10. Income Taxes

“Income before provision for income taxes” as shown in the accompanying Consolidated Statements of Income is comprised of the following (in thousands):


	Year Ended December 31,
	2015		2014		2013
Domestic	$	52,127	$	40,103	$	23,729
Foreign		11,253		13,824		7,367
Total	$	63,380	$	53,927	$	31,096

Components of the “Provision for income taxes” in the accompanying Consolidated Statements of Income consist of the following (in thousands):


	Year Ended December 31,
	2015		2014		2013
Current
Federal	$	5,451	$	4,304	$	348
Foreign		3,019		3,383		2,068
State and local		1,029		396		26
Total current expense		9,499		8,083		2,442
Deferred expense
Federal		2,333		1,741		366
Foreign		25		(5)		9
State and local		173		129		27
Total deferred expense		2,531		1,865		402
Provision for income taxes	$	12,030	$	9,948	$	2,844

Prior to October 7, 2013, the Company had not been subject to U.S. federal income taxes as RMCO is organized as a limited liability company; however, RMCO was, and continues to be, subject to certain other foreign, state and local taxes. As a result of the IPO and Reorganization Transactions, the portion of RMCO’s income attributable to RE/MAX Holdings is subject to U.S. federal, state, local and foreign income taxes and is taxed at the prevailing corporate tax rates. The provision for income taxes is comprised of a provision for income taxes attributable to RE/MAX Holdings and to entities other than RE/MAX Holdings. The provision for income taxes attributable to RE/MAX Holdings includes all U.S. federal and state income taxes on RE/MAX Holdings’ proportionate share of RMCO’s net income. The provision for income taxes attributable to entities other than RE/MAX Holdings represents taxes imposed directly on RE/MAX, LLC that are allocated to the non-controlling interest.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows:


	Year Ended December 31,
	2015	2014	2013
U.S. statutory tax rate	35.0%	35.0%	34.0%
Increase due to state and local taxes, net of federal benefit	2.6%	2.6%	2.6%
Effect of permanent differences	1.0%	0.6%	1.2%
Income attributable to non-controlling interests	-19.6%	-19.8%	-28.7%
Effective tax rate	19.0%	18.4%	9.1%

The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as a series of limited liability companies which are not themselves subject to federal income tax. Accordingly, the portion of the Company’s subsidiaries earnings attributable to the non-controlling interest are subject to tax when reported as a component of the non-controlling interests’ taxable income.

Net income taxes (payable) receivable were ($451,000) and $576,000 at December 31, 2015 and 2014, respectively.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the accompanying Consolidated Balance Sheets.

These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows (in thousands):


	As of December 31,
	2015		2014
Current deferred tax assets
Compensation and benefits	$	1,280	$	372
Allowance for doubtful accounts		768		489
Accrued liabilities		713		—
Deferred revenue		205		171
Other		366		338
Total current deferred tax assets (a)		3,332		1,370
Long-term deferred tax assets
Goodwill, other intangibles and other assets (b)		95,275		59,124
Imputed interest deduction pursuant to tax receivable agreements		8,380		6,356
Rent liabilities		1,839		1,337
Other		885		636
Total long-term deferred tax assets		106,379		67,453
Long-term deferred tax liabilities
Property and equipment and other long-lived assets		(466)		(367)
Investments in equity method investees		—		(373)
Total long-term deferred tax liabilities		(466)		(740)
Net long-term deferred tax assets		105,913		66,713
Total deferred tax assets and liabilities	$	109,245	$	68,083

(a)

Current deferred tax assets are included in “Other current assets” in the accompanying Consolidated Balance Sheets.

(b)

Long-term deferred tax assets related to goodwill, other intangibles and other assets and liabilities increased primarily due to the increase in the tax basis of certain intangible assets resulting from RE/MAX Holdings’ increased investment in RMCO from the Secondary Offering. In connection with the Secondary Offering, a long-term deferred tax asset of $43,774,000 was recorded in the accompanying Consolidated Balance Sheets.

In the fourth quarter of 2014, the Company corrected immaterial errors in its income tax accounts related to the increase in tax basis of certain intangible and tangible net assets resulting from RE/MAX Holdings’ initial investment in RMCO on October 7, 2013. As a result of these adjustments and other matters related to the application of detailed provisions of the TRAs, the Company recorded a net increase to its net deferred tax asset of $917,000 and an increase in the “Payable pursuant to tax receivable agreements, net of current portion” of $436,000 in the accompanying Consolidated Balance Sheets with a corresponding adjustment to “Additional paid-in capital” in the accompanying Consolidated Balance Sheets and Consolidated Statements of Redeemable Preferred Units and Stockholders’ Equity/Members’ Deficit.

Net deferred tax assets are also recorded related to differences between the financial reporting basis and the tax basis of RE/MAX Holdings’ proportionate share of the net assets of RMCO. Based on the Company’s historical taxable income and its expected future earnings, management evaluates the uncertainty associated with booking tax benefits and determined that the deferred tax assets are more likely than not to be realized, including evaluation of deferred tax liabilities and the expectation of future taxable income.

The Company does not believe it has any significant uncertain tax positions. Accordingly, the Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2015, 2014 and 2013. In the future, if uncertain tax positions arise, interest and penalties will be accrued and included in the “Provision for income taxes” in the accompanying Consolidated Statements of Income.

The Company and its subsidiaries file, or will file, income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. RE/MAX Holdings will file its 2015 income tax return by September 15, 2016. RE/MAX Holdings filed its 2014 tax return on September 9, 2015 and filed its initial income tax return for the period from October 7, 2013 through December 31, 2013 on September 12, 2014. RMCO is not subject to federal income taxes as it is a flow-through entity, however, RMCO is still required to file an annual U.S. Return of Partnership Income. The Company was notified on January 6, 2016 that RMCO’s 2013 U.S. Return of Partnership Income was selected for examination by the Internal Revenue Service and the audit has not yet commenced. With respect to state and local jurisdictions and countries outside of the U.S., the Company and its subsidiaries are typically subject to examination for three to four years after the income tax returns have been filed.