Income Taxes (Tables)

12 Months Ended

Mar. 31, 2017



	2017			2016			2015
Balance, beginning of year	$	73,873		$	92,344		$	77,892
Additions based on tax positions related to the current year	3,303			3,514			9,919
Additions for tax positions of prior years	5,673			10,078			13,054
Reductions for tax positions of prior years	(8,257		)	(155		)	—
Decreases related to settlements with taxing authorities	(2,200		)	(25,046		)	(8,521		)
Expiration of statutes of limitations	(1,605		)	(6,862		)	—
Balance, end of year	$	70,787		$	73,873		$	92,344



	2017		2016		Expires Beginning after Fiscal Year
DEFERRED TAX ASSETS
U.S. federal net operating losses⁽¹⁾	$	57,715	$	82,350	2031
U.S. federal capital losses	3,644		—		2021
U.S. federal foreign tax credits	283,746		258,486		2018
U.S. charitable contributions	814		4,552		2017
U.S. state net operating losses ^(2,3)	168,655		166,772		2017
U.S. state capital losses	4		44		2017
U.S. state tax credits	366		308		2022
Foreign net operating losses	20,244		24,192		2027
Foreign capital losses	2,535		3,077		n/a
Total deferred tax assets for carryforwards	$	537,723	$	539,781

VALUATION ALLOWANCES
U.S. federal net operating losses	$	2,856	$	2,255
U.S. federal foreign tax credits	6,147		15,252
U.S. charitable contributions	814		3,443
U.S. state net operating losses	29,075		26,816
U.S. state capital losses	4		44
Foreign net operating losses	15,975		20,631
Foreign capital losses	2,535		3,077
Valuation allowances for carryforwards	57,406		71,518
Foreign other deferred assets	13,657		7,958
Total valuation allowances	$	71,063	$	79,476


(1)	Currently, there are proposals to significantly change U.S. federal income tax rules, which include proposals to reduce tax rates, limit deductibility of interest expense, and changes to the taxation on non-U.S. earnings. Although details are not yet available, these changes could impact the carrying value of Legg Mason's deferred tax assets.


(2)	Substantially all of the U.S. state net operating losses carryforward through fiscal 2036.


(3)	Due to potential for change in the factors relating to apportionment of income to various states, Legg Mason's effective state tax rates are subject to fluctuation which will impact the value of the Company's deferred tax assets, including net operating losses, and could have a material impact on the future effective tax rate of the Company.



	2017			2016
DEFERRED TAX ASSETS
Accrued compensation and benefits	$	221,895		$	185,311
Accrued expenses	46,311			50,865
Operating loss carryforwards	246,614			273,133
Capital loss carryforwards	6,183			3,121
Foreign tax credit carryforward	283,746			258,486
Federal benefit of uncertain tax positions	13,421			12,290
Mutual fund launch costs	25,292			30,234
Martin Currie defined benefit pension liability	5,293			5,896
Charitable contributions carryforwards	814			4,552
Net unrealized losses from investments	—			4,389
Other	—			5,181
Deferred tax assets	849,569			833,458
Valuation allowance	(71,063		)	(79,476		)
Deferred tax assets after valuation allowance	$	778,506		$	753,982

DEFERRED TAX LIABILITIES
Basis differences, principally for intangible assets and goodwill	$	20,339		$	56,625
Depreciation and amortization	801,133			686,421
Net unrealized gains from investments	4,730			—
Basis differences in partnerships	75,653			64,525
Other	3,037			—
Deferred tax liabilities	904,892			807,571
Net deferred tax liabilities	$	(126,386	)	$	(53,589	)



	2017		2016		2015
Tax provision at statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit⁽¹⁾	2.3		43.2		4.0
Uncertain tax benefits	1.3		41.8		1.8
Effect of foreign tax rates⁽²⁾	(3.9	)	(172.5	)	(4.8	)
Changes in U.K. tax rates on deferred tax assets and liabilities	(1.1	)	33.2		—
Net (income) loss attributable to noncontrolling interests	(5.4	)	(15.6	)	(0.5	)
Change in valuation allowances⁽³⁾	1.6		(33.9	)	(2.7	)
Federal effect of permanent tax adjustments	(0.5	)	39.1		1.7
Holding company restructuring⁽⁴⁾	(5.0	)	—		—
Other, net	(1.6	)	(0.8	)	(0.5	)
Effective income tax rate	22.7	%	(30.5	)%	34.0	%


(1)	State income taxes include changes in valuation allowances related to change in apportionment and provision to return differences, net of the impact on related deferred tax assets.


(2)	The effect of foreign tax rates for fiscal 2017 and 2016 includes a $2,890 and $66,780, respectively, tax benefit for non-cash impairment charges related to the intangible assets of the Permal business, as further discussed in Note 5.


(3)	See schedule below for the change in valuation allowances by jurisdiction.


(4)	In fiscal 2017, as part of a larger strategic initiative, Legg Mason restructured certain of its holding company businesses, which increased the amount of foreign tax credits available for utilization.