INCOME TAXES |
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2012 |
|
2011 |
|
2010 |
|
Current |
|
|
|
|
|
|
|
|
|
|
Federal Income Tax |
|
$ |
45,918 |
|
$ |
79,713 |
|
$ |
51,164 |
|
State and Local Income Tax |
|
|
19,233 |
|
|
30,508 |
|
|
11,695 |
|
Foreign Income Tax |
|
|
14,348 |
|
|
11,581 |
|
|
12,837 |
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
79,499 |
|
|
121,802 |
|
|
75,696 |
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
Federal Income Tax |
|
|
(25,929 |
) |
|
(23,760 |
) |
|
1,795 |
|
State and Local Income Tax |
|
|
(9,542 |
) |
|
(6,501 |
) |
|
(1,655 |
) |
Foreign Income Tax |
|
|
(623 |
) |
|
(2,296 |
) |
|
(476 |
) |
|
|
|
|
|
|
|
|
Subtotal |
|
|
(36,094 |
) |
|
(32,557 |
) |
|
(336 |
) |
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
43,405 |
|
$ |
89,245 |
|
$ |
75,360 |
|
|
|
|
|
|
|
|
|
The following table reconciles income before taxes at the statutory rate to the effective tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2012 |
|
2011 |
|
2010 |
|
Income Before Taxes at Statutory Rate |
|
$ |
2,825,077 |
|
$ |
338,006 |
|
$ |
2,748,141 |
|
Income not attributable to KKR Management Holdings Corp.(a) |
|
|
(2,887,575 |
) |
|
(339,054 |
) |
|
(2,817,081 |
) |
Foreign Income Taxes |
|
|
13,724 |
|
|
9,285 |
|
|
12,361 |
|
State and Local Income Taxes |
|
|
6,451 |
|
|
18,193 |
|
|
7,065 |
|
Compensation Charges Borne by Holdings |
|
|
112,455 |
|
|
64,695 |
|
|
134,188 |
|
Other |
|
|
(26,727 |
) |
|
(1,880 |
) |
|
(9,314 |
) |
|
|
|
|
|
|
|
|
Effective Tax Expense |
|
$ |
43,405 |
|
$ |
89,245 |
|
$ |
75,360 |
|
|
|
|
|
|
|
|
|
- (a)
- Represents primarily income attributable to (i) redeemable noncontrolling interests, (ii) noncontrolling interests and (iii) net carried interest of certain general partners of KKR investment vehicles that are not owned by KKR Management Holdings L.P.
Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted tax rates in effect for the year in which the differences are expected to reverse. A summary of the tax effects of the temporary differences is as follows:
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2012 |
|
2011 |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
Fund Management Fees |
|
$ |
54,660 |
|
$ |
34,428 |
|
Equity Based Compensation |
|
|
17,008 |
|
|
11,248 |
|
KKR Holdings Unit Exchanges(a) |
|
|
85,018 |
|
|
47,658 |
|
Other |
|
|
1,797 |
|
|
2,976 |
|
|
|
|
|
|
|
Total Deferred Tax Assets |
|
$ |
158,483 |
|
$ |
96,310 |
|
|
|
|
|
|
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
Investment Basis Difference / Net Unrealized Gains |
|
$ |
47,735 |
|
$ |
58,883 |
|
Other |
|
|
5,094 |
|
|
3,302 |
|
|
|
|
|
|
|
Total Deferred Tax Liabilities |
|
$ |
52,829 |
|
$ |
62,185 |
|
|
|
|
|
|
|
- (a)
- In connection with exchanges of KKR Holdings units into common units of KKR, KKR recorded a deferred tax asset associated with an increase in KKR Management Holdings Corp.'s share of the tax basis of the tangible and intangible assets of KKR Management Holdings L.P. This amount was offset by an adjustment to record amounts Due to KKR Holdings and executives under the tax receivable agreement, which is included within Due to Affiliates in the statements of financial condition. The net of these adjustments was recorded as an adjustment to equity at the time of the exchanges.
KKR files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, KKR is subject to examination by federal and certain state, local and foreign tax regulators. As of December 31, 2012, the federal, state and local tax returns of KKR and its predecessor entities for the years 2009 through 2011 are open under normal statute of limitations and are therefore subject to examination.
At December 31, 2012, 2011and 2010, KKR's unrecognized tax benefits, excluding related interest and penalties, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2012 |
|
2011 |
|
2010 |
|
Unrecognized Tax Benefits, beginning of period |
|
$ |
3,850 |
|
$ |
3,973 |
|
$ |
4,640 |
|
Gross increases in tax positions in prior periods |
|
|
31 |
|
|
175 |
|
|
— |
|
Gross decreases in tax positions in prior periods |
|
|
— |
|
|
— |
|
|
(1,722 |
) |
Gross increases in tax positions in current period |
|
|
985 |
|
|
555 |
|
|
1,227 |
|
Gross decreases in tax positions in current period |
|
|
— |
|
|
— |
|
|
— |
|
Settlement of tax positions |
|
|
— |
|
|
— |
|
|
— |
|
Lapse of statute of limitations |
|
|
(239 |
) |
|
(853 |
) |
|
(172 |
) |
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits, end of period |
|
$ |
4,627 |
|
$ |
3,850 |
|
$ |
3,973 |
|
|
|
|
|
|
|
|
|
If the above tax benefits were recognized it would reduce the annual effective income tax rate. KKR believes that there will not be a significant increase or decrease to the tax positions within 12 months of the reporting date.
The unrecognized tax benefits are recorded in Accounts Payable, Accrued Expenses and Other Liabilities. KKR recognizes interest and penalties accrued related to unrecognized tax positions in income taxes. For the years ended December 31, 2012, 2011 and 2010, interest and penalties included in KKR's tax provision were immaterial.
|