Income taxes

Income taxes expenses (benefits) from continuing operations shown in the consolidated statements of income 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,
	2019					2018					2017
	Amount			Percentage		Amount			Percentage		Amount			Percentage
U.S. federal statutory income tax rate	$	15,732		21.0	%	$	9,419		21.0	%	$	6,907		35.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	4,258			5.7	%	3,144			7.0	%	1,430			7.2	%
Unrecognized tax benefit	—			—	%	—			—	%	(9		)	—	%
Valuation allowance	1,663			2.2	%	1,833			4.1	%	89			0.5	%
Non-taxable income	(738		)	-1.0	%	(637		)	-1.4	%	(1,055		)	-5.3	%
Provision to return adjustments	(723		)	-1.0	%	(326		)	-0.7	%	(1,277		)	-6.5	%
Impact of the TCJA	—			—	%	—			—	%	(9,013		)	-45.7	%
Change in state and foreign tax rates	(135		)	-0.2	%	267			0.6	%	(353		)	-1.8	%
Foreign tax rate differentials	(59		)	-0.1	%	112			0.2	%	974			4.9	%
Excess tax benefits from share-based awards	(234		)	-0.3	%	(81		)	-0.2	%	(493		)	-2.5	%
Other non-deductible expenses	2,195			3.0	%	2,246			5.0	%	666			3.4	%
Total income taxes	$	21,959		29.3	%	$	15,977		35.6	%	$	(2,134	)	-10.8	%

Income taxes expenses (benefits) from continuing operations included in the consolidated statements of income represent the following:



(Expressed in thousands)
	For the Years Ended December 31,
	2019			2018		2017
Current:
U.S. federal tax (benefit)	$	9,502		$	10,355	$	506
State and local tax (benefit)	2,289			2,618		(1,326		)
Non-U.S. operations	290			231		144
Total Current	12,081			13,204		(676		)
Deferred:
U.S. federal tax (benefit)	7,177			395		(1,215		)
State and local tax	2,924			1,438		1,725
Non-U.S. operations	(223		)	940		(1,968		)
Total Deferred	9,878			2,773		(1,458		)
Total	$	21,959		$	15,977	$	(2,134	)

Loss before income taxes from continuing operations with respect to Non-U.S. operations was $4.9 million, $4.0 million and $8.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The effective income tax rate for the year ended December 31, 2019 was 29.3% compared with 35.6% for the year ended December 31, 2018. The lower effective tax rate for 2019 was primarily due to higher income before income taxes while non-deductible items remained relatively stable. The elevated effective tax rate for the year ended December 31, 2018 was partially due to the establishment of a valuation allowance for the deferred tax asset related to net operating losses of the Company's operations in Europe.

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, 2019 and 2018 were as follows:



(Expressed in thousands)
	As of December 31,
	2019			2018
Deferred tax assets:
Deferred compensation	$	23,048		$	18,909
Deferred rent and lease incentives	10,026			9,597
Net operating losses and credits	7,931			7,071
Receivable reserves	1,389			2,350
Accrued expenses	1,367			2,863
Auction rate securities reserves	1,356			1,007
Involuntary conversion	1,678			1,692
Depreciation	—			370
Other	1,203			1,067
Total deferred tax assets	47,998			44,926
Valuation allowance	4,368			3,204
Deferred tax assets after valuation allowance	43,630			41,722
Deferred tax liabilities:
Goodwill	40,774			41,049
Partnership investments	16,163			8,227
Company-owned life insurance	10,028			6,277
Depreciation	110			—
Other	304			252
Total deferred tax liabilities	67,379			55,805
Deferred tax liabilities, net	$	(23,749	)	$	(14,083	)

The Company has deferred tax assets at December 31, 2019 of $2.9 million arising from net operating losses incurred by Oppenheimer Israel (OPCO) Ltd. The Company believes that realization of the deferred tax assets is more likely than not based on expectations of future taxable income in Israel. 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). During the year ended December 31, 2019, the Company recorded a valuation allowance of $0.7 million against the deferred tax asset related to the net operating losses incurred by Oppenheimer Europe Ltd.

Goodwill arising from the acquisitions of Josephthal Group Inc. and the Oppenheimer Divisions was 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 2015 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 2016.

The Company has unrecognized tax benefits of $1.1 million, $1.1 million and $1.1 million as of December 31, 2019, 2018 and 2017, respectively, from continuing operations (as shown on the table below). Included in the balance of unrecognized tax benefits as of December 31, 2019 and 2018 are $853,000 and $853,000 of tax benefits for either year that, if recognized, would affect the effective tax rate.

During the year ended December 31, 2019, the Company did not record any changes in unrecognized tax benefit. 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)
	2019		2018		2017
Balance at beginning of year	$	1,079	$	1,079	$	1,088
Additions for tax positions of prior years	—		—		—
Lapse in statute of limitations	—		—		(9		)
Settlements with taxing authorities	—		—		—
Balance at end of year	$	1,079	$	1,079	$	1,079

In its consolidated statements of income, the Company records interest and penalties accruing on unrecognized tax benefits in income before income taxes as interest expense and other expense, respectively. For the year ended December 31, 2019, the Company recorded tax-related interest expense of $87,000 in its consolidated statement of income. For the year ended December 31, 2018, the Company recorded tax-related interest expense of $113,000 in its consolidated statement of income. As of December 31, 2019 and 2018, the Company had an income tax-related interest payable of $432,000 and $345,000, respectively, on its consolidated balance sheets.