Income Taxes (Notes)

12 Months Ended

Dec. 31, 2019

The provision for income taxes consists of:



	As of December 31,
	2019		2018			2017
Current federal income tax provision	$	13,952,230	$	15,731,258		$	24,749,832
Current state and local income tax provision	3,656,997		8,560,479			1,774,395
Deferred income tax expense (benefit)	1,079,247		(5,622,396		)	2,893,063
Provision for income taxes	$	18,688,474	$	18,669,341		$	29,417,290

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



	2019			2018			2017
Income tax computed at statutory rate	$	16,472,987		$	13,646,583		$	28,356,636
Expense (benefit) attributable to redeemable noncontrolling interests^(a)	(1,007,012		)	222,624			(564,449		)
State and local income taxes, net of federal benefit	2,835,215			2,993,730			1,153,357
Change in uncertain state and local tax positions, net of federal benefit	(47,197		)	2,982,337			—
Revaluation adjustment of net deferred tax assets^(b)	—			(917,288		)	3,557,039
Excess tax benefits on vesting of Restricted Stock	(70,878		)	(667,697		)	(2,420,250		)
Income tax benefit from dividends paid on Restricted Stock	(431,192		)	(340,200		)	(418,583		)
Interest and Penalties	101,010			786,711			—
Other	835,541			(37,459		)	(246,460		)
Income tax expense	$	18,688,474		$	18,669,341		$	29,417,290

(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, 2019 and 2018:



	2019			2018
Stock-based compensation	$	4,571,430		$	4,025,255
Accrued compensation	8,496,929			6,684,531
Unrealized losses (gains)	(2,150,699		)	1,323,181
Property and equipment	(553,265		)	(498,271		)
Other assets and liabilities	22,458			(68,596		)
Net deferred tax assets	$	10,386,853		$	11,466,100

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, 2019, no valuation allowance was deemed necessary.

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.

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, 2015 through 2019. During 2019 the Company closed an examination with the New York State Department of Finance and Taxation for tax years 2014 through 2016. 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. The Company is currently under examination by the California Franchise Tax Board for the Company’s 2015 and 2016 tax years and the audit is ongoing.

The outcome of the current tax examination 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, 2019, 2018 and 2017, 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:



	2019			2018		2017
Uncertain tax positions, beginning of the year	$	2,982,337		$	—	$	—
Gross addition for tax positions of the current year	—			—		—
Gross additions for tax positions of prior years	—			2,982,337		—
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations	—			—		—
Settlements during the period	(2,935,140		)	—		—
Changes in judgment/excess reserve	(47,197		)	—		—
Uncertain tax positions, end of year	$	—		$	2,982,337	$	—

In addition to the above uncertain tax positions, the Company recognized $0.1 million and $0.8 million of interest and penalties in the years ended December 31, 2019 and 2018, respectively. No interest and penalties were accrued for uncertain tax positions during the year ended December 31, 2017.