INCOME TAXES

The Company's provision for income taxes in interim periods is based on an estimated annual effective income tax rate derived, in part, from estimated annual pre-tax results from ordinary operations. The annual effective income tax rate is reviewed and, if necessary, adjusted on a quarterly basis.

The Company's income tax expense consisted of the following:



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2015		2014			2015		2014
Income before provision for income taxes	$	29,357	$	31,669		$	94,321	$	57,272
Income tax expense using estimated annual effective income tax rate	11,557		9,932			37,238		17,962
Changes in effective tax rates	1,539		(374		)	—		—
Impact of discrete items, net	412		1,305			313		1,944
Inclusion of tax liabilities from unincorporated entities	—		1,101			—		1,101
Income tax expense	$	13,508	$	11,964		$	37,551	$	21,007

The discrete item for the nine months ended September 30, 2015 is primarily related to a change in the marginal state tax rate as a result of recent state legislations changes, the rate differential in other comprehensive income and the results of recent state income tax audits.

In the first quarter of 2014, the Company properly determined an adjustment for $1,944 related to its marginal tax rate was required as a result of its acquisition of 20.59% of Douglas Elliman Realty, LLC. This amount was originally recorded as additional income tax expense of $639, a reduction of Additional Paid-In Capital of $865 and a reduction of Other Comprehensive Income of $440. During the three months ended September 30, 2014, the Company reassessed the treatment of the previously recorded reductions to Additional Paid-In-Capital and Accumulated Other Comprehensive Income and reclassified such amounts as an increase to income tax expense. The Company assessed the materiality of the misclassifications on the financial statements in the prior quarters of 2014 and concluded that it was immaterial to all previously issued quarterly financial statements and the three and nine months ended September 30, 2014.