10,079 Operating loss carryforwards 4,900 11,736 Capital loss carryforwards 2,503 2,298 Lease asset 22,763 23,867 Other financial accruals 1,947 448 Valuation allowances (2,503) (2,298) Total deferred tax assets 58,579 65,033 As of December 31, 2021 2020 (in thousands) Deferred tax liabilities: Depreciation and amortization 4,126 — Lease liability 18,537 19,139 Other financial accruals 9,082 6,934 Total deferred tax liabilities 31,745 26,073 Net deferred tax asset $ 26,834 $ 38,960 Aside from the required reporting of its lease asset for ASU No. 2016-02, the Company’s largest deferred tax asset principally relates to compensation expense deducted for book purposes but not yet deducted for tax purposes. Based on the Company’s historical taxable income and its expectation for taxable income in the future, management expects this deferred tax asset related to compensation 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. These jurisdictions have been profitable in prior years and the Company believes it is more likely than not they will be profitable in future years. However, management has carefully considered the need for a valuation allowance by evaluating each jurisdiction separately and considering items such as historical and 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 full benefit of these operating loss carryforwards and other deferred tax assets for these jurisdictions. As of December 31, 2021, the Company had operating loss carryforwards which in aggregate totaled $21.4 million, and these operating loss carryforwards may be carried forward five years or longer. In addition to operating loss carryforwards, the Company has capital loss carryforwards related to the sale of its investments, and these capital loss carryforwards can only be utilized against capital gains in the same jurisdiction. Approximately $2.4 million of the deferred tax asset related to capital loss carryforwards can be carried forward indefinitely and $0.1 million can be carried forward for four years. However, since the Company has nominal remaining investments and considers it more likely than not that the Company will generate capital gains, the Company has established a full valuation allowance against the deferred tax assets related to these capital losses. 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 in 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, 2021, 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 management believes 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, 2021, 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 other operating expenses in the consolidated statements of operations. Regarding foreign operations in the income tax provision, the territorial-type system enacted as part of TCJA is not expected to have a significant impact for the year ended December 31, 2021 or materially impact future years. As such, the Company does not intend to indefinitely reinvest its non-U.S. subsidiary earnings outside the United States. A reconciliation of the statutory U.S. federal income tax rate of 21% to the Company’s effective income tax rates is set forth below: For the Years Ended December 31, 2021 2020 2019 U.S. statutory tax rate 21.0 % 21.0 % 21.0 % Increase related to state and local taxes, net of U.S. income tax benefit 3.0 (3.0) (0.5) Benefits and taxes related to foreign operations 3.7 (7.3) 8.8 Charge related to Global Intangible Low-Taxed Income — — 2 RSU vesting and dividend discrete accounting charge or benefit 1.4 13.3 6.3 Charge related to non-deductible compensation 1.3 2.4 3.3 Tax Benefits Related to CARES Act (1.7) (4.6) — Other (0.3) (0.6) (0.5) Effective income tax rate 28.4 % 21.2 % 40.4 % |
