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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
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 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.
Earnings before income taxes and income tax expense consist of:
Years Ended December 31
202120202019
(in thousands)
Earnings before income taxes:
United States$1,007,847 $743,687 $697,501 
Foreign208,615 163,749 125,936 
Total$1,216,462 $907,436 $823,437 
Income tax expense:
Partnership UBT$6,951 $3,356 $9,196 
Corporate subsidiaries:
Federal750 1,495 (943)
State and local956 904 975 
Foreign58,080 44,086 32,290 
Current tax expense66,737 49,841 41,518 
Deferred tax (4,009)(4,188)236 
Income tax expense$62,728 $45,653 $41,754 
The principal reasons for the difference between the effective tax rates and the UBT statutory tax rate of 4.0% are as follows:
Years Ended December 31
202120202019
(in thousands)
UBT statutory rate$48,659 4.0 %$36,297 4.0 %$32,937 4.0 %
Corporate subsidiaries' federal, state, and local1,322 0.2 2,025 0.2 4,000 0.5 
Foreign subsidiaries taxed at different rates43,019 3.5 33,969 3.7 26,719 3.3 
FIN 48 reserve (release)— — (1,886)(0.2)2,765 0.3 
UBT business allocation percentage rate change23 — 8 — (79)— 
Deferred tax and payable write-offs1,003 0.1 (887)(0.1)314 — 
Foreign outside basis difference1,492 0.1 3 — 155 — 
Amended 2017 return— — (221)— (3,853)(0.5)
Effect of ASC 740 adjustments, miscellaneous taxes, and other1,799 0.1 2,654 0.3 2,305 0.3 
Income not taxable resulting from use of UBT business apportionment factors and effect of compensation charge(34,589)(2.8)(26,309)(2.9)(23,509)(2.8)
Income tax expense and effective tax rate$62,728 5.2 $45,653 5.0 $41,754 5.1 
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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years Ended December 31
202120202019
(in thousands)
Balance as of beginning of period$2,838 $5,706 $3,893 
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)— 
Balance as of end of period$2,838 $2,838 $5,706 
The amount of unrecognized tax benefits as of December 31, 2021, 2020, and 2019, 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. There was no interest expense recorded in 2021. The total amount of interest expense recorded in income tax expense (credit) during 2020 and 2019 was, $(0.4) million and $0.7 million, respectively. As of December 31, 2021 and 2020, there is no accrued interest recorded on the consolidated statements of financial condition. The total amount of accrued interest recorded as of December 31, 2019 was $1.1 million. There were no penalties as of December 31, 2021 and 2020. There were $0.2 million of penalties accrued as of December 31, 2019.
Generally, the company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for any year prior to 2017.
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.
At December 31, 2021, it is not reasonably possible that any of our unrecognized tax benefits will change within the next 12 months due to completion of tax authority exams.
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:
Years Ended December 31
20212020
(in thousands)
Deferred tax asset:
Differences between book and tax basis:
Benefits from net operating loss carryforwards$7,833 $7,112 
Long-term incentive compensation plans24,468 22,363 
Investment basis differences5,523 5,256 
Depreciation and amortization3,942 2,065 
Lease liability5,327 5,994 
Other, primarily accrued expenses deductible when paid4,917 4,737 
52,010 47,527 
Less: valuation allowance(3,828)(3,025)
Deferred tax asset48,182 44,502 
Deferred tax liability:  
Differences between book and tax basis:  
Intangible assets7,622 7,933 
Investment in foreign subsidiaries4,084 3,048 
Right-of-use asset4,490 4,975 
Other2,075 1,760 
Deferred tax liability18,271 17,716 
Net deferred tax asset$29,911 $26,786 
Valuation allowances of $3.8 million and $3.0 million were established as of December 31, 2021 and 2020, 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, 2021 and 2020 of approximately $55.1 million and $51.0 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, 2021, $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.