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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
AB, a private limited partnership, 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”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the 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
202320222021
(in thousands)
Earnings before income taxes:
United States$714,732 $689,278 $1,007,847 
Foreign102,938 125,818 208,615 
Total$817,670 $815,096 $1,216,462 
Income tax expense:
Partnership UBT$7,838 $5,996 $6,951 
Corporate subsidiaries:
Federal2,855 1,457 750 
State and local914 931 956 
Foreign35,906 34,327 58,080 
Current tax expense47,513 42,711 66,737 
Deferred tax (18,462)(3,072)(4,009)
Income tax expense$29,051 $39,639 $62,728 
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
202320222021
(in thousands)
UBT statutory rate$32,707 4.0 %$32,604 4.0 %$48,659 4.0 %
Corporate subsidiaries' federal, state, and local4,538 0.6 1,460 0.2 1,322 0.2 
Foreign subsidiaries taxed at different rates36,788 4.5 32,664 4.0 43,019 3.5 
FIN 48 reserve (release)(2,838)(0.3)— — — — 
UBT business allocation percentage rate change(1,049)(0.1)(98)— 23 — 
Deferred tax and payable write-offs1,750 0.2 1,089 0.1 1,003 0.1 
Foreign outside basis difference3,414 0.4 (1,535)(0.2)1,492 0.1 
Valuation allowance reserve (release)(22,447)(2.7)— — — — 
Effect of ASC 740 adjustments, miscellaneous taxes, and other3,553 0.4 5,366 0.7 1,799 0.1 
Tax Credits(1,604)(0.2)(5,275)(0.6)— — 
Income not taxable resulting from use of UBT business apportionment factors and effect of compensation charge(25,761)(3.2)(26,636)(3.3)(34,589)(2.8)
Income tax expense and effective tax rate$29,051 3.6 %$39,639 4.9 %$62,728 5.2 %
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
202320222021
(in thousands)
Balance as of beginning of period$2,838 $2,838 $2,838 
Additions for prior year tax positions— — — 
Reductions for prior year tax positions— — — 
Additions for current year tax positions— — — 
Reductions for current year tax positions— — — 
Reductions related to closed years/settlements with tax authorities(2,838)— — 
Balance as of end of period$— $2,838 $2,838 
The amount of unrecognized tax benefits as of December 31, 2023, 2022, and 2021, 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. As of December 31, 2023, 2022, and 2021, there is no accrued interest or penalties recorded on the consolidated statements of financial condition.
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 2019, except as set forth below.
During the third quarter of 2023, the City of New York notified us of an examination of AB's UBT returns for the years 2020 through 2021. 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:
Years Ended December 31
20232022
(in thousands)
Deferred tax asset:
Differences between book and tax basis:
Benefits from net operating loss carryforwards$11,360 $4,918 
Long-term incentive compensation plans12,519 17,524 
Investment basis differences11,890 10,286 
Depreciation and amortization3,706 3,071 
Lease liability4,324 4,911 
Investment in foreign subsidiaries33,427 26,479 
Tax credit carryforward5,710 6,171 
Other, primarily accrued expenses deductible when paid8,988 6,860 
91,924 80,220 
Less: valuation allowance(28,579)(38,110)
Deferred tax asset63,345 42,110 
Deferred tax liability:  
Differences between book and tax basis:  
Intangible assets11,454 10,190 
Right-of-use asset3,730 4,191 
Other3,020 2,808 
Deferred tax liability18,204 17,189 
Net deferred tax asset$45,141 $24,921 
Valuation allowances of $28.6 million and $38.1 million were established as of December 31, 2023 and 2022, respectively, 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. During 2023, we recognized a one-time tax benefit of $22.4 million from the release of a valuation allowance on a capital loss tax asset due to a tax planning action identified in the fourth quarter, due to a future restructuring of certain foreign subsidiaries that would not have a material impact on AB operations. We had net operating loss carryforwards at December 31, 2023 and 2022 of approximately $44.0 million and $30.3 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, 2023, $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.