Income Taxes

Total income taxes were allocated as follows (in thousands):



	Successor								Predecessor
	Year Ended November 30, 2015		Year Ended November 30, 2014			Nine Months Ended November 30, 2013			Three Months Ended February 28, 2013
Income tax expense	$	18,898	$	142,061		$	94,686		$	48,645
Stockholders’ equity, for compensation expense for tax purposes (in excess of)/less than amounts recognized for financial reporting purposes	$	5,935	$	(1,276	)	$	(2,873	)	$	17,965

The provision for income tax expense consists of the following components (in thousands):



	Successor								Predecessor
	Year Ended November 30, 2015			Year Ended November 30, 2014		Nine Months Ended November 30, 2013			Three Months Ended February 28, 2013
Current:
U.S. Federal	$	(45,007	)	$	4,335	$	50,089		$	22,936
U.S. state and local	(28,260		)	4,056		6,263			(3,176		)
Foreign	3,369			11,475		7,050			(1,950		)
	(69,898		)	19,866		63,402			17,810
Deferred:
U.S. Federal	74,085			87,293		25,262			17,392
U.S. state and local	22,811			27,181		8,868			9,761
Foreign	(8,100		)	7,721		(2,846		)	3,682
	88,796			122,195		31,284			30,835
	$	18,898		$	142,061	$	94,686		$	48,645

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate of 35% to earnings before income taxes as a result of the following (in thousands):



	Successor															Predecessor
	Year Ended November 30, 2015					Year Ended November 30, 2014					Nine Months Ended November 30, 2013					Three Months Ended February 28, 2013
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
Computed expected income taxes	$	39,979		35.0	%	$	106,058		35.0	%	$	92,504		35.0	%	$	48,820		35.0	%
Increase (decrease) in income taxes resulting from:
State and city income taxes, net of Federal income tax benefit	(3,542		)	(3.1	)	20,304			6.7		9,835			3.7		4,280			3.1
Income allocated to Noncontrolling interest, not subject to tax	(628		)	(0.5	)	(1,190		)	(0.4	)	(2,946		)	(1.1	)	(3,553		)	(2.5	)
Foreign rate differential	(10,130		)	(8.9	)	(9,024		)	(2.9	)	(4,750		)	(1.8	)	(2,993		)	(2.2	)
Tax exempt income	(6,789		)	(5.9	)	(6,746		)	(2.2	)	(3,742		)	(1.4	)	(1,003		)	(0.7	)
Non deductible settlements	—			—		3,850			1.3		4,900			1.9		—			—
Valuation allowance related to Futures business	—			—		4,655			1.5		—			—		—			—
Goodwill impairment	—			—		13,619			4.5		—			—		—			—
Foreign tax credits	(7,240		)	(6.3	)	(3,149		)	(1.0	)	—			—		—			—
Non-deductible Bache Wind down Costs	3,225			2.8		—			—		—			—		—			—
Meals & entertainment	5,232			4.6		4,103			1.4		2,908			1.1		890			0.6
Other, net	(1,209		)	(1.2	)	9,581			3.0		(4,023		)	(1.6	)	2,204			1.6
Total income taxes	$	18,898		16.5	%	$	142,061		46.9	%	$	94,686		35.8	%	$	48,645		34.9	%

The following table presents a reconciliation of gross unrecognized tax benefits (in thousands):



	Successor									Predecessor
	Year Ended November 30, 2015			Year Ended November 30, 2014			Nine Months Ended November 30, 2013			Three Months Ended February 28, 2013
Balance at beginning of period	$	126,662		$	126,844		$	129,010		$	110,539
Increases based on tax positions related to the current period	—			4,831			8,748			7,185
Increases based on tax positions related to prior periods	2,818			1,624			7,383			15,356
Decreases based on tax positions related to prior periods	(3,883		)	(1,709		)	(18,297		)	(4,070		)
Decreases related to settlements with taxing authorities	(17,695		)	(4,928		)	—			—
Balance at end of period	$	107,902		$	126,662		$	126,844		$	129,010

The total amount of unrecognized benefit that, if recognized, would favorably affect the effective tax rate was $71.9 million and $84.5 million (net of federal benefits of taxes) at November 30, 2015 and November 30, 2014, respectively.

We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in the Consolidated Statements of Earnings. Net interest expense related to unrecognized tax benefits was $2.2 million, $7.7 million and $5.8 million for the year ended November 30, 2015, the year ended November 30, 2014 and the nine months ended November 30, 2013, respectively. For the three months ended February 28, 2013, interest expense was $1.8 million. At November 30, 2015 and November 30, 2014, we had interest accrued of approximately $32.8 million and $30.6 million, respectively, included in Accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the years ended November 30, 2015 and November 30, 2014.

The cumulative tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below (in thousands):



	November 30, 2015			November 30, 2014
Deferred tax assets:
Compensation and benefits	$	253,291		$	302,072
Net operating loss	14,985			17,830
Long-term debt	95,765			140,685
Accrued expenses and other	106,136			89,273
Sub-total	470,177			549,860
Valuation allowance	(13,337		)	(13,069		)
Total deferred tax assets	456,840			536,791
Deferred tax liabilities:
Amortization of intangibles	103,560			97,268
Other	26,345			26,454
Total deferred tax liabilities	129,905			123,722
Net deferred tax asset, included in Other assets	$	326,935		$	413,069

The valuation allowance represents the portion of our deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. We believe that the realization of the net deferred tax asset of $326.9 million is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate.

At November 30, 2015, we had gross net operating loss carryforwards in Asia, primarily Japan, and in Europe, primarily the United Kingdom (“U.K.”), of approximately $74.4 million, in aggregate. The Japanese losses begin to expire in the year 2018, while the U.K. losses have an unlimited carryforward period. A deferred tax asset of $1.3 million related to net operating losses in Asia has been fully offset by a valuation allowance while a $5.9 million deferred tax asset related to net operating losses in Europe has been fully offset by a valuation allowance. The remaining valuation allowance is attributable to deferred tax assets related to compensation and benefits, capital losses, and tax credits in the U.K.

Pursuant to a tax sharing agreement entered into between us and Leucadia, payments are made between us and Leucadia to settle current tax assets and liabilities. At November 30, 2015, there is a net current tax receivable of $109.5 million from Leucadia.

At November 30, 2015 and November 30, 2014, we had approximately $205.0 million and $171.0 million, respectively, of earnings attributable to foreign subsidiaries for which no U.S. Federal income tax provision has been recorded. Except to the extent such earnings can be repatriated tax efficiently, they are permanently invested abroad. Accordingly, a deferred tax liability of approximately $59.0 million and $46.0 million has not been recorded with respect to these earnings at November 30, 2015 and November 30, 2014, respectively.

We are currently under examination by the Internal Revenue Service and other major tax jurisdictions. We do not expect that resolution of these examinations will have a material effect on our consolidated financial position, but could have a material impact on the consolidated results of operations for the period in which resolution occurs. It is reasonably possible that, within the next twelve months, statutes of limitation will expire which would have the effect of reducing the balance of unrecognized tax benefits by $3.8 million.

The table below summarizes the earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate:



Jurisdiction	Tax Year
United States	2007
California	2006
New Jersey	2010
New York State	2001
New York City	2003
United Kingdom	2014