INCOME TAXES

12 Months Ended

Dec. 31, 2019

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal and state income tax purposes. Upon the effectiveness of this election, all earnings allocated to the Company are subject to U.S. federal, state and local corporate income taxes and certain of its foreign subsidiaries are subject to foreign income taxes (for which a foreign tax credit can generally offset U.S. corporate taxes imposed on the same income, subject to applicable limitations). Prior to March 1, 2018, a substantial portion of the Company's share of carried interest and investment income flowed through to investors without being subject to corporate level income taxes. Consequently, the Company did not reflect a provision for income taxes on such income except those for foreign, state and local income taxes incurred at the entity level. Beginning March 1, 2018, the Company's share of unrealized gains and income items became subject to U.S. corporate tax.

The Company’s effective income tax rate is dependent on many factors, including the estimated nature and amounts of income and expenses allocated to the non-controlling interests without being subject to federal, state and local income taxes at the corporate level. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds and co-investment entities that are consolidated in the Company's consolidated financial statements.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state, local and foreign tax authorities. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2015. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s consolidated financial statements.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law creating significant and material updates to the Internal Revenue Code. The most significant change is a decrease of the corporate tax rate from 35% to 21%. The reduction in the corporate tax rate is effective for tax years beginning on or after January 1, 2018.

The provision for income taxes attributable to the Company and the Consolidated Funds, consisted of the following for the years ended December 31, 2019, 2018 and 2017. Supplemental information on an unaudited pro forma basis assumes that the Company's election to be taxed as a corporation for U.S. federal income tax purposes was effective for the year ended December 31, 2017.


	For the Year Ended December 31,
Provision for Income Taxes	2019		2018		2017		Unaudited 2017 Pro Forma
The Company
Current:
U.S. federal income tax expense (benefit)	$	32,012	$	16,859	$	(21,559)	$	2,634
State and local income tax expense	6,940		4,306		454		2,963
Foreign income tax expense	6,103		6,607		3,741		3,741
	45,055		27,772		(17,364)		9,338
Deferred:
U.S. federal income tax expense (benefit)	8,820		10,572		(3,466)		18,297
State and local income tax expense (benefit)	1,001		(4,789)		(2,414)		(721)
Foreign income tax benefit	(1,970)		(1,484)		(1,695)		(1,695)
	7,851		4,299		(7,575)		15,881
Total:
U.S. federal income tax expense (benefit)	40,832		27,431		(25,025)		20,931
State and local income tax expense (benefit)	7,941		(483)		(1,960)		2,242
Foreign income tax expense	4,133		5,123		2,046		2,046
Income tax expense (benefit)	52,906		32,071		(24,939)		25,219

Consolidated Funds
Current:


Foreign income tax expense (benefit)	(530)		131		1,887		1,887
Income tax expense (benefit)	(530)		131		1,887		1,887











Total Provision for Income Taxes
Total current income tax expense (benefit)	44,525		27,903		(15,477)		11,225
Total deferred income tax expense (benefit)	7,851		4,299		(7,575)		15,881
Total income tax expense (benefit)	$	52,376	$	32,202	$	(23,052)	$	27,106

The effective income tax rate differed from the federal statutory rate for the following reasons for the years ended December 31, 2019, 2018 and 2017. Supplemental information on an unaudited pro forma basis assumes that the Company's election to be taxed as a corporation for U.S. federal income tax purposes was effective for the year ended December 31, 2017.


	For the Year Ended December 31,
	2019		2018		2017		Unaudited 2017 Pro Forma
Income tax expense at federal statutory rate	21.0	%	21.0	%	35.0	%	35.0	%
Income passed through to non-controlling interests	(10.4)		(9.9)		(51.1)		(23.2)
State and local taxes, net of federal benefit	1.9		2.1		(1.4)		0.4
Foreign taxes	0.3		0.3		0.3		0.3
Permanent items	(0.4)		(0.8)		0.3		0.3
Tax Cuts and Jobs Act	—		(0.4)		(0.4)		3.3
Corporate conversion expense	—		5.4		—		—
Other, net	(0.1)		(0.3)		0.4		0.4
Valuation allowance	—		0.1		1.3		1.3
Total effective rate	12.3	%	17.5	%	(15.6)	%	17.8	%

Deferred Taxes

The income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows as of December 31, 2019 and 2018. Deferred tax assets, net are included within other assets on the Consolidated Statements of Financial Condition.


	As of December 31,
Deferred Tax Assets and Liabilities of the Company	2019		2018
Deferred tax assets
Amortizable tax basis for AOG unit exchanges	$	25,994	$	25,928
Investment in partnerships	12,841		11,527
Net operating losses	367		865
Other, net	7,216		5,416
Total gross deferred tax assets	46,418		43,736
Valuation allowance	(54)		(22)
Total deferred tax assets, net	46,364		43,714
Deferred tax liabilities
Investment in partnerships	—		(1,577)

Total deferred tax liabilities	—		(1,577)
Net deferred tax assets	$	46,364	$	42,137


	As of December 31,
Deferred Tax Assets and Liabilities of the Consolidated Funds	2019		2018
Deferred tax assets
Net operating loss	$	5,391	$	5,525
Other, net	2,173		2,173
Total gross deferred tax assets	7,564		7,698
Valuation allowance	(7,564)		(7,698)
Total deferred tax assets, net	$	—	$	—

In assessing the realizability of deferred tax assets, the Company considers whether it is probable that some or all of the deferred tax assets will not be realized. In determining whether the deferred taxes are realizable, the Company considers the period of expiration of the tax asset, historical and projected taxable income, and tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances are provided to reduce the amounts of deferred tax assets to an amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.

The Company’s income tax provision includes corporate income taxes and other entity level income taxes, as well as income taxes incurred by certain affiliated funds that are consolidated in these financial statements. In connection with its election to be taxed as a corporation effective March 1, 2018, the Company recorded a significant one-time deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes. Cash taxes will be paid only on gains to the extent realized.

The valuation allowance for deferred tax assets decreased by $0.1 million in 2019 due to the utilization of certain operating losses in foreign jurisdictions. The deferred tax assets related to these operating losses do not meet the more likely than not threshold and continue to have a valuation allowance recorded for the net balance. The valuation allowance for deferred tax assets increased by $0.8 million in 2018 due to additional net valuation allowances recorded related to operating losses that generated deductible temporary differences in various jurisdictions in which the Company operates, offset by the reduction of valuation allowances recorded in prior years for which the Company is able to conclude that as of December 31, 2018 the related deferred tax asset is more likely than not to be realized.

At December 31, 2019, the Company had $39.1 million of foreign net operating loss (“NOL”) carryforwards attributable to its Consolidated Funds available to reduce future foreign income taxes for which a full valuation allowance has been provided. The majority of the foreign NOLs have no expiry.

As of, and for the three years ended December 31, 2019, 2018 and 2017, the Company had no significant uncertain tax positions.