Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 13—Income Taxes

The operating company is a limited liability company that has elected to be treated as a partnership for tax purposes. The operating company has made a provision for New York City Unincorporated Business Tax (“UBT”) and its consolidated subsidiary Pzena Investment Management, LTD has made a provision for U.K. income taxes. The Company's provision for income taxes reflects U.S. federal, state, and local incomes taxes on its allocable portion of the operating company's income. The Company's effective tax rate for the six months ended June 30, 2022 and 2021, was 24.6% and 8.7%, respectively. The effective tax rate includes a rate benefit attributable to the fact that approximately 79.5% and 78.4% of the operating company's earnings were not subject to corporate-level taxes for the six months ended June 30, 2022 and 2021, respectively. Income before income taxes includes net income attributable to non-controlling interests and not taxable to the Company, which reduces the effective tax rate.

The Income Taxes Topic of the FASB ASC establishes the minimum threshold for recognizing, and a system for measuring, the benefits of tax return positions in financial statements.

As of June 30, 2022 and December 31, 2021, the Company had $15.5 million and $8.3 million, respectively, in unrecognized tax benefits that, if recognized, would affect the provision for income taxes. As of June 30, 2022 and December 31, 2021, the Company had interest related to unrecognized tax benefits of $2.4 million and $1.2 million, respectively. As of June 30, 2022 and December 31, 2021, no penalty accruals were recorded.

As of June 30, 2022 and December 31, 2021, the net values of all deferred tax assets were approximately $22.0 million and $25.9 million, respectively. These deferred tax assets primarily reflect the future tax benefits associated with the Company's initial public offering, and the subsequent and future exchanges by holders of Class B units of the operating company for shares of Class A common stock. At June 30, 2022 and December 31, 2021, the Company did not have a valuation allowance recorded against its deferred tax assets.