AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Domestic corporate subsidiaries of AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax returns being filed. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located.

In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly traded. The AB Partnership Agreement provides that all transfers of AB Units must be approved by EQH and the General Partner; EQH and the General Partner approve only those transfers permitted pursuant to one or more of the safe harbors contained in the relevant Treasury regulations. If AB Units were considered readily tradable, AB’s net income would be subject to federal and state corporate income tax, significantly reducing its quarterly distributions to AB Holding. Furthermore, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a “grandfathered” publicly-traded partnership and would become subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders.


	Years Ended December 31,
	2020		2019		2018
	(in thousands)
Earnings before income taxes:
United States	$	743,687	$	697,501	$	672,221
Foreign	163,749		125,936		153,093
Total	$	907,436	$	823,437	$	825,314
Income tax expense:
Partnership UBT	$	3,356	$	9,196	$	5,251
Corporate subsidiaries:
Federal	1,495		(943)		(4,030)
State and local	904		975		2,888
Foreign	44,086		32,290		36,529
Current tax expense	49,841		41,518		40,638
Deferred tax	(4,188)		236		5,178
Income tax expense	$	45,653	$	41,754	$	45,816


	Years Ended December 31,
	2020				2019				2018
	(in thousands)
UBT statutory rate	$	36,297	4.0	%	$	32,937	4.0	%	$	33,012	4.0	%
Corporate subsidiaries' federal, state, and local	2,025		0.2		4,000		0.5		1,522		0.2
Foreign subsidiaries taxed at different rates	33,969		3.7		26,719		3.3		30,689		3.7
2017 Tax Act	—		—		—		—		1,155		0.1
FIN 48 reserve (release)	(1,886)		(0.2)		2,765		0.3		(5,177)		(0.6)
UBT business allocation percentage rate change	8		—		(79)		—		2,657		0.3
Deferred tax and payable write-offs	(887)		(0.1)		314		—		2,932		0.4
Foreign outside basis difference	3		—		155		—		2,273		0.3
Amended 2017 return	(221)		—		(3,853)		(0.5)		—		—
Effect of ASC 740 adjustments, miscellaneous taxes, and other	2,654		0.3		2,305		0.3		(2,521)		(0.3)
Income not taxable resulting from use of UBT business apportionment factors and effect of compensation charge	(26,309)		(2.9)		(23,509)		(2.8)		(20,726)		(2.5)
Income tax expense and effective tax rate	$	45,653	5.0		$	41,754	5.1		$	45,816	5.6

We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to be sustained based on its technical merits and their applicability to the facts and circumstances of the tax position. In making this assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information.


	Years Ended December 31,
	2020		2019		2018
	(in thousands)
Balance as of beginning of period	$	5,706	$	3,893	$	8,478
Additions for prior year tax positions	—		1,813		—
Reductions for prior year tax positions	—		—		—
Additions for current year tax positions	—		—		—
Reductions for current year tax positions	—		—		—
Reductions related to closed years/settlements with tax authorities	(2,868)		—		(4,585)
Balance as of end of period	$	2,838	$	5,706	$	3,893

The amount of unrecognized tax benefits as of December 31, 2020, 2019 and 2018, when recognized, is recorded as a reduction to income tax expense and reduces the company’s effective tax rate.

Interest and penalties, if any, relating to tax positions are recorded in income tax expense on the consolidated statements of income. The total amount of interest expense recorded in income tax expense (credit) during 2020, 2019 and 2018 was $(0.4) million, $0.7 million and $0.1 million, respectively. As of December 31, 2020, there is no accrued interest recorded on the consolidated statements of financial condition. The total amount of accrued interest recorded on the consolidated statements of financial condition as of December 31, 2019 and 2018 was $1.1 million and $0.3 million, respectively. There were no penalties accrued as of December 31, 2020. There was $0.2 million of penalties accrued as of December 31, 2019 and there were no accrued penalties as of December 31, 2018.

As a result of the settlement of the New York City UBT tax audit for the years 2013 through 2016, the gross unrecognized tax benefit was reduced by approximately $2.9 million. The company also reduced the amount of accrued interest and penalties by $1.3 million.

During the fourth quarter of 2020, the City of New York notified us of an examination of AB's UBT returns for the years 2017 through 2019. The examination is ongoing and no provision with respect to this examination has been recorded.

Currently, there are no income tax examinations at our significant non-U.S. subsidiaries. Years that remain open and may be subject to examination vary under local law and range from one to seven years.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the net deferred tax asset (liability) is as follows:


	December 31,
	2020		2019
	(in thousands)
Deferred tax asset:
Differences between book and tax basis:
Benefits from net operating loss carryforwards	$	7,112	$	5,551
Long-term incentive compensation plans	22,363		20,907
Investment basis differences	5,256		4,376
Depreciation and amortization	2,065		1,554
Lease liability	5,994		6,409
Other, primarily accrued expenses deductible when paid	4,737		3,106
	47,527		41,903
Less: valuation allowance	(3,025)		(2,026)
Deferred tax asset	44,502		39,877
Deferred tax liability:
Differences between book and tax basis:
Intangible assets	7,933		8,013
Investment in foreign subsidiaries	3,048		2,191
Right-of-use asset	4,975		5,191
Other	1,760		1,672
Deferred tax liability	17,716		17,067
Net deferred tax asset	$	26,786	$	22,810

Valuation allowances of $3.0 million and $2.0 million were established as of December 31, 2020 and 2019, respectively, primarily due to significant negative evidence that net operating loss ("NOL") carryforwards will not be utilized, given the future losses expected to be incurred by the applicable subsidiaries. We had NOL carryforwards at December 31, 2020 and 2019 of approximately $51.0 million and $46.2 million, respectively, in certain foreign locations with an indefinite expiration period.

The deferred tax asset is included in other assets in our consolidated statement of financial condition. Management believes there will be sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets recognized that are not subject to valuation allowances.

The company provides income taxes on the unremitted earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are indefinitely reinvested outside the United States. As of December 31, 2020, $29.6 million of undistributed earnings of non-U.S. corporate subsidiaries were indefinitely invested outside the U.S. At existing applicable income tax rates, additional taxes of approximately $6.4 million would need to be paid if such earnings are remitted.