Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

Income Taxes

Schedule of Income Before Provision for 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,
	2020		2019		2018
Domestic (a)	$	15,515	$	44,874	$	53,355
Foreign		14,193		13,422		13,366
Total (a)	$	29,708	$	58,296	$	66,721

(a) Prior year amounts have been adjusted to reflect the immaterial correction of amortization for certain acquired Independent Regions. See Note 17, Immaterial Corrections to Prior Period Financial Statements for additional information.
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Schedule of Components of Provision for Income Taxes

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

	Year Ended December 31,
	2020		2019		2018
Current
Federal	$	2,265	$	2,533	$	1,393
Foreign		4,418		4,929		4,738
State and local		580		1,137		700
Total current expense		7,263		8,599		6,831
Deferred expense
Federal (a)		1,288		2,157		8,872
Foreign		351		(142)		12
State and local		260		368		704
Total deferred expense (a)		1,899		2,383		9,588
Provision for income taxes (a)	$	9,162	$	10,982	$	16,419

(a) Prior year amounts have been adjusted to reflect the immaterial correction of amortization for certain acquired Independent Regions. See Note 17, Immaterial Corrections to Prior Period Financial Statements for additional information.

Schedule of Reconciliation of U.S. Statutory Income Tax Rate to Company's Effective Tax Rate

	Year Ended December 31,
	2020			2019			2018
U.S. statutory tax rate		21.0	%		21.0	%		21.0	%
State and local taxes, net of federal benefit		3.1			3.1			3.1
Income attributable to non-controlling interests (a)		(9.9)			(10.0)			(10.0)
Subtotal		14.2	%		14.1	%		14.1	%
Non-creditable foreign taxes - non-controlling interest (b) (c)		5.1			2.8			2.7
Non-creditable foreign taxes - RE/MAX Holdings (c) (d)		2.1			1.1			1.2
Foreign derived intangible income deduction (c)		(3.1)			(1.5)			(1.3)
Other permanent differences		2.0			0.7			0.4
Uncertain tax positions (c)		1.9			1.0			0.8
Impact of TRA adjustment on NCI (e)		—			—			0.7
Effect of permanent difference - TRA adjustment (f)		—			—			(2.2)
Valuation allowance recognized on basis step-ups		—			—			9.5
Conversions of acquired C-Corporations to pass-through entities (g)		8.4			—			—
Other (h)		0.2			0.6			(1.3)
		30.8	%		18.8	%		24.6	%

(a) Given virtually all our income is generated via a pass-through entity of which the non-controlling interest owns approximately 40%, that proportion of our income is not subject to U.S. or state income tax rates.

(b) Approximately 40% of foreign taxes paid at the RMCO level are attributable to the non-controlling interest. As a result, these taxes are never creditable against the U.S. taxes of Holdings.

(c) The percentage impact of all these items increased in relation to 2019 because our pre-tax net income decreased in 2020 while the underlying tax or deduction was relatively unchanged.

(d) While a portion of our foreign taxes are creditable within the U.S., most of the taxes we pay in Canada are not due largely to changes from TCJA (see discussion below).

(e) Reflects the additional impact of non-controlling interest adjustment being on a larger base of income that includes the gain on reduction in TRA liability.

(f) Reflects the impact of gain on TRA liability reduction, which is not taxable.

(g) In 2020, the Company converted wemlo and First from C Corporations to flow-through entities, which triggered taxable gains. These conversions are expected to provide long-term tax benefits, both additional amortization and avoiding double taxation on profits.

(h) Prior year amounts have been adjusted to reflect the immaterial correction of amortization for certain acquired Independent Regions. See Note 17, Immaterial Corrections to Prior Period Financial Statements for additional information.

Summary of Deferred Tax Assets and Liabilities

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,
	2020		2019
Long-term deferred tax assets
Goodwill, other intangibles and other assets (c)	$	41,924	$	44,706
Imputed interest deduction pursuant to tax receivable agreements		2,306		2,651
Operating lease liabilities		2,671		1,618
Compensation and benefits		3,237		3,043
Allowance for doubtful accounts		1,429		1,629
Motto contingent liability		1,034		783
Deferred revenue		3,891		3,706
Foreign tax credit carryforward		2,996		1,862
Net operating loss (a)		—		2,641
Other		817		950
Total long-term deferred tax assets (c)		60,305		63,589
Valuation allowance (b)		(6,834)		(7,184)
Total long-term deferred tax assets, net of valuation allowance (c)		53,471		56,405
Long-term deferred tax liabilities
Property and equipment and other long lived assets		(1,577)		(1,494)
Other		(1,682)		(703)
Total long-term deferred tax liabilities		(3,259)		(2,197)
Net long-term deferred tax assets		50,212		54,208
Total deferred tax assets and liabilities (c)	$	50,212	$	54,208

(a) The conversion of acquired companies to LLCs resulted in the utilization of these net operating losses in 2020.

(b) Includes a valuation allowance on deferred tax assets for goodwill and intangibles in the Company’s Western Canada operations, as well as foreign tax credit carryforwards.

(c) Prior year amounts have been adjusted to reflect the immaterial correction of amortization for certain acquired Independent Regions. See Note 17, Immaterial Corrections to Prior Period Financial Statements for additional information.

Schedule of Unrecognized Tax Benefits

	As of December 31,
	2020		2019
Balance, January 1	$	4,810	$	4,278
Increase related to prior period tax positions		490		532
Balance, December 31 (a)	$	5,300	$	4,810

(a) Excludes accrued interest and penalties of $2.3 million and $1.9 million for the years ended December 31, 2020 and 2019, respectively. These related interest and penalties are recognized in “Income taxes payable” within the Consolidated Balance Sheets.