Income before Income Tax Expense—Domestic and Foreign

The U.S. and foreign components of income before income tax expense for the years ended December 31, 2019, 2018 and 2017 are as follows:


	Year Ended December 31,
	2019			2018		2017
U.S . (1)	$	6,774		$	43,677	$	72,371
Foreign (1)		(6,653	)		7,362		(14,179	)

Total	$	121		$	51,039	$	58,192

(1)	Represents the pre-tax results of the Company’s U.S. and foreign subsidiaries, not the results of the U.S. and International Business segments which are separately disclosed in Note 27. The segment results are prepared based upon the way management reviews performance.

Income Tax Expense/(Benefit)—By Jurisdiction

The components of current and deferred income tax expense included in the Consolidated Statement of Operations for years ended December 31, 2019, 2018 and 2017 as determined in accordance with ASC 740,

Income Taxes

, are as follows:


	Years Ended December 31,
	2019			2018			2017
Current:
Federal	$	10,311		$	15,805		$	19,007
State and local		2,271			3,202			2,708
Foreign		(1,687	)		1,482			440

	$	10,895		$	20,489		$	22,155

Deferred:
Federal	$	(246	)	$	(5,318	)	$	7,947
State and local		(54	)		(1,077	)		1,105
Foreign		(49	)		312			(214	)

	$	(349	)	$	(6,083	)	$	8,838

Income tax expense	$	10,546		$	14,406		$	30,993

Reconciliation of Statutory Federal Income Tax Rate to the Effective Income Tax Rate

A reconciliation of the statutory federal income tax

expense

and the Company’s

tal

income tax

expense

is as follows:


	Years Ended December 31,
	2019			2018			2017
Federal income tax expense	$	25		$	10,718		$	20,367
Change in valuation allowance—Capital losses (1)		7,555			794			—
Change in valuation allowance—Foreign		4,737			3,510			5,355
Decrease in unrecognized tax benefits		(3,894	)		—			—
Foreign operations		(3,561	)		(1,041	)		(165	)
Loss/(gain) on revaluation of deferred consideration (2)		2,378			(2,570	)		—
Non-deductible executive compensation		1,608			4			—
Stock-based compensation tax (windfalls)/shortfalls		1,198			(543	)		1,035
Blended state income tax rate, net of federal benefit		237			1,406			2,234
Non-deductible acquisition and disposition-related costs		—			1,506			1,549
Other differences, net		263			622			618

Income tax expense	$	10,546		$	14,406		$	30,993

(1)	The capital loss valuation allowance for the year ended December 31, 2019 is principally arising from the impairment recognized on the Company’s financial interests in AdvisorEngine (Note 8).

(2)	The loss/ ( gain ) on revaluation is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary that is based in Jersey, a jurisdiction where the Company is subject to a zero percent tax rate.

Income Tax Payments

A summary of income taxes paid by jurisdiction for the years ended December 31, 2019, 2018 & 2017 is as follows:


	Years Ended December 31,
	2019		2018		2017
Federal	$	6,990	$	10,710	$	28,561
State and local		1,818		2,498		4,366
Foreign		1,252		1,190		186

	$	10,060	$	14,398	$	33,113

Deferred Tax Assets (“DTAs”)

A summary of the components of the Company’s deferred tax assets at December 31, 2019 and 2018 is as follows:


	December 31,
	2019			2018
Deferred tax assets:
NOLs—International	$	9,336		$	6,605
Capital losses		8,226			794
Operating lease liabilities		5,529			5,519
Accrued expenses		4,054			2,699
Stock-based compensation		1,754			2,673
Goodwill and intangible assets		1,671			1,841
NOLs—U.S.		642			762
Outside basis differences		123			—
Other		218			40
Deferred tax assets		31,553			20,933

Deferred tax liabilities:
Right of use assets—operating leases		4,400			4,335
Fixed assets and prepaid assets		1,326			1,433
Unrealized gains		744			724
Deferred tax liabilities		6,470			6,492

Total deferred tax assets less deferred tax liabilities		25,083			14,441
Less: valuation allowance		(17,685	)		(7,399	)

Deferred tax assets, net	$	7,398		$	7,042

Net Operating Losses and Capital Losses—U.S.

The Company’s tax

effected net operating losses (“NOLs”) at December 31, 2019 were $642, which expire in 2024. The net operating loss carryforwards have been reduced by the impact of annual limitations described in the Internal Revenue Code Section 382 that arose as a result of an ownership change.

The Company’s tax effected capital losses at December 31, 2019 and December 31, 2018 were $

8,226

and $794, respectively. The change in capital losses is principally arising from the impairment recognized on the Company’s financial interests in AdvisorEngine (Note

Net Operating Losses—International

Certain of the Company’s European subsidiaries and its Canadian subsidiary generated NOLs outside the U.S. These tax effected NOLs were $9,336

and

$6,605 at December 31, 2019

and

2018, respectively. Approximately $4,930 of these NOLs at December 31, 2019 expire between the years 2036 and 2039. The remainder is carried forward indefinitely.

Valuation Allowance

The Company’s valuation allowance has been established on its net capital losses, international net operating losses and outside basis differences as it is more-likely than not that

these

deferred tax assets will not be realized.

Uncertain Tax Positions

Tax positions are evaluated utilizing a

two-step

process. The Company first determines whether any of its tax positions are more-

likely-than-not

to be sustained upon examination, based solely on the technical merits of the position. Once it is determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

In connection with the ETFS Acquisition, the Company accrued a liability of £22,118 ($31,317) for uncertain tax positions and £5,065 ($7,171) for interest and penalties at the acquisition date.

The table below sets forth the aggregate changes in the balance of gross unrecognized tax benefits:


	Total			Unrecognized Tax Benefits			Interest and Penalties
Balance on January 1, 2018	$	—		$	—		$	—
Accrued in connection with the ETFS Acquisition		38,488			31,317			7,171
Increases		346			—			346
Foreign currency translation (1)		(3,958	)		(3,216	)		(742	)

Balance at December 31, 2018	$	34,876		$	28,101		$	6,775
Decrease—Lapse of statute of limitations		(4,309	)		(2,999	)		(1,310	)
Increases		416			—			416
Foreign currency translation (1)		1,118			896			222

Balance at December 31, 2019	$	32,101		$	25,998		$	6,103

(1)	The gross unrecognized tax benefits were accrued in British pounds.

The Company also recorded an offsetting indemnification asset provided by ETFS Capital as part of its agreement to indemnify the Company for any potential claims, for which an amount is being held in escrow. ETFS Capital has also agreed to provide additional collateral by maintaining a minimum working capital balance up to a stipulated amount. The decrease resulting from the lapsing of the statute of limitations of $4,309, was recorded as an income tax benefit and an equal and offsetting amount to reduce the indemnification asset was recorded in other losses, net, during the year ended December 31, 2019.

The gross unrecognized tax benefits and interest and penalties totaling $32,101 and $34,876 at December 31, 2019 and December 31, 2018, respectively, are included in other

non-current

liabilities on the Consolidated Balance Sheet. It is reasonably possible that the total amount of unrecognized tax benefits will decrease by $4,028 (including interest and penalties of $

1,231

) in the next 12 months

upon la

sing of the statu

te of limitations

At December 31, 2019

and 2018,

there were $32,101

and $34,876, respectively,

of unrecognized tax benefits (including interest and penalties) that, if recognized, would impact the effective tax rate. The recognition of any unrecognized tax benefits would result in an equal and offsetting adjustment to the indemnification asset which would be recorded in income before taxes due to the indemnity for any potential claims.

Income Tax Examinations

The Company is subject to U.S. federal income tax as well as income tax of multiple state, local and certain foreign jurisdictions. The Company’s federal tax return and ManJer’s tax return (a Jersey-based subsidiary) for the year ended December 31, 2016 and the Company’s New York state tax returns for the years ended December 31, 2015 through 2018 are currently under review by the relevant tax authorities. The Company is indemnified by ETFS Capital for any potential exposure associated with ManJer’s tax return under audit.

The Company is not currently under audit in any other income tax jurisdictions. As of December 31, 2019, with few exceptions, the Company was no longer subject to income tax examinations by any taxing authority for years before 2015.

Undistributed Earnings of Foreign Subsidiaries

Due to the imposition of the GILTI provisions, all unremitted earnings are no longer subject to U.S. federal income tax; however, there could be U.S. state and/or foreign withholding taxes upon distribution of such unremitted earnings. The Company recognizes deferred tax liabilities for withholding taxes that may become payable, where applicable, upon the distribution of earnings and profits from foreign subsidiaries unless considered permanent in duration. As of December 31, 2019, the Company considers all undistributed foreign earnings and profits to be permanent in duration.