Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

Income Taxes

6. Income Taxes

Holding is a publicly-traded partnership for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, Holding is subject to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AllianceBernstein, and to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business. Holding's partnership gross income is derived from its interest in AllianceBernstein.

Holding's income tax is computed by multiplying its ownership interest in AllianceBernstein by 3.5% of certain qualifying AllianceBernstein revenues (primarily investment advisory fees and SCB LLC equity commissions). During the three-month period ended September 30, 2011, AllianceBernstein's qualifying revenues decreased and net income increased as compared to the corresponding 2010 period primarily due to the $89.6 million real estate charge in the third quarter of 2010, while Holding's ownership interest in AllianceBernstein increased. This resulted in Holding's equity earnings increasing 80.2% and income taxes increasing 5.6%. As a result, Holding's effective tax rate decreased from 35.4% in the third quarter of 2010 to 20.8% in the third quarter of 2011. During the nine-month period ended September 30, 2011, AllianceBernstein's qualifying revenues decreased and net income increased as compared to the corresponding 2010 period, while Holding's ownership interest in AllianceBernstein increased. This resulted in Holding's equity earnings increasing 14.1% and income taxes increasing 4.2%. As a result, Holding's effective tax rate decreased from 18.6% in the nine-month period of 2010 to 17.0% in the nine-month period of 2011.

In order to preserve Holding's status as a “grandfathered” publicly-traded partnership for federal income tax purposes, management ensures that Holding does not directly or indirectly (through AllianceBernstein) enter into a substantial new line of business. If Holding were to lose its status as a “grandfathered” publicly-traded partnership, it would be subject to corporate income tax, which would reduce materially Holding's net income and its quarterly distributions to Holding unitholders.