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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes |
21. | Income Taxes
The Company’s consolidated financial statements include U.S. federal, state and local income taxes on the Company’s allocable share of the U.S. results of operations, as well as taxes payable to jurisdictions outside the U.S. In addition, certain of the Company’s entities are taxed as U.S. partnerships and are subject to the UBT in New York City. Therefore, the tax liability or benefit related to the partnership income or loss, except for UBT, rests with the partners (see Note 2—“Limited Partnership Interests in BGC Holdings and Newmark Holdings” for discussion of partnership interests), rather than the partnership entity. The provision for income taxes consisted of the following (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  | $ | (3,380 | ) |  | $ | 48,270 |  |  | $ | 32,080 |
U.S. state and local |  |  | 3,965 |  |  |  | 6,537 |  |  |  | 1,262 |
Foreign |  |  | 53,111 |  |  |  | 45,901 |  |  |  | 35,480 |
UBT |  |  | 1,278 |  |  |  | (1,953 | ) |  |  | 4,092 |
|  |  | 54,974 |  |  |  | 98,755 |  |  |  | 72,914 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal |  |  | (6,727 | ) |  |  | (31,425 | ) |  |  | 19,558 |
U.S. state and local |  |  | 6,092 |  |  |  | 149 |  |  |  | 365 |
Foreign |  |  | 506 |  |  |  | 6,671 |  |  |  | (353 | )
UBT |  |  | (1,674 | ) |  |  | 1,970 |  |  |  | 288 |
|  |  | (1,803 | ) |  |  | (22,635 | ) |  |  | 19,858 |
Provision for income taxes |  | $ | 53,171 |  |  | $ | 76,120 |  |  | $ | 92,772 |
The Company had pre-tax income (loss) of $138.1 million, $179.8 million and $4.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company had pre-tax income (loss) from domestic operations of $(195.5) million, $(141.1) million and $(154.6) million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company had pre-tax income (loss) from foreign operations of $333.6 million, $320.9 million and $158.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. Differences between the Company’s actual income tax expense and the amount calculated utilizing the U.S. federal statutory rates were as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Tax expense at federal statutory rate |  | $ | 29,004 |  |  | $ | 37,762 |  |  | $ | 1,448 |
Non-controlling interest |  |  | 2,343 |  |  |  | (4,097 | ) |  |  | (3,857 | )
Incremental impact of foreign taxes compared to federal tax rate |  |  | 7,762 |  |  |  | 2,735 |  |  |  | (21,902 | )
Income from recast periods |  |  | — |  |  |  | — |  |  |  | 32,120 |
Other permanent differences |  |  | 3,397 |  |  |  | 6,051 |  |  |  | 21,661 |
U.S. state and local taxes, net of U.S. federal benefit |  |  | (2,476 | ) |  |  | (450 | ) |  |  | 1,025 |
New York City UBT |  |  | (392 | ) |  |  | (514 | ) |  |  | 268 |
Other rate changes |  |  | 10,509 |  |  |  | 4,024 |  |  |  | 5,384 |
Revaluation of deferred taxes related to tax reform |  |  | — |  |  |  | 4,776 |  |  |  | 19,681 |
Uncertain tax positions |  |  | (1,025 | ) |  |  | 2,764 |  |  |  | 4,858 |
U.S. tax on foreign earnings, net of tax credits |  |  | 3,166 |  |  |  | 14,405 |  |  |  | 36,566 |
Return-to-provision adjustments |  |  | (3,937 | ) |  |  | 2,598 |  |  |  | (6,296 | )
Valuation allowance |  |  | 4,015 |  |  |  | 2,567 |  |  |  | (594 | )
Other |  |  | 805 |  |  |  | 3,499 |  |  |  | 2,410 |
Provision for income taxes |  | $ | 53,171 |  |  | $ | 76,120 |  |  | $ | 92,772 |
The Tax Act was enacted on December 22, 2017. The Tax Act made significant changes to the U.S. corporate income tax system, including (1) a reduction of the U.S. federal corporate income tax rate from 35% to 21%, (2) transitioning to a territorial tax system and requiring companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred (3) implementation of a BEAT, (4) further limitation on deductibility of interest on financing arrangements, (5) and introduction of a new provision designed to tax a foreign subsidiaries’ GILTI. As of December 31, 2019, the Company’s intention is to permanently reinvest undistributed foreign pre-tax earnings in the Company’s foreign operations. While the one-time transition tax eliminated most of the income tax effects of repatriating the undistributed earnings, there could still be foreign and state and local tax effects on the distribution. Accordingly, no provision has been recorded on foreign and state and local taxes that would be applicable upon distribution of such earnings to the U.S. Further, determination of an estimate of deferred tax liability associated with the distribution of foreign earnings is not practicable. However, this policy will be further re-evaluated and assessed based on the Company’s overall business needs and requirements. The Company has finalized its accounting policy and elect to treat taxes associated with the GILTI provision using the Period Cost Method and thus have not recorded deferred taxes for basis differences under this regime as of December 31, 201 9. Accordingly, the Company recorded a tax expense of $12.6 million, net of foreign tax credits, for the impact of the GILTI provision on its foreign subsidiaries. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets will not be realized. Significant components of the Company’s deferred tax asset and liability consisted of the following (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |
Deferred tax asset |  |  |  |  |  |  |  |
Basis difference of investments |  | $ | 5,078 |  |  | $ | 2,650 |
Deferred compensation |  |  | 59,194 |  |  |  | 61,174 |
Excess interest expense |  |  | 21,028 |  |  |  | — |
Other deferred and accrued expenses |  |  | 20,285 |  |  |  | 15,911 |
Net operating loss and credit carry-forwards |  |  | 73,072 |  |  |  | 50,114 |
Total deferred tax asset1 |  |  | 178,657 |  |  |  | 129,849 |
Valuation allowance |  |  | (71,931 | ) |  |  | (33,580 | )
Deferred tax asset, net of valuation allowance |  |  | 106,726 |  |  |  | 96,269 |
Deferred tax liability |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 28,096 |  |  |  | 18,734 |
Total deferred tax liability1 |  |  | 28,096 |  |  |  | 18,734 |
Net deferred tax asset |  | $ | 78,630 |  |  | $ | 77,535 |
1 | Before netting within tax jurisdictions.
The Company has deferred tax assets associated with net operating losses in U.S. state and local, and non-U.S. jurisdictions of $6.9 million and $64.7 million, respectively. These losses will begin to expire in 2025 and 2020, respectively. The Company’s change in net operating losses as well as associated valuation allowance is primarily due to acquisitions that occurred during the year. The Company’s deferred tax asset and liability are included in the Company’s consolidated statements of financial condition as components of “Other assets” and “Accounts payable, accrued and other liabilities,” respectively. Pursuant to U.S. GAAP guidance, Accounting for Uncertainty in Income Taxes, the Company provides for uncertain tax positions as a component of income tax expense based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. A reconciliation of the beginning to the ending amounts of gross unrecognized tax benefits for the years ended December 31, 2019 and 2018 is as follows (in thousands):
Balance, December 31, 2017 |  | $ | 7,063 |
Increases for prior year tax positions |  |  | 4,754 |
Decreases for prior year tax positions |  |  | (1,565 | )
Increases for current year tax positions |  |  | — |
Decreases related to settlements with taxing authorities |  |  | — |
Decreases related to a lapse of applicable statute of limitations |  |  | — |
Balance, December 31, 2018 |  | $ | 10,252 |
Increases for prior year tax positions |  |  | 2,500 |
Decreases for prior year tax positions |  |  | — |
Increases for current year tax positions |  |  | — |
Decreases related to settlements with taxing authorities |  |  | (2,271 | )
Decreases related to a lapse of applicable statute of limitations |  |  | — |
Balance, December 31, 2019 |  | $ | 10,481 |
As of December 31, 2019, the Company’s unrecognized tax benefits, excluding related interest and penalties, were $10.5 million, of which $7.5 million, if recognized, would affect the effective tax rate. The Company is currently open to examination by tax authorities in U.S. federal, state and local jurisdictions and certain non-U.S. jurisdictions for tax years beginning 2008, 2009 and 2012, respectively. The Company is currently under examination by tax authorities in the U.S. Federal and certain state and local jurisdictions. The Company does not believe that the amounts of unrecognized tax benefits will materially change over the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits in “Provision (benefit) for income taxes” in the Company’s consolidated statements of operations. As of December 31, 2019, the Company accrued $2.3 million for income tax-related interest and penalties of which $0.7 million was accrued during 2019.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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