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Income taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income taxes |
15. | 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:
(Expressed in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | For the Year Ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
|  | Amount |  |  | Percentage |  |  | Amount |  |  | Percentage |  |  | Amount |  |  | Percentage |
U.S. federal statutory income tax rate |  | $ | 15,368 |  |  |  | 35.0 | % |  | $ | (184 | ) |  |  | 35.0 | % |  | $ | 6,246 |  |  |  | 35.0 | %
U.S. state and local income taxes, net of U.S. federal income tax benefits |  |  | 2,131 |  |  |  | 4.9 | % |  |  | (1,585 | ) |  |  |  |  |  |  | 840 |  |  |  | 4.7 | %
Unrecognized tax benefit |  |  | 1,244 |  |  |  | 2.8 | % |  |  | 1,524 |  |  |  |  |  |  |  | — |  |  |  | 0.0 | %
Tax exempt income, net of interest expense |  |  | (715 | ) |  |  | -1.6 | % |  |  | (561 | ) |  |  |  |  |  |  | (647 | ) |  |  | -3.6 | %
Business promotion and other non-deductible expenses |  |  | 660 |  |  |  | 1.5 | % |  |  | 851 |  |  |  |  |  |  |  | 620 |  |  |  | 3.5 | %
Insurance proceeds, non-taxable |  |  | (597 | ) |  |  | -1.4 | % |  |  | (349 | ) |  |  |  |  |  |  | (821 | ) |  |  | -4.6 | %
Adjustment to reflect prior year tax return filings |  |  | (251 | ) |  |  | -0.6 | % |  |  | (294 | ) |  |  |  |  |  |  | (552 | ) |  |  | -3.1 | %
Tax rate change on deferred income taxes |  |  | 208 |  |  |  | 0.5 | % |  |  | 390 |  |  |  |  |  |  |  | (734 | ) |  |  | -4.1 | %
Non-U.S. operations |  |  | 185 |  |  |  | 0.4 | % |  |  | 678 |  |  |  |  |  |  |  | 348 |  |  |  | 1.9 | %
Other |  |  | (477 | ) |  |  | -1.1 | % |  |  | (146 | ) |  |  |  |  |  |  | (69 | ) |  |  | -0.4 | %
Total income tax expense |  | $ | 17,756 |  |  |  | 40.4 | % |  | $ | 324 |  |  |  | n/m |  |  | $ | 5,231 |  |  |  | 29.3 | %
n/m = not meaningful Income taxes included in the consolidated statements of operations represent the following:
(Expressed in thousands) |  |  |  |  |  |  |  |  |
|  | For the Year Ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal tax (benefit) |  | $ | (2,984 | ) |  | $ | 19,918 |  |  | $ | 5,312 |
State and local tax |  |  | 1,885 |  |  |  | 2,765 |  |  |  | 19 |
Non-U.S. operations |  |  | 116 |  |  |  | (61 | ) |  |  | 113 |
|  |  | (983 | ) |  |  | 22,622 |  |  |  | 5,444 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. federal tax (benefit) |  |  | 16,658 |  |  |  | (17,303 | ) |  |  | 143 |
State and local tax (benefit) |  |  | 2,482 |  |  |  | (4,890 | ) |  |  | (1,029 | )
Non-U.S. operations |  |  | (401 | ) |  |  | (105 | ) |  |  | 673 |
|  |  | 18,739 |  |  |  | (22,298 | ) |  |  | (213 | )
|  | $ | 17,756 |  |  | $ | 324 |  |  | $ | 5,231 |
Profit (loss) before income taxes with respect to foreign operations was $(1.3) million, $(2.4) million and $1.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. Tax expense for 2013 was higher than in 2012 primarily because the Company earned pretax income in 2013 versus pretax loss in 2012. Also, the Company recorded fewer tax credits in 2013 related to state investment and employment incentive for investments than it recorded in 2012. ($335,500 in 2013 compared to $1.9 million in 2012, both figures being net of federal taxes). These factors gave rise to an increase in the Company’s tax expense for 2013, but were partially offset by other factors that mitigated the tax expense increase. The mitigating factors primarily consisted of higher levels of tax-exempt income in 2013 compared to 2012 (including interest income on municipal bonds and proceeds of life insurance on employees of which the Company is the beneficiary), lower levels of nondeductible fines and penalties in 2013 compared to 2012, and a lesser increase in tax reserves in 2013 compared to 2012. The Company permanently reinvests eligible earnings of its foreign subsidiaries and, accordingly, does not accrue any U.S. income taxes that would arise if these earnings were repatriated. The unrecognized deferred tax liability associated with earnings of foreign subsidiaries, net of associated U.S. foreign tax credits, is $1.6 million for those subsidiaries with respect to which the Company would be subject to residual U.S. tax on cumulative earnings through 2013 were those earnings to be repatriated. 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, 2013 and 2012 were as follows:
(Expressed in thousands) |  |  |  |  |  |
|  | For the Year Ended December 31, |
|  | 2013 |  |  | 2012 |
Deferred tax assets: |  |  |  |  |  |  |  |
Employee deferred compensation plans |  | $ | 31,117 |  |  | $ | 22,819 |
Deferred rent |  |  | 10,451 |  |  |  | 9,948 |
Lease incentive |  |  | 6,693 |  |  |  | — |
Broker notes |  |  | 3,915 |  |  |  | 3,842 |
Auction rate securities reserve |  |  | 3,669 |  |  |  | 3,115 |
State and local net operating loss/credit carryforward |  |  | 1,993 |  |  |  | 750 |
Involuntary conversion |  |  | 1,866 |  |  |  | 1,686 |
Reserve for litigation and legal fees |  |  | 1,659 |  |  |  | 17,019 |
Allowance for doubtful accounts |  |  | 1,002 |  |  |  | 941 |
Other |  |  | 2,757 |  |  |  | 1,318 |
Total deferred tax assets |  |  | 65,122 |  |  |  | 61,438 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill amortization (Section 197) |  |  | 43,728 |  |  |  | 39,391 |
Partnership investments |  |  | 12,039 |  |  |  | 6,273 |
Mortgage servicing rights |  |  | 9,889 |  |  |  | 6,679 |
Company owned life insurance |  |  | 5,173 |  |  |  | 1,638 |
Change in accounting method |  |  | 3,895 |  |  |  | — |
Book versus tax depreciation differences |  |  | 1,374 |  |  |  | (5,931 | )
Other |  |  | 603 |  |  |  | 921 |
Total deferred tax liabilities |  |  | 76,701 |  |  |  | 48,971 |
U.S. deferred tax assets (liabilities), net |  |  | (11,579 | ) |  |  | 12,467 |
Non U.S. deferred tax assests (liabilities), net |  |  | 4,483 |  |  |  | 3,873 |
Deferred tax assets (liabilities), net |  | $ | (7,096 | ) |  | $ | 16,340 |
The Company has deferred tax assets at December 31, 2013 of $3.0 million, $1.0 million and $479,000 arising from net operating losses incurred by Oppenheimer Israel (OPCO) Ltd., Oppenheimer Investments Asia Limited, and Oppenheimer Europe Ltd., respectively. The Company believes that realization of the deferred tax assets is more likely than not based on expectations of future taxable income in Israel, Asia and Europe. 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). The Company has a deferred tax asset of $1.0 million (net of federal taxes) as of December 31, 2013 arising primarily from New York State Investment Tax Credits and Employment Incentive Credits carried forward to future years. These credits will expire if not used by 2027. 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. The Company or one or more of its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various states and foreign jurisdictions. The Company is currently under examination in the U.S. federal jurisdiction by the Internal Revenue Service (the “IRS”) for 2010. The Company has closed other tax years through 2009 in the U.S. federal jurisdiction. 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 2007 for New York State and is currently under exam for the period 2008 to 2011. The Company also has closed tax years through 2007 with New York City and is currently under exam for the 2008 tax year. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2008. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from the aforementioned examinations and those that may take place for subsequent years. 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 balance sheet 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 has unrecognized tax benefits of $1.6 million, $5.2 million and $2.3 million as of December 31, 2013, 2012 and 2011, respectively (as shown on the table below). Included in the balance of unrecognized tax benefits as of December 31, 2013 and 2012 are $1.3 million and $661,000, respectively, of tax benefits that, if recognized, would affect the effective tax rate. During the year ended December 31, 2013, the Company reclassified $4.9 million of unrecognized tax benefit to other tax accounts when the Internal Revenue Service approved the Company’s application for a tax accounting method change. A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:
(Expressed in thousands) |  |  |  |  |  |  |  |  |
|  | 2013 |  |  | 2012 |  |  | 2012 |
Balance at January 1, |  | $ | 5,236 |  |  | $ | 2,317 |  |  | $ | — |
Additions for tax positions of prior years |  |  | 1,168 |  |  |  | 2,919 |  |  |  | 2,317 |
Additions for tax positions of current year |  |  | 77 |  |  |  | — |  |  |  | — |
Reclass to other tax accounts |  |  | (4,907 | ) |  |  | — |  |  |  | — |
Balance at December 31, |  | $ | 1,574 |  |  | $ | 5,236 |  |  | $ | 2,317 |
The Company records interest and penalties accruing on unrecognized tax benefits in pretax income as interest expense and other expense on its consolidated statements of operations, respectively. For the years ended December 31, 2013 and 2012, the Company recorded tax-related interest (benefit) expense of $(284,000) and $(408,000), respectively, in its statement of operations. At December 31, 2013 and 2012, the Company had an income tax-related interest payable of $61,000 and $345,000, respectively, on its consolidated balance sheet.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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