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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

12. Income Taxes

The income tax provision shown in the consolidated statements of operations is 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.

 

      September 30,       September 30,       September 30,  
    Year ended December 31,  
    2011     2010     2009  
       

U.S. federal statutory income tax rate

     35.0 %      35.0 %      35.0 % 
       

U.S. state and local income taxes, net of U.S. federal income tax benefits (1)

     4.7 %      5.2 %      5.8 % 

Tax exempt income, net of interest expense

     -3.6 %      -0.7 %      -1.5 % 

Business promotion and other non-deductible expenses

     3.5 %      0.9 %      2.6 % 

Federal, state and local income tax true-ups

     -3.1 %      —         0.7 % 

Tax rate change on deferred income taxes

     -4.1 %      1.4 %      -0.8 % 

Insurance proceeds, non-taxable

     -4.6 %      —         -1.2 % 

Non-U.S. Operations

     1.9 %      -0.3 %      -1.3 % 

Other (1)

     -0.4 %      -1.5 %      4.5 % 
   

 

 

    

 

 

    

 

 

  
       

Effective income tax rate

     29.3 %      40.0 %      43.8 % 
   

 

 

    

 

 

    

 

 

  

 

(1)

In 2009, other primarily includes the tax impact of $1.9 million related to moving the jurisdiction of incorporation of parent company from Canada to the United States.

Income taxes included in the consolidated statements of operations represent the following.

Expressed in thousands of dollars.

 

      September 30,       September 30,       September 30,  
    Year ended December 31,  
    2011     2010     2009  

Current:

                        
       

U.S. federal tax (benefit)

   $ 5,312     $ (11,471 )    $ 21,996  

State and local tax (benefit)

     19       6,390       7,508  

Non- U.S. operations

     113       685       1,054  
   

 

 

    

 

 

    

 

 

  
      5,444       (4,396 )      30,558  
       

Deferred:

                        
       

U.S. federal tax (benefit)

     143       27,799       (10,294 ) 

State and local tax (benefit)

     (1,029 )      3,356       (3,513 ) 

Non U.S. operations (benefit)

     673       452       (508 ) 
   

 

 

    

 

 

    

 

 

  
      (213 )      31,607       (14,315 ) 
   

 

 

    

 

 

    

 

 

  
    $ 5,231     $ 27,211     $ 16,243  
   

 

 

    

 

 

    

 

 

  

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 at December 31, 2011 and 2010 were as follows.

 

Expressed in thousands of dollars.

 

      September 30,       September 30,  
    December 31,  
    2011     2010  

Deferred tax assets:

                

Employee deferred compensation plans

   $ 17,280     $ 28,088  

Reserve for litigation and legal fees

     5,469       5,893  

Allowance for doubtful accounts

     1,044       1,175  

Other

     16,317       12,306  
   

 

 

    

 

 

  

Total deferred tax assets

     40,110       47,462  
     

Deferred tax liabilities:

                

Goodwill amortization (Section 197)

     34,915       28,738  

Change in accounting method

     8,075       17,012  

Partnership investments

     7,020       6,863  

Capital markets acquisition (2008)

     4,801       4,982  

Mortgage Servicing Rights

     3,387       —    

Involuntary conversion

     (1,534 )      2,395  

Book versus tax depreciation differences

     (3,675 )      768  

Other

     1,247       2,465  
   

 

 

    

 

 

  

Total deferred tax liabilities

     54,236       63,223  
     

U.S. deferred tax asset/(liabilities), net

     (14,126 )      (15,761 ) 
     

Non U.S. deferred tax asset/(liabilities), net

     3,824       4,714  
   

 

 

    

 

 

  
     

Deferred tax asset/(liabilities), net

   $ (10,302 )    $ (11,047 ) 
   

 

 

    

 

 

  

Goodwill arising from the acquisitions of Josephthal Group Inc. and the Oppenheimer Divisions is being 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.

In June 2006, accounting guidance on Accounting for Uncertainty in Income Taxes was introduced. Such accounting guidance clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company performed a reconciliation of its current and deferred tax payable accounts and identified certain items in which deductions were inadvertently taken on tax returns resulting in uncertain tax positions requiring reclassifications in the Company financial statements of $3.8 million as of December 31, 2011, which includes accrued interest of $753,000. See Note 2 “Revision to financial statements” for further details.

 

The Company is currently under examination by the Internal Revenue Service (the “IRS”) for 2009 and loss carryback years 2004 and 2005. The Company has closed other tax years through 2007. Subsequent tax years remain open. The Company is under examination in various states and overseas jurisdictions in which the Company has significant business operations. The Company has closed tax years through 2006 for New York State and has closed tax years through 2003 with New York City. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years’ examinations. The Company has established tax reserves that the Company believes are adequate in relation to the potential for additional assessments. Once established, the Company adjusts tax reserves only when more information is available or when an event occurs necessitating a change to the reserves. The Company believes that the resolution of tax matters will not have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company’s consolidated statement of operations for a particular future period and on the Company’s effective income tax rate for any period in which such resolution occurs.

The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if such earnings were repatriated. For the year ended December 31, 2011, profit before income taxes for foreign operations was $1.3 million ($3.7 million in 2010 and $5.3 million in 2009). The Company has a net operating loss of $12.7 million related to Oppenheimer Israel (OPCO) Ltd. at December 31, 2011 which it believes realization is more likely than not based on expectations of future taxable income in Israel.