INCOME TAXES (Tables)

12 Months Ended

Mar. 31, 2011

INCOME TAXES

Components of income (loss) before income tax provision (benefit)

	2011		2010		2009
Domestic	$	244,079	$	207,210	$	(3,053,327	)
Foreign		121,118		122,446		(134,870	)
Total	$	365,197	$	329,656	$	(3,188,197	)

Components of income tax expense (benefit)

	2011		2010		2009
Federal	$	75,290	$	78,224	$	(1,075,462	)
Foreign		18,788		14,066		32,845
State and local		25,356		26,386		(180,586	)
Total income tax provision (benefit)	$	119,434	$	118,676	$	(1,223,203	)
Current	$	39,162	$	4,729	$	(405,726	)
Deferred		80,272		113,947		(817,477	)
Total income tax provision (benefit)	$	119,434	$	118,676	$	(1,223,203	)

Reconciliation of the difference between the effective income tax rate and the statutory federal income tax rate

	2011			2010(1)			2009(1)
Tax provision (benefit) at statutory U.S. federal income tax rate		35.0	%		35.0	%		(35.0	)%
State income taxes, net of federal income tax benefit(2)		4.9			2.5			(3.3	)
Effect of foreign tax rates(2)		(4.6	)		(3.5	)		0.1
Loss on Canadian restructuring		—			—			(2.9	)
Changes in U.K. tax rates on deferred tax assets and liabilities		(2.5	)		—			—
Non-deductible goodwill impairment		—			—			2.5
Other, net		(0.1	)		2.0			0.2
Effective income tax (benefit) rate		32.7	%		36.0	%		(38.4	)%

(1)

Certain prior year amounts have been reclassified to conform with the current year presentation.

(2)

State income taxes include changes in valuation allowances, net of the impact on deferred tax assets of changes in state apportionment factors and planning strategies. The effect of foreign tax rates also includes changes in valuation allowances.

Summary of deferred tax assets and liabilities

	2011			2010
DEFERRED TAX ASSETS
Accrued compensation and benefits	$	129,320		$	129,389
Accrued expenses		46,650			55,252
Operating loss carryforwards		375,703			270,672
Capital loss carryforwards		44,475			42,404
Convertible debt obligations		4,609			6,579
Foreign tax credit carryforward		45,119			40,617
Federal benefit of uncertain tax positions		17,451			8,921
Other		6,947			17,691
Deferred tax assets		670,274			571,525
Valuation allowance		(94,541	)		(87,605	)
Deferred tax assets after valuation allowance	$	575,733		$	483,920

	2011		2010
DEFERRED TAX LIABILITIES
Basis differences, principally for intangible assets and goodwill	$	229,879	$	246,288
Depreciation and amortization		295,699		169,069
Other		1,780		630
Deferred tax liabilities		527,358		415,987
Net deferred tax asset	$	48,375	$	67,933

Deferred tax assets and valuation allowances relating to carryforwards

		2011		2010		Expires Beginning after Fiscal Year
Deferred tax assets
	U.S. federal net operating losses	$	203,971	$	119,328		2029
	U.S. federal foreign tax credits		45,119		40,617		2015
	U.S. state net operating losses(1,2,3)		143,542		121,475		2015
	U.S. state capital losses		36,749		34,833		2015
	Non-U.S. net operating losses		28,190		29,869		2011
	Non-U.S. capital losses(1)		7,726		7,571		n/a
Total deferred tax assets for carryforwards		$	465,297	$	353,693
Valuation allowances
	U.S. federal foreign tax credits	$	3,131	$	—
	U.S. state net operating losses		14,206		15,341
	U.S. state capital losses		36,749		34,833
	Non-U.S. net operating losses		28,190		29,860
	Non-U.S. capital losses		7,726		7,571
Valuation allowances for carryforwards			90,002		87,605
	Non-U.S. other deferred assets		4,539		—
Total valuation allowances		$	94,541	$	87,605

(1)

Due to the Permal acquisition structure, for periods prior to December 1, 2009, U.S. subsidiaries of Permal filed separate federal income tax returns, apart from Legg Mason Inc.'s consolidated federal income tax return, and separate state income tax returns.

(2)

Substantially all of the U.S. state net operating losses carryforward through fiscal 2029.

(3)

Due to potential for change in the factors relating to apportionment of income to various states, the Company'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.

Reconciliation of the beginning and ending amount of unrecognized gross tax benefits

	2011			2010			2009
Balance, beginning of year	$	51,027		$	43,662		$	29,287
Additions based on tax positions related to the current year		1,361			2,830			15,756
Additions for tax positions of prior years		34,959			12,664			14,366
Reductions for tax positions of prior years		(6,107	)		(5,846	)		(4,082	)
Decreases related to settlements with taxing authorities		(2,667	)		(515	)		(11,665	)
Expiration of statute of limitations		(920	)		(1,768	)		—
Balance, end of year	$	77,653		$	51,027		$	43,662