Income taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

Income tax expenses shown in the consolidated income statements are reconciled to amounts of tax that would have been payable from the application of the federal tax rate to pre-tax profit, as follows:

(Expressed in thousands)
	For the Years Ended December 31,
	2022				2021				2020
	Amount		Percentage		Amount		Percentage		Amount		Percentage
U.S. federal statutory income tax	$	9,497	21.0	%	$	47,176	21.0	%	$	35,491	21.0	%
U.S. state and local income taxes, net of U.S. federal income tax benefits	3,110		6.8	%	13,585		6.0	%	8,770		5.2	%
Unrecognized tax benefit	180		0.4	%	59		—	%	(853)		-0.5	%
Valuation allowance	1,054		2.3	%	1,121		0.5	%	517		0.3	%
Non-taxable income	(1,083)		(2.4)	%	(430)		(0.2)	%	(580)		(0.3)	%
Provision to return adjustments	(316)		(0.7)	%	281		0.1	%	239		0.1	%
Change in state and foreign tax rates	(660)		(1.4)	%	1,384		0.6	%	238		0.1	%
Foreign tax rate differentials	(285)		(0.6)	%	(223)		(0.1)	%	(469)		(0.3)	%
Excess tax benefits from share-based awards	(471)		(1.0)	%	(1,542)		(0.7)	%	(1,008)		(0.6)	%
Non-Deductible Executive Compensation	1,605		3.5	%	3,956		1.8	%	2,831		1.7	%
Other non-deductible expenses	813		1.6	%	310		0.2	%	838		0.5	%
Total income taxes	$	13,444	29.5	%	$	65,677	29.2	%	$	46,014	27.2	%

Income tax expenses included in the consolidated income statements represent the following:

(Expressed in thousands)
	For the Years Ended December 31,
	2022		2021		2020
Current:
U.S. federal tax	$	18,862	$	47,880	$	17,794
State and local tax	8,068		18,331		6,498
Non-U.S. operations	1,129		258		386
Total Current	28,059		66,469		24,678
Deferred:
U.S. federal tax	(10,420)		(1,745)		17,182
State and local tax	(4,538)		790		4,310
Non-U.S. operations	343		163		(156)
Total Deferred	(14,615)		(792)		21,336
Total	$	13,444	$	65,677	$	46,014

Pre-tax income with respect to non-U.S. operations was $7.7 million for the year ended December 31, 2022. (Pre-tax loss with respect to non-U.S. operation was $1.2 million for the year ended December 31, 2021). Pre-tax income with respect to non-U.S. operations was $1.5 million for the year ended December 31, 2020.

The effective income tax rate for the year ended December 31, 2022 was 29.5% compared with 29.2% for the year ended December 31, 2021. The higher tax rate in the 2022 year was primarily due to the impact of unfavorable permanent items.

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 as of December 31, 2022 and 2021 were as follows:

(Expressed in thousands)
	As of December 31,
	2022		2021
Deferred tax assets:
Deferred compensation	$	27,161	$	31,083
Deferred rent and lease incentives	9,877		10,828
Net operating losses and credits	9,593		9,304
Receivable reserves	1,294		2,257
Accrued expenses	13,121		3,516
Auction rate securities reserves	1,394		1,387
Involuntary conversion	1,704		1,749
Other	958		986
Total deferred tax assets	65,102		61,110
Valuation allowance	(7,036)		(6,153)
Deferred tax assets after valuation allowance	58,066		54,957
Deferred tax liabilities:
Goodwill	41,775		42,455
Partnership investments	32,679		37,196
Company-owned life insurance	11,527		16,854
Depreciation	1,617		2,139
Other	272		329
Total deferred tax liabilities	87,870		98,973
Deferred tax liabilities, net	$	(29,804)	$	(44,016)

The Company recognized deferred tax assets of $2.4 million at December 31, 2022 within other assets 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).

As of December 31, 2022, the Company had deferred tax assets of $5.4 million arising from net operating losses incurred by Oppenheimer Europe Ltd and had recorded full valuation allowances, although the net operating losses carry forward indefinitely, the Company believes it is more likely than not that the Company will not be able to realize its deferred tax assets in the future. The net change during the year in the total valuation allowance is $1 million.

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.

The Company and one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and in various states and foreign jurisdictions. The Company has closed tax years through 2017 in the U.S. federal jurisdiction.

The Company has unrecognized tax benefits of $0.7 million, $0.3 million and $0.2 million as of December 31, 2022, 2021 and 2020, respectively (as shown on the table below). Included in the balance of unrecognized tax benefits as of December 31, 2022 and 2021 were $847,000 and $271,000, respectively, of tax benefits for either year that, if recognized, would affect the effective tax rate.

During the year ended December 31, 2022, the Company added $0.7 million related to state and local tax matters. 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)
	2022		2021		2020
Balance at beginning of year	$	343	$	212	$	1,079
Additions for tax positions of prior years	729		343		212
Settlements with taxing authorities	—		(212)		(1,079)
Balance at end of year	$	1,072	$	343	$	212

In its consolidated income statements, the Company records interest and penalties accruing on unrecognized tax benefits in pre-tax income as interest expense and other expense, respectively. For the year ended December 31, 2022, the Company added tax-related interest expense of $173,000, and for the years ended December 2021 and 2020, the Company released tax-related interest expense of $164,000 and $227,000, respectively, in its consolidated income statement. As of December 31, 2022 and 2021, the Company had an income tax-related interest payable of $214,000 and $41,000, respectively, on its consolidated balance sheets.