Income Taxes

The provision for income taxes consists of:



	As of December 31,
	2018			2017		2016
Current federal income tax provision	$	15,731,258		$	24,749,832	$	24,234,050
Current state and local income tax provision	8,560,479			1,774,395		1,964,273
Deferred income tax expense (benefit)	(5,622,396		)	2,893,063		469,312
Provision for income taxes	$	18,669,341		$	29,417,290	$	26,667,635

A reconciliation of income tax expense at the statutory federal rate to the Company’s income tax expense is as follows:



	2018			2017			2016
Income tax computed at statutory rate	$	13,646,583		$	28,356,636		$	25,641,618
Expense (benefit) attributable to redeemable noncontrolling interests^(a)	222,624			(564,449		)	(189,773		)
State and local income taxes, net of federal benefit	2,993,730			1,153,357			1,276,777
Change in uncertain state and local tax positions, net of federal benefit	2,982,337			—			—
Revaluation adjustment of net deferred tax assets^(b)	(917,288		)	3,557,039			—
Excess tax benefits on vesting of Restricted Stock	(667,697		)	(2,420,250		)	—
Income tax benefit from dividends paid on Restricted Stock	(340,200		)	(418,583		)	—
Interest and Penalties	786,711			—			15,748
Other	(37,459		)	(246,460		)	(76,735		)
Income tax expense	$	18,669,341		$	29,417,290		$	26,667,635

(a) The provision for income taxes includes expense (benefit) attributable to the fact that the Company’s operations include the Consolidated Funds which are not subject to federal income taxes. Accordingly, a portion of the Company’s earnings are not subject to corporate tax levels.

(b) The provision for income taxes for 2018 includes the remeasurement of our net deferred tax assets of $0.9 million due to the additional state and local tax we expect to pay in future tax periods. The provision for income taxes for 2017 includes a non-recurring charge of $3.6 million for the remeasurement of our net deferred tax assets to reflect the effect of the U.S. tax law changes enacted on December 22, 2017.

Deferred income taxes and benefits arise from temporary differences between taxable income for financial statement and income tax return purposes. Net deferred tax assets consisted of the following at December 31, 2018 and 2017:



	2018			2017
Stock-based compensation	$	4,025,255		$	2,868,719
Accrued compensation	6,684,531			5,795,204
Unrealized losses (gains)	1,323,181			(2,260,673		)
Property and equipment	(498,271		)	(467,127		)
Other assets and liabilities	(68,596		)	(92,419		)
Net deferred tax assets	$	11,466,100		$	5,843,704

The net temporary differences incurred to date will reverse in future periods as the Company generates taxable earnings. The Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets recorded. The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2018, no valuation allowance was deemed necessary.

The Company implemented ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” on January 1, 2017. Beginning January 1, 2017, any excess tax benefits or deficiencies from the vesting of stock awards are recognized through the income tax provision as opposed to common stock. For Restricted Stock, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company also records income tax benefits from dividends paid on Restricted Stock. This change was required to be applied prospectively to all excess tax benefits and tax deficiencies after the date of adoption of the ASU. No adjustment is recorded for any windfall benefits previously recorded in common stock. In addition, all tax-related cash flows resulting from share based payments are now reported as operating activities in the statement of cash flows under the new guidance, rather than the prior requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company elected to adopt this change in cash flow presentation prospectively after the date of adoption of the ASU beginning January 1, 2017.

Prior to January 1, 2017, the Company’s income taxes payable has been reduced by the tax benefits from equity incentive plan awards. These tax benefits were considered windfall tax benefits and were recognized as an increase to common stock. For Restricted Stock, the Company receives an excess income tax benefit calculated as the tax effect of the difference between the fair market value of the stock at the time of grant and vesting. The Company also records a tax benefit on dividends paid on Restricted Stock during the vesting period. The Company had net tax benefits from equity awards of $6.3 million for the year ended December 31, 2016.

FASB ASC 740, Income Taxes, 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 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes tax benefits related to positions taken, or expected to be taken, on its tax returns, only if the positions are "more-likely-than-not" sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements.

There was a $3.0 million increase to the total amount of unrecognized tax benefits related to tax uncertainties during 2018. The increase was the result of tax positions taken regarding state tax apportionment issues based on management’s judgment and latest information available.

The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of various states. Generally the Company is subject to federal, state and local examinations by tax authorities for the tax years ended December 31, 2014 through 2018. The Company is currently under examination for tax years 2014 through 2016 with the New York State Department of Finance and Taxation. The New York State Department of Finance and Taxation issued a Consent to Field Audit Adjustment which means the Company and the New York State Department of Finance and Taxation are nearing the completion of the examination, however, the examination was not completed as of December 31, 2018. During 2018, the Company reassessed its New York City filing positions and filed a Voluntary Disclosure Agreement with the New York City Department of Finance. During 2018, the California Franchise Tax Board started the audit of the Company’s 2015 and 2016 tax years. No Notices of Proposed Assessments have been issued by the California Franchise Tax Board by December 31, 2018 and the audit is ongoing.

The outcome of these examinations is not expected to have a material impact on the Company’s financial statements. The Company believes that some of these audits and negotiations will conclude within the next 12 months and that it is reasonably possible the amount of uncertain tax positions, including interest, may change by an immaterial amount due to settlements of audits.

The amount of uncertain tax positions as of December 31, 2018, 2017 and 2016, respectively, which would impact the Company’s effective tax rate if recognized and a reconciliation of the beginning and ending amounts of uncertain tax positions is as follows:



	2018		2017		2016
Uncertain tax positions, beginning of the year	$	—	$	—	$	—
Gross addition for tax positions of the current year	—		—		—
Gross additions for tax positions of prior years	2,982,337		—		—
Uncertain tax positions, end of year	$	2,982,337	$	—	$	—

In addition to the above uncertain tax positions, the Company recognized $0.8 million of interest and penalties which were accrued for during the year ended December 31, 2018. No interest and penalties were accrued for uncertain tax positions during the years ended December 31, 2017 and 2016.