Income Taxes

12 Months Ended

Nov. 30, 2019

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



	Year Ended November 30,
	2019		2018		2017
Income tax expense	$	80,284	$	250,650	$	147,340

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



	Year Ended November 30,
	2019			2018			2017
Current:
U.S. Federal	$	50,970		$	106,761		$	147,065
U.S. state and local	(3,641		)	7,485			30,611
Foreign	10,923			10,139			12,910
Total current	58,252			124,385			190,586
Deferred:
U.S. Federal	19,973			131,233			(53,157		)
U.S. state and local	5,768			975			1,760
Foreign	(3,709		)	(5,943		)	8,151
Total deferred	22,032			126,265			(43,246		)
Total income tax expense	$	80,284		$	250,650		$	147,340

The following table presents the U.S. and non-U.S. components of income before income tax expense (in thousands):



	Year Ended November 30,
	2019		2018		2017
U.S.	$	313,349	$	370,600	$	403,445
Non-U.S. (1)	11,320		39,067		101,479
Income before income tax expense	$	324,669	$	409,667	$	504,924


(1)	For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S.

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rates of 21.0% for the year ended November 30, 2019, 22.2% for the year ended November 30, 2018 and 35% for the year ended November 30, 2017 to earnings before income taxes as a result of the following (dollars in thousands):



	Year Ended November 30,
	2019					2018							2017
	Amount			Percent		Amount			Percent				Amount			Percent
Computed expected income taxes	$	68,181		21.0	%	$	90,945		22.2	%	(1	)	$	176,724		35.0	%
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of Federal income tax benefit	11,638			3.6		20,419			5.0				23,898			4.7
International operations (including foreign rate differential)	4,518			1.4		2,258			0.6				(11,577		)	(2.3	)
Tax exempt income	(634		)	(0.2	)	(2,202		)	(0.5	)			(3,850		)	(0.8	)
Foreign tax credits, net	(1,664		)	(0.5	)	(8,006		)	(2.0	)			(32,974		)	(6.5	)
Meals and entertainment	3,641			1.1		4,528			1.1				4,129			0.8
Non-deductible executive compensation	3,720			1.1		3,011			0.7				442			0.1
Federal benefits related to prior year tax filings	(653		)	(0.2	)	—			—				(3,786		)	(0.8	)
Change in unrecognized tax benefits related to prior years	(7,690		)	(2.4	)	(18,497		)	(4.5	)			(2,953		)	(0.6	)
Deferred tax asset remeasurement related to the Tax Act	—			—		112,733			27.5				—			—
Transition tax on foreign earnings related to the Tax Act	139			0.1		52,417			12.8				—			—
Other, net	(912		)	(0.3	)	(6,956		)	(1.7	)			(2,713		)	(0.4	)
Total income tax expense	$	80,284		24.7	%	$	250,650		61.2	%			$	147,340		29.2	%


(1)	On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act, which reduced the U.S. federal corporate tax rate from 35% to 21%, as well as other changes. The statutory U.S. federal corporate tax rate for companies with a fiscal year end of November 30, 2018 is a blended rate of 22.2%, which was reduced to 21% in fiscal 2019 and thereafter.

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



	Year Ended November 30,
	2019			2018			2017
Balance at beginning of period	$	125,626		$	129,544		$	109,527
Increases based on tax positions related to the current period	8,142			19,840			18,619
Increases based on tax positions related to prior periods	1,399			5,002			7,310
Decreases based on tax positions related to prior periods	(9,560		)	(28,760		)	(5,912		)
Balance at end of period	$	125,607		$	125,626		$	129,544

The total amount of unrecognized tax benefit that, if recognized, would favorably affect the effective tax rate was $99.5 million and $99.4 million (net of benefits of taxes) at November 30, 2019 and 2018, respectively.

We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in our Consolidated Statements of Earnings. Net interest expense related to unrecognized tax benefits was $6.3 million, $1.0 million and $9.0 million for the years ended November 30, 2019, 2018 and 2017, respectively. At November 30, 2019 and 2018, we had interest accrued of approximately $55.6 million and $49.3 million, respectively, included in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. No material penalties were accrued for the years ended November 30, 2019 and 2018.

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,
	2019			2018
Deferred tax assets:
Compensation and benefits	$	223,357		$	240,785
Net operating loss	5,634			17,867
Long-term debt	33,097			39,623
Accrued expenses and other	71,993			65,265
Sub-total	334,081			363,540
Valuation allowance	(3,228		)	(10,650		)
Total deferred tax assets	330,853			352,890
Deferred tax liabilities:
Amortization of intangibles	70,373			69,095
Other	62,433			40,556
Total deferred tax liabilities	132,806			109,651
Net deferred tax asset, included in Other assets	$	198,047		$	243,239

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 $198.0 million at November 30, 2019 is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate.

At November 30, 2019, we had gross net operating loss carryforwards of $5.6 million, primarily related to various European jurisdictions. A deferred tax asset of $5.2 million related to net operating losses in Europe has been partially offset by a valuation allowance of $1.8 million, while $0.3 million of deferred tax asset related to net operating losses in Asia has been fully offset by a valuation allowance. The remaining valuation allowance is attributable to deferred tax assets related to compensation and benefits in the U.K.

We have a tax sharing agreement between us and Jefferies. Refer to Note 20, Related Party Transactions, herein, for further information.

We are currently under examination by numerous taxing 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 $9.5 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	2016
California	2009
New Jersey	2010
New York State	2001
New York City	2003
United Kingdom	2018
Hong Kong	2014
India	2010
Italy	2012

During the quarter ended February 28, 2019, we increased the provisional tax charge that had been recorded during the year ended November 30, 2018 by $0.2 million resulting in a total tax charge of $165.3 million, as a result of the Tax Act. Of this amount, $112.7 million related to the write down of our deferred tax asset, reflecting the impact of a lower federal tax rate of 21% on our deferred tax items. The remaining part of the charge related to the transition tax on the deemed repatriation of unremitted foreign earnings. The measurement period as permitted by Staff Accounting Bulletin No. 118, which was issued by SEC staff on December 22, 2017, was closed during the quarter ended February 28, 2019 and we have completed our accounting as it relates to the Tax Act.

The new tax on global intangible low-taxed income (“GILTI”), became applicable in fiscal 2019. As a result, we made an accounting policy election in the first quarter of 2019 to treat GILTI as a period cost if and when incurred.