| Income Taxes | 24. Income Taxes (Loss)/Income before Income Tax Expense – Domestic and Foreign The U.S. and foreign components of (loss)/income before income tax expense for the years ended December 31, 2020, 2019 and 2018 are as follows:
Year Ended December 31,
2020 2019 2018
U.S. $ (5,187 ) $ 6,774 $ 43,677
Foreign (30,035 ) (6,653 ) 7,362
Total $ (35,222 ) $ 121 $ 51,039
Income Tax Expense/(Benefit) – By Jurisdiction The components of current and deferred income tax expense included in the Consolidated Statement of Operations for years ended December 31, 2020, 2019 and 2018 are as follows:
Years Ended December 31,
2020 2019 2018
Current:
Federal $ 3,670 $ 10,311 $ 15,805
State and local 832 2,271 3,202
Foreign (1,877 ) (1,687 ) 1,482
$ 2,625 $ 10,895 $ 20,489
Deferred:
Federal $ 60 $ (246 ) $ (5,318 )
State and local 13 (54 ) (1,077 )
Foreign (2,265 ) (49 ) 312
$ (2,192 ) $ (349 ) $ (6,083 )
Income tax expense $ 433 $ 10,546 $ 14,406
Reconciliation of Statutory Federal Income Tax Rate to the Effective Income Tax Rate A reconciliation of the statutory federal income tax expense and the Company’s total income tax expense is as follows:
Years Ended December 31,
2020 2019 2018
U.S. federal statutory income tax $ (7,397 ) $ 25 $ 10,718
Loss/(gain) on revaluation of deferred consideration (1) 11,929 2,378 (2,570 )
Decrease in unrecognized tax benefits, net (5,661 ) (3,893 ) —
Change in valuation allowance – Capital losses 4,448 7,555 794
Change in valuation allowance – Foreign net operating losses (“NOLs”) and interest carryforwards (2,018 ) 3,997 3,510
Foreign operations (3,342 ) (3,561 ) (1,041 )
Stock-based compensation tax (windfalls)/shortfalls 1,485 1,198 (543 )
Change in tax-related 1,189 740 —
Non-taxable (740 ) — —
Non-deductible 399 1,608 4
Blended state income tax rate, net of federal benefit (171 ) 237 1,406
Non-deductible — — 1,506
Other differences, net 312 262 622
Income tax expense $ 433 $ 10,546 $ 14,406
(1) The loss/(gain) on revaluation is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary that is based in Jersey, a jurisdiction where the Company is subject to a zero percent tax rate. Income Tax Payments A summary of income taxes paid by jurisdiction for the years ended December 31, 2020, 2019 & 2018 is as follows:
Years Ended December 31,
2020 2019 2018
Federal $ 4,470 $ 6,990 $ 10,710
State and local 1,353 1,818 2,498
Foreign 4,308 1,252 1,190
$10,131 $10,060 $14,398
Deferred Tax Assets (“DTAs”) A summary of the components of the Company’s deferred tax assets at December 31, 2020 and 2019 is as follows:
December 31,
2020 2019
Deferred tax assets:
Capital losses $ 16,596 $ 8,226
Operating lease liabilities 4,953 5,529
Accrued expenses 3,507 4,054
Interest carryforwards 2,235 2,615
NOLs – Foreign 2,167 6,721
Stock-based compensation 1,922 1,754
Goodwill and intangible assets 1,466 1,671
NOLs – U.S. 510 642
Outside basis differences 122 123
Other 111 218
Deferred tax assets 33,589 31,553
Deferred tax liabilities:
Right of use assets – operating leases 3,927 4,400
Fixed assets and prepaid assets 1,261 1,326
Allocated equity component of convertible notes 1,022 —
Foreign currency translation adjustment 293 —
Unremitted earnings – International subsidiaries 138 —
Unrealized gains — 744
Deferred tax liabilities 6,641 6,470
Total deferred tax assets less deferred tax liabilities 26,948 25,083
Less: Valuation allowance (18,885 ) (17,685 )
Deferred tax assets, net $ 8,063 $ 7,398
Net Operating and Capital Losses – U.S. The Company’s tax effected net operating losses (“NOLs”) at December 31, 2020 were $510, which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change. The Company’s tax effected capital losses at December 31, 2020 and December 31, 2019 were $16,596 and $8,226, respectively. The change in capital losses is due to the impairment recognized on the Company’s financial interests in AdvisorEngine (Note 8) and a capital loss recognized upon sale of the Canadian ETF business. Net Operating Losses and Interest Carryforwards – Foreign Certain of the Company’s European subsidiaries generated NOLs and interest carryforwards outside the U.S. These tax effected NOLs and interest carryforwards were $4,402 and $9,336 at December 31, 2020 and December 31, 2019, respectively. All of these amounts are carried forward indefinitely. The change in foreign NOLs includes a reduction of $4,930 due to the sale of the Company’s Canadian ETF business, which occurred on February 19, 2020 (Note 3). Valuation Allowance During the year ended December 31, 2020, the Company reduced the valuation allowance on its deferred tax assets by $2,615 associated with interest carryforwards in the UK non-deductible UK . The Company’s remaining valuation allowance has been established on its capital losses, international net operating losses and outside basis differences as it is more-likely-than-not Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) On March 27, 2020, the CARES Act was enacted in response to the COVID-19 non-income Uncertain Tax Positions Tax positions are evaluated utilizing a two-step more-likely-than-not In connection with the ETFS Acquisition, the Company accrued a liability for uncertain tax positions and interest and penalties at the acquisition date. The table below sets forth the aggregate changes in the balance of gross unrecognized tax benefits:
Total Unrecognized Interest
Balance on January 1, 2019 $ 34,876 $ 28,101 $ 6,775
Decrease - Lapse of statute of limitations (4,309 ) (2,999 ) (1,310 )
Increases 416 — 416
Foreign currency translation (1) 1,118 896 222
Balance at December 31, 2019 $ 32,101 $ 25,998 $ 6,103
Decrease - Lapse of statute of limitations (5,981 ) (4,620 ) (1,361 )
Increases 320 — 320
Foreign currency translation (1) 576 472 104
Balance at December 31, 2020 $ 27,016 $ 21,850 $ 5,166
(1) The gross unrecognized tax benefits were accrued in British pounds. The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims, for which an amount is being held in escrow. ETFS Capital has also agreed to provide additional collateral by maintaining a minimum working capital balance up to a stipulated amount. The decreases resulting from the lapsing of the statute of limitations of $5,981 and $4,309 for the years ended December 31, 2020 and 2019, respectively, were recorded as income tax benefits and equal and offsetting amounts to reduce the indemnification assets were recorded in other gains and losses, net. The gross unrecognized tax benefits and interest and penalties totaling $27,016 and $32,101 at December 31, 2020 and December 31, 2019, respectively, are included in other non-current At December 31, 2020 there were $27,016 of unrecognized tax benefits (including interest and penalties) that, if recognized, would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims. Income Tax Examinations The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. The Company’s federal tax return and ManJer’s tax return (a Jersey-based subsidiary) for the year ended December 31, 2016 is currently under review by the relevant tax authorities. The Company is indemnified by ETFS Capital for any potential exposure associated with ManJer’s tax return under audit. The Company is not currently under audit in any other income tax jurisdictions. As of December 31, 2020, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for years before 2016. Undistributed Earnings of Foreign Subsidiaries ASC 740-30 Income Taxes |
