XML 113 R30.htm IDEA: XBRL DOCUMENT v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
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
202220212020
(in thousands)
Earnings before income taxes:
United States$689,278 $1,007,847 $743,687 
Foreign125,818 208,615 163,749 
Total$815,096 $1,216,462 $907,436 
Income tax expense:
Partnership UBT$5,996 $6,951 $3,356 
Corporate subsidiaries:
Federal1,457 750 1,495 
State and local931 956 904 
Foreign34,327 58,080 44,086 
Current tax expense42,711 66,737 49,841 
Deferred tax (3,072)(4,009)(4,188)
Income tax expense$39,639 $62,728 $45,653 
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
202220212020
(in thousands)
UBT statutory rate$32,604 4.0 %$48,659 4.0 %$36,297 4.0 %
Corporate subsidiaries' federal, state, and local1,460 0.2 1,322 0.2 2,025 0.2 
Foreign subsidiaries taxed at different rates32,664 4.0 43,019 3.5 33,969 3.7 
FIN 48 reserve (release)— — — — (1,886)(0.2)
UBT business allocation percentage rate change(98)— 23 — 8 — 
Deferred tax and payable write-offs1,089 0.1 1,003 0.1 (887)(0.1)
Foreign outside basis difference(1,535)(0.2)1,492 0.1 3 — 
Amended 2017 return— — — — (221)— 
Effect of ASC 740 adjustments, miscellaneous taxes, and other5,366 0.7 1,799 0.1 2,654 0.3 
Tax Credits(5,275)(0.6)— — — — 
Income not taxable resulting from use of UBT business apportionment factors and effect of compensation charge(26,636)(3.3)(34,589)(2.8)(26,309)(2.9)
Income tax expense and effective tax rate$39,639 4.9 %$62,728 5.2 %$45,653 5.0 %
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
202220212020
(in thousands)
Balance as of beginning of period$2,838 $2,838 $5,706 
Additions for prior year tax positions— — — 
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 $2,838 
The amount of unrecognized tax benefits as of December 31, 2022, 2021, and 2020, 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 2022 or 2021. The total amount of interest expense recorded in income tax expense (credit) during 2020 was $(0.4) million. As of December 31, 2022 and 2021, there is no accrued interest recorded on the consolidated statements of financial condition. There were no penalties as of December 31, 2022, 2021 and 2020.
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 2018, except as set forth below.
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.
As of December 31, 2022, it is reasonably possible that $2.8 million of our unrecognized tax benefits will change within the next 12 months due to the expiration of the statute of limitations.
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
20222021
(in thousands)
Deferred tax asset:
Differences between book and tax basis:
Benefits from net operating loss carryforwards$4,918 $7,833 
Long-term incentive compensation plans17,524 24,468 
Investment basis differences10,286 5,523 
Depreciation and amortization3,071 3,942 
Lease liability4,911 5,327 
Investment in foreign subsidiaries26,479 — 
Tax credit carryforward6,171 — 
Other, primarily accrued expenses deductible when paid6,860 4,917 
80,220 52,010 
Less: valuation allowance(38,110)(3,828)
Deferred tax asset42,110 48,182 
Deferred tax liability:  
Differences between book and tax basis:  
Intangible assets10,190 7,622 
Investment in foreign subsidiaries— 4,084 
Right-of-use asset4,191 4,490 
Other2,808 2,075 
Deferred tax liability17,189 18,271 
Net deferred tax asset$24,921 $29,911 
The valuation allowance of $38.1 million was established as of December 31, 2022 primarily due to significant negative evidence that capital losses anticipated in the held for sale foreign subsidiaries will not be utilized, given the nature of income expected to be incurred by the applicable subsidiaries. The valuation allowance of $3.8 million was established as of December 31, 2021 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, 2022 and 2021 of approximately $30.3 million and $55.1 million, respectively, in certain foreign locations with a five-year 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, 2022, $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 $6.2 million would need to be paid if such earnings are remitted.