Income taxes

Income taxes from continuing operations shown in the consolidated statements of operations are reconciled to amounts of tax that would have been payable (recoverable) from the application of the federal tax rate to pre-tax profit, as follows:



(Expressed in thousands)
	For the Years Ended December 31,
	2017					2016					2015
	Amount			Percentage		Amount			Percentage		Amount			Percentage
U.S. federal statutory income tax rate	$	6,907		35.0	%	$	(7,662	)	35.0	%	$	(851	)	35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	1,430			7.2	%	(1,075		)	4.9	%	(69		)	2.8	%
Unrecognized tax benefit	(9		)	—	%	(603		)	2.8	%	589			-24.3	%
Valuation allowance	89			0.5	%	1,208			-5.5	%	—			—	%
Non-taxable income	(1,055		)	-5.3	%	(1,267		)	5.8	%	(696		)	28.7	%
Provision to return adjustments	(1,277		)	-6.5	%	(4,167		)	19.0	%	442			-18.2	%
Impact of the TCJA	(9,013		)	-45.7	%	—			—	%	—			—	%
Change in state and foreign tax rates	(353		)	-1.8	%	264			-1.2	%	305			-12.5	%
Foreign tax rate differentials	974			4.9	%	143			-0.7	%	145			-6.0	%
Excess tax benefits from share-based awards	(493		)	-2.5	%	—			—	%	—			—	%
Other non-deductible expenses	666			3.4	%	897			-4.1	%	541			-22.2	%
Total income taxes	$	(2,134	)	-10.8	%	$	(12,262	)	56.0	%	$	406		-16.7	%

Income taxes from continuing operations included in the consolidated statements of operations represent the following:



(Expressed in thousands)
	For the Years Ended December 31,
	2017			2016			2015
Current:
U.S. federal tax (benefit)	$	506		$	(15,433	)	$	(5,751	)
State and local tax	(1,326		)	(4,631		)	(74		)
Non-U.S. operations	144			46			181
Total Current	(676		)	(20,018		)	(5,644		)
Deferred:
U.S. federal tax (benefit)	(1,215		)	5,856			4,198
State and local tax	1,725			617			1,632
Non-U.S. operations	(1,968		)	1,283			220
Total Deferred	(1,458		)	7,756			6,050
Total	$	(2,134	)	$	(12,262	)	$	406

Income (loss) before income taxes from continuing operations with respect to Non-U.S. operations was $(8.5) million, $(965,000) and $732,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax global intangible low-taxed income ("GILTI"), which allows for the possibility of using foreign tax credits ("FTCs") and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) limitations on the use of FTCs to reduce the U.S. income tax liability; (6) eliminating the corporate alternative minimum tax ("AMT") and changing how existing AMT credits can be realized; (7) creating the base erosion anti-abuse tax, a new minimum tax; (8) limitations on the deductibility of certain executive compensation; (9) creating a new limitation on deductible interest expense; (10) eliminating the deductibility of entertainment expenses; and (11) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The effective income tax rate from continuing operations for the year ended December 31, 2017 was 10.8% (benefit) compared with 56.0% (benefit) for the year ended December 31, 2016. The effective income tax rate for the year ended December 31, 2017 was positively impacted by the estimated impact of the TCJA which resulted in a net discrete after-tax benefit of $9.0 million. The net discrete after-tax benefit was comprised of a benefit of $29.0 million related to the re-measurement of deferred tax liabilities offset by a detriment of $19.6 million related to the re-measurement of deferred tax assets as well as a detriment of $0.4 million related to miscellaneous non-deductible items. The effective income tax rate for the year ended December 31, 2016 was positively impacted by income tax provision to tax return true-ups and higher nontaxable benefits received with respect to Company-owned life insurance partially offset by the valuation allowance established on deferred tax assets related to net operating losses of a foreign subsidiary.

On December 22, 2017, the SEC staff issued SAB 118 which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. The Company has not completed its accounting for the income tax effects of certain elements of the TCJA. However, the Company was able to make reasonable estimates of the effects of certain elements and recorded a provisional estimate in the consolidated financial statements. The estimated enactment net discrete after-tax benefit incorporates assumptions made based upon the Company's current interpretations of the TCJA, and may change as it receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time. The Company is expected to complete its analysis within the measurement period in accordance with SAB 118.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. The amount of such taxable temporary differences totaled $11.2 million as of December 31, 2017. The unrecognized deferred tax liability associated with earnings of foreign subsidiaries is estimated at $3.0 million for those subsidiaries with respect to which the Company would be subject to residual U.S. tax on cumulative earnings through 2017 were those earnings to be repatriated.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when such differences are expected to reverse. Significant components of the Company's deferred tax assets and liabilities from continuing operations as of December 31, 2017 and 2016 were as follows:



(Expressed in thousands)
	As of December 31,
	2017			2016
Deferred tax assets:
Deferred compensation	$	19,105		$	26,271
Deferred rent and lease incentives	10,303			15,354
Net operating losses and credits	10,535			4,917
Receivable reserves	2,663			3,554
Accrued expenses	1,104			1,992
Auction rate securities reserves	540			1,194
Involuntary conversion	1,670			2,381
Depreciation	500			1,446
Other	1,177			1,953
Total deferred tax assets	47,597			59,062
Valuation allowance	1,350			1,280
Deferred tax assets after valuation allowance	46,247			57,782
Deferred tax liabilities:
Goodwill	40,534			57,117
Partnership investments	9,184			6,042
Company-owned life insurance	7,426			7,478
Other	195			282
Total deferred tax liabilities	57,339			70,919
Deferred tax liabilities, net	$	(11,092	)	$	(13,137	)

The Company has deferred tax assets at December 31, 2017 of $3.1 million and $541,000 arising from net operating losses incurred by Oppenheimer Israel (OPCO) Ltd. and Oppenheimer Europe Ltd., respectively. The Company believes that realization of the deferred tax assets is more likely than not based on expectations of future taxable income in Israel and Europe. These net operating losses carry forward indefinitely and are not subject to expiration, provided that these subsidiaries and their underlying businesses continue operating normally (as is anticipated).

Goodwill arising from the acquisitions of Josephthal Group Inc. and the Oppenheimer Divisions is being amortized for tax purposes on a straight-line basis over 15 years. The difference between book and tax is recorded as a deferred tax liability. As of December 31, 2017, the 15 year amortization period has ended.

The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. The Company has closed tax years through 2013 in the U.S. federal jurisdiction.

The Company is under examination in various states in which the Company has significant business operations. The Company has closed tax years through 2010 for New York State and is currently under exam for the 2011 to 2014 tax years. The Company also has closed tax years through 2008 with New York City and is currently under exam for the 2009 to 2012 tax years. With the exception of New York State and City, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013.

The Company has unrecognized tax benefits of $1.1 million, $1.1 million and $2.5 million as of December 31, 2017, 2016 and 2015, respectively, from continuing operations (as shown on the table below). Included in the balance of unrecognized tax benefits as of December 31, 2017 and 2016 are $853,000 and $710,000 of tax benefits for either year that, if recognized, would affect the effective tax rate.

During the year ended December 31, 2017, the Company reversed $9,000 of unrecognized tax benefit when the related statute of limitation expired. The Company does not believe any unrecognized tax benefit will significantly increase or decrease within twelve months. A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:



(Expressed in thousands)
	2017			2016			2015
Balance at beginning of year	$	1,088		$	2,490		$	1,583
Additions for tax positions of prior years	—			98			907
Lapse in statute of limitations	(9		)	(652		)	—
Settlements with taxing authorities	—			(848		)	—
Balance at end of year	$	1,079		$	1,088		$	2,490

In its consolidated statements of operations, the Company records interest and penalties accruing on unrecognized tax benefits in income (loss) before income taxes as interest expense and other expense, respectively. For the year ended December 31, 2017, the Company recorded tax-related interest expense of $231,000 in its consolidated statement of operations. For the year ended December 31, 2016, the Company reversed income tax interest payable of $104,000 accrued on unrecognized tax benefits that were reversed during the year. As of December 31, 2017 and 2016, the Company had an income tax-related interest payable of $232,000 and $1,000, respectively, on its consolidated balance sheets.