
(in millions)
for the fiscal years ended September 30,	2021		2020		2019
Current expense
Federal	$	226.7	$	154.9	$	343.4
State	50.3		28.8		37.0
Non-U.S.	68.9		54.2		66.8
Deferred expense (benefit)	3.7		(7.1)		(4.9)
Total	$	349.6	$	230.8	$	442.3

The Company’s income in certain countries is subject to reduced tax rates due to tax rulings and incentives. The impact of the reduced rates on income tax expense was $3.2 million or $0.01 per diluted share for fiscal year 2021, $2.7 million or $0.01 per diluted share for fiscal year 2020, and $4.1 million or $0.01 per diluted share for fiscal year 2019. One tax incentive remained in effect at September 30, 2021 which will expire in December 2023.


(in millions)
as of September 30,	2021		2020
Deferred Tax Assets
Capitalized mixed service costs	$	297.5	$	326.1
Net operating loss and state credit carry-forwards	318.5		317.0
Deferred compensation and benefits	222.3		160.6
Foreign tax credit carry-forwards	128.0		103.0
Debt premium	72.1		81.9
Other	131.4		148.7
Total deferred tax assets	1,169.8		1,137.3
Valuation allowance	(319.3)		(320.6)
Deferred tax assets, net of valuation allowance	850.5		816.7
Deferred Tax Liabilities
Goodwill and other purchased intangibles	961.6		1,009.4
Other	68.7		68.5
Total deferred tax liabilities	1,030.3		1,077.9
Net Deferred Tax Liability	$	179.8	$	261.2

Deferred income tax assets and liabilities that relate to the same tax jurisdiction are presented net on the consolidated balance sheets. The components of the net deferred tax liability were classified in the consolidated balance sheets as follows:

Included in the Company’s net deferred tax liability were the deferred tax effects associated with the fair value of assets acquired and liabilities assumed from the acquisition of Legg Mason and acquired attributes that carry over to post-acquisition tax periods, including U.S. state and foreign net operating losses and foreign tax credits. Utilization of the U.S. state net operating losses and federal credit carry-forwards may be subject to annual limitations due to ownership change provisions under Section 382 of the Internal Revenue Code. Foreign tax credits can only be used to offset tax attributable to foreign source income.

At September 30, 2021, there were $98.5 million of non-U.S. tax effected net operating loss carry-forwards which expires between fiscal years 2022 and 2041. In addition, there were $206.1 million in tax effected state net operating loss carry-forwards that expire between fiscal years 2022 and 2042, with some having an indefinite carry-forward period. The Company also has federal net operating losses of $9.9 million, majority of which will carry-forward indefinitely and $128.0 million of foreign tax credit carry-forwards that expire between fiscal years 2022 and 2029.

The valuation allowance decreased $1.3 million in fiscal year 2021 and increased $293.7 million in fiscal year 2020 primarily related to carry-forward assets recognized in connection with the acquisition of Legg Mason. At September 30, 2021, the valuation allowance of $319.3 million was related to $195.1 million for federal, state, and foreign net operating loss carry-forwards, $73.1 million due to uncertainty of realizing the benefit of foreign tax credits, $37.8 million for capital losses, and $13.3 million for other foreign deferred taxes.


(in millions)
for the fiscal years ended September 30,	2021				2020				2019
Federal taxes at statutory rate	$	513.3	21.0	%	$	213.8	21.0	%	$	346.0	21.0	%
Transition tax on deemed repatriation of undistributed foreign earnings	—		—		—		—		86.0		5.2	%
State taxes, net of federal tax effect	60.8		2.5	%	28.2		2.8	%	29.7		1.8	%
Tax reserve release on audit settlement, net of valuation allowance1	(126.8)		(5.2	%)	—		—		—		—
Effect of net income (loss) attributable to noncontrolling interests	(55.3)		(2.3	%)	2.5		0.2	%	(2.1)		(0.1	%)
Effect of non-U.S. operations	(30.4)		(1.2	%)	6.9		0.7	%	(21.3)		(1.3	%)
Capital loss on investments, net of valuation allowance2	(12.4)		(0.5	%)	(27.0)		(2.7	%)	—		—
Other	0.4		—		6.4		0.7	%	4.0		0.2	%
Tax Provision	$	349.6	14.3	%	$	230.8	22.7	%	$	442.3	26.8	%

2The Company recognized a tax benefit in fiscal years 2021 and 2020 for capital losses that were realized from sales of investments. During fiscal year 2020, the sale of investments were subsequent to the change in corporate tax structure of a foreign holding company to a U.S. branch. These capital losses can be carried forward, for which the Company has assessed for realizability.


(in millions)
for the fiscal years ended September 30,	2021		2020		2019
Balance at beginning of year	$	342.9	$	202.6	$	77.5
Additions from business combinations	—		141.8		—
Additions for tax positions of prior years	4.2		0.9		131.8
Reductions for tax positions of prior years	(163.6)		(0.6)		(2.9)
Tax positions related to the current year	22.2		12.2		10.7
Settlements with taxing authorities	(3.2)		(0.3)		(2.2)
Expirations of statute of limitations	(18.2)		(13.7)		(12.3)
Balance at End of Year	$	184.3	$	342.9	$	202.6

If recognized, $173.4 million for 2021, $303.1 million for 2020 and $202.6 million for 2019, net of any deferred tax benefits, would favorably affect the Company’s effective income tax rate in future periods.

The Company accrues interest and penalties related to unrecognized tax benefits in interest expense and general, administrative and other expenses. Accrued interest on uncertain tax positions at September 30, 2021 and 2020 was $25.7 million and $21.7 million, and is not presented in the unrecognized tax benefits table above. Accrued penalties at September 30, 2021 and 2020 was $3.9 million and $2.9 million.

The Company files a consolidated U.S. federal income tax return, multiple U.S. state and local income tax returns, and income tax returns in multiple non-U.S. jurisdictions. The Company is subject to examination by the taxing authorities in these jurisdictions. The Company’s major tax jurisdictions and the tax years for which the statutes of limitations have not expired are as follows: India 2003 to 2021; Brazil 2008 to 2021, Canada 2011 to 2021; Australia 2017 to 2021, Hong Kong 2015 to 2021; Singapore 2016 to 2021; Luxembourg and the U.K. 2019 to 2021; U.S. federal 2017 to 2021; the City of New York 2012 to 2021; the States of California, Maryland, Massachusetts, Minnesota, New York, and Pennsylvania 2017 to 2021.

The Company has ongoing litigations and examinations in various stages, in the State of Wisconsin, and in Brazil, Canada, France, Germany, and India. Examination outcomes and the timing of settlements are subject to significant uncertainty. Such settlements may involve some or all of the following: the payment of additional taxes, the adjustment of deferred taxes and/or the recognition of unrecognized tax benefits. The Company has recognized a tax benefit only for those positions that meet the more-likely-than-not recognition threshold. It is reasonably possible that the total unrecognized tax benefit as of September 30, 2021 could decrease by an estimated $33.6 million within the next twelve months as a result of the expiration of statutes of limitations in the U.S. federal and certain U.S. state and local and non-U.S. tax jurisdictions, and potential settlements with U.S. states and non-U.S. taxing authorities.

The Tax Cuts and Jobs Act which was enacted into law in the U.S. in December 2017, includes various changes to the tax law, including a permanent reduction in the corporate income tax rate and assessment of a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. The payment for the Company’s remaining federal portion of the transition tax liability were as follows: