The Company is a publicly traded partnership and Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., two of its Intermediate Holding Companies, were wholly-owned corporate subsidiaries. Income earned by these corporate subsidiaries were subject to U.S. federal and state income taxes during the year. Income earned by non-corporate subsidiaries is not subject to U.S. federal corporate income tax and is allocated to the Oaktree Operating Group’s unitholders.

Upon the Restructuring, Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. merged with and into newly formed, indirect subsidiaries of Brookfield, with those subsidiaries surviving the mergers. As a result, as of October 1, 2019, Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. ceased to exist and the Company will no longer include on its financial statements economic interests in Oaktree Capital II, L.P., Oaktree Investment Holdings, L.P., Oaktree Capital Management, L.P., and Oaktree AIF Investments, L.P.

On December 22, 2017, the Tax Act was enacted. The Tax Act reduced the corporate income tax rate from 35% to 21%, and included significant changes to other domestic and international corporate income tax provisions. The rate change resulted in a net reduction to net income attributable to Oaktree Capital Group, LLC of $33.2 million in the fourth quarter of 2017, comprised of $178.2 million in additional tax expense due to a reduction in the Company’s deferred tax assets and a $145.1 million benefit to other income due to a reduction in the Company’s tax receivable agreement liability.



	Year Ended December 31,
	2019			2018		2017
Current:
U.S. federal income tax	$	(93	)	$	4,645	$	4,085
State and local income tax	1,674			2,934		2,687
Foreign income tax	7,933			7,402		5,907
	$	9,514		$	14,981	$	12,679
Deferred:
U.S. federal income tax	$	519		$	8,934	$	191,488
State and local income tax	(158		)	844		10,928
Foreign income tax	(255		)	20		347
	$	106		$	9,798	$	202,763
Total:
U.S. federal income tax	$	426		$	13,579	$	195,573
State and local income tax	1,516			3,778		13,615
Foreign income tax	7,678			7,422		6,254
Income tax expense	$	9,620		$	24,779	$	215,442



	Year Ended December 31,
	2019		2018		2017
Income tax expense at federal statutory rate	21.00	%	21.00	%	35.00	%
Income passed through	(20.96	)	(17.78	)	(31.61	)
State and local taxes, net of federal benefit	0.45		0.55		0.38
Foreign taxes	1.07		0.57		0.23
Deferred tax adjustment	—		—		19.76
Other, net	0.86		0.72		0.05
Total effective rate	2.42	%	5.06	%	23.81	%



	As of December 31,
	2019		2018		2017
Deferred tax assets:
Investment in partnerships	$	—	$	210,678	$	191,713
Equity-based compensation expense	—		5,535		3,537
Net operating losses	—		7,393		—
Other ⁽¹⁾	3,096		9,191		9,311
Total deferred tax assets	3,096		232,797		204,561
Total deferred tax liabilities	—		3,697		2,101
Net deferred tax assets before valuation allowance	3,096		229,100		202,460
Valuation allowance	—		—		—
Net deferred tax assets	$	3,096	$	229,100	$	202,460

When assessing the realizability of deferred tax assets, the Company considers whether it is probable that some or all of the deferred tax assets will not be realized. In determining whether the deferred tax assets are realizable, the Company considers the period of expiration of the tax asset, historical and projected taxable income, and tax liabilities for the tax jurisdiction in which the tax asset is located. The deferred tax asset recognized by the Company, as it relates to the higher tax basis in the carrying value of certain assets compared to the book basis of those assets, will be recognized in future years by these taxable entities. Deferred tax assets are based on the amount of the tax benefit that the Company’s management has determined is more likely than not to be realized in future periods. In determining the realizability of this tax benefit, management considered numerous factors that will give rise to pre-tax income in future periods. Among these are the historical and expected future book and tax basis pre-tax income of the Company and unrealized gains in the Company’s assets at the determination date. Based on these and other factors, the Company determined that, as of December 31, 2019, all deferred tax assets were more likely than not to be realized in future periods.

The Company recognizes tax benefits related to its tax positions only where the position is “more likely than not” to be sustained in the event of examination by tax authorities. As part of its assessment, the Company analyzes its tax filing positions in all of the federal, state and foreign tax jurisdictions where it is required to file income tax returns, and for all open tax years in these jurisdictions. As of December 31, 2019, the total reserve balance, including interest and penalties, was $0.2 million.



	Year Ended December 31,
	2019			2018			2017
Unrecognized tax benefits, January 1	$	2,699		$	4,366		$	5,768
Additions for tax positions related to the current year	—			—			350
Additions for tax positions related to prior years	—			—			—
Reductions for tax positions related to prior years ⁽¹⁾	(2,440		)	(18		)	(412		)
Settlements	—			(1,423		)	—
Lapse in statute of limitations	(152		)	(226		)	(1,340		)
Unrecognized tax benefits, December 31	$	107		$	2,699		$	4,366

As of October 1, 2019, all unrecognized tax benefits related to Oaktree Holdings, Inc., Oaktree AIF Holdings, Inc., and Oaktree Capital Management, L.P. were transferred through equity to Brookfield. If the above tax benefits as of December 31, 2019 were to be recognized in 2019, the $0.1 million would impact the annual effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax positions in the provision for income taxes in the consolidated statements of operations. As of December 31, 2019 and 2018, respectively, the aggregate amount of interest and penalties accrued was $0.1 million and $1.9 million. The Company recognized a net expense of $0.2 million, net benefit of $1.2 million and net expense of $0.1 million in 2019, 2018 and 2017, respectively.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax regulators. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for periods before 2016. Tax authorities currently are examining certain income tax returns of Oaktree, with certain of these examinations at an advanced stage. Over the next twelve months ending December 31, 2020, the Company believes that it is reasonably possible that one outcome of these current examinations and expiring statutes of limitation on other items may be the release of up to approximately $0.2 million of previously accrued Operating Group income taxes. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to its tax examinations and that any settlements related thereto will not have a material adverse effect on the Company’s consolidated financial statements; however, there can be no assurances as to the ultimate outcomes.

Under the terms of an exchange agreement in effect prior to the Merger, each OCGH unitholder, subject to certain restrictions, including the approval of our board of directors, had the right to (or could have been required to) exchange his or her OCGH units for, at the option of the Company’s board of directors, Class A units, an equivalent amount of cash based on then-prevailing market prices, other consideration of equal value or any combination of the foregoing. These exchanges resulted in, increases in the tax basis of the tangible and intangible assets of the Oaktree Operating Group. These increases in tax basis have increased and will increase (for tax purposes) depreciation and amortization deductions and reduce gain on sales of assets, and therefore reduce the taxes of two Intermediate Holding Companies, Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc., that were our subsidiaries prior to the Merger.

Prior to the Merger, Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. entered into a tax receivable agreement with the OCGH (the “Original TRA”) unitholders that provided for the payment by Oaktree Holdings, Inc. and Oaktree AIF Holdings, Inc. to the OCGH unitholders of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. actually realizes (or is deemed to realize in the case of an early termination payment by Oaktree Holdings, Inc. or Oaktree AIF Holdings, Inc. or a change of control, as discussed below) as a result of these increases in tax basis and of certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments

At the closing of the Merger, Oaktree entered into a Third Amended and Restated Tax Receivable Agreement (the "TRA Amendment"), which amended and restated the Original TRA. Pursuant to the TRA Amendment, the Original TRA no longer applies and no Tax Benefit Payments (as defined in the Original TRA) will be made with respect to any exchanges of OCGH units that occur on or after March 13, 2019. With respect to any exchanges of OCGH units that occurred prior to March 13, 2019, the TRA Amendment provides that Tax Benefit Payments (as defined in the Original TRA) will continue to be made with respect to such exchanges in accordance with the Original TRA (as amended in certain respects, including that such payments will be calculated without taking into account any tax attributes of Brookfield). Note that upon closing of the Merger, all of the obligation for future Tax Benefit Payments were transferred to the entities that were deconsolidated as part of the Restructuring effective October 1, 2019.