Income Taxes Income Taxes (Notes)

12 Months Ended

Mar. 31, 2015

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

7. INCOME TAXES

The components of income (loss) before income tax provision (benefit) are as follows:

	2015		2014		2013
Domestic	$	249,380	$	320,890	$	(264,342	)
Foreign	118,613		98,751		(246,265		)
Total	$	367,993	$	419,641	$	(510,607	)

The components of income tax expense (benefit) are as follows:

	2015		2014			2013
Federal	$	95,499	$	125,494		$	(74,185	)
Foreign	20,365		(1,450		)	(85,677		)
State and local	9,420		13,761			9,003
Total income tax provision (benefit)	$	125,284	$	137,805		$	(150,859	)
Current	$	24,897	$	19,375		$	6,496
Deferred	100,387		118,430			(157,355		)
Total income tax provision (benefit)	$	125,284	$	137,805		$	(150,859	)

A reconciliation of the difference between the effective income tax (benefit) rate and the statutory federal income tax (benefit) rate is as follows:

	2015		2014		2013
Tax provision (benefit) at statutory U.S. federal income tax rate	35.0	%	35.0	%	(35.0	)%
State income taxes, net of federal income tax benefit(1)	1.5		2.0		1.5
Effect of foreign tax rates(1)	(4.9	)	(4.2	)	3.8
Changes in U.K. tax rates on deferred tax assets and liabilities	—		(4.6	)	(3.5	)
Net (income) loss attributable to noncontrolling interests	(0.5	)	0.3		0.5
Other, net(1)	2.9		4.3		3.2
Effective income tax (benefit) rate	34.0	%	32.8	%	(29.5	)%

(1) State income taxes include changes in related valuation allowances, net of the impact on deferred tax assets of changes in state apportionment factors and planning strategies. The effect of foreign tax rates also includes changes in related valuation allowances. Other includes changes in federal valuation allowances and permanent tax adjustments. See schedule below for the change in valuation allowances by jurisdiction.

In July 2012, The U.K. Finance Act 2012 was enacted, which reduced the main U.K. corporate tax rate from 25% to 24% effective April 1, 2012 and 23% effective April 1, 2013. In July 2013, the Finance Bill 2013 was enacted, further reducing the main U.K. corporate tax rate to 21% effective April 1, 2014 and 20% effective April 1, 2015. The reductions in the U.K. corporate tax rate resulted in tax benefits of $19,164 and $18,075, recognized in fiscal 2014 and 2013, respectively, as a result of the revaluation of deferred tax assets and liabilities at the new rates.

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the Consolidated Balance Sheets. These temporary differences result in taxable or deductible amounts in future years. A summary of Legg Mason's deferred tax assets and liabilities are as follows:

	2015			2014
DEFERRED TAX ASSETS
Accrued compensation and benefits	$	158,369		$	154,074
Accrued expenses	60,282			61,575
Operating loss carryforwards	290,765			267,940
Capital loss carryforwards	5,335			10,015
Foreign tax credit carryforward	247,027			235,661
Federal benefit of uncertain tax positions	18,461			16,914
Mutual fund launch costs	30,968			31,774
Martin Currie defined benefit pension liability	7,741			—
Other	3,817			303
Deferred tax assets	822,765			778,256
Valuation allowance	(96,687		)	(90,832		)
Deferred tax assets after valuation allowance	$	726,078		$	687,424
DEFERRED TAX LIABILITIES
Basis differences, principally for intangible assets and goodwill	$	82,636		$	72,596
Depreciation and amortization	666,057			523,595
Net unrealized gains from investments	7,832			4,743
Other	78			221
Deferred tax liabilities	756,603			601,155
Net deferred tax assets (liabilities)	$	(30,525	)	$	86,269

Certain tax benefits associated with Legg Mason's employee stock plans are recorded directly in Stockholders' Equity. No tax benefit was recorded to equity in fiscal 2015, 2014 or 2013, due to the net operating loss position of the Company. As of March 31, 2015, an aggregate $15,444 of tax benefit will be recognized as an increase in Stockholders' Equity when the related net operating losses are ultimately realized.

Legg Mason has various loss and tax credit carryforwards that may provide future tax benefits. Related valuation allowances are established in accordance with accounting guidance for income taxes, if it is management's opinion that it is more likely than not that these benefits will not be realized. To the extent the analysis of the realization of deferred tax assets relies on deferred tax liabilities, Legg Mason has considered the timing, nature, and jurisdiction of reversals, as well as, future increases relating to the tax amortization of goodwill and indefinite-life intangible assets.

Substantially all of Legg Mason's deferred tax assets relate to U.S. federal, state and U.K. taxing jurisdictions. As of March 31, 2015, U.S. federal deferred tax assets aggregated $702,233, realization of which is expected to require approximately $3,500,000 of future U.S. earnings. Based on estimates of future taxable income, using assumptions consistent with those used in Legg Mason's goodwill impairment testing, it is more likely than not that substantially all of the current federal tax benefits relating to net operating losses are realizable. With respect to deferred tax assets relating to foreign tax credit carryforwards, it is more likely than not that tax benefits relating to the utilization of approximately $40,000 of foreign taxes as credits will not be realized and a valuation allowance was established in a prior period. Except as it relates to Martin Currie's deferred tax assets discussed below, no additional federal valuation allowance was established in fiscal 2015. In addition, a valuation allowance was established in prior years for a substantial portion of our deferred tax assets relating to U.K. and other foreign taxing jurisdictions. While tax planning may enhance Legg Mason's tax positions, the realization of tax benefits on deferred tax assets for which valuation allowances have not been provided is not dependent on implementation of any significant tax strategies.

As of March 31, 2015, U.S. state deferred tax assets aggregated approximately $186,944. Due to limitations on utilization of net operating loss carryforwards and taking into consideration certain state tax planning strategies, a valuation allowance of $34,600 was established in prior years for state net operating loss benefits generated in certain jurisdictions in cases where it is not more likely than not that these benefits will ultimately be realized. A valuation allowance of $9,359 was released in fiscal 2015 due to updated forecasts, state law changes, and planned implementation of various tax planning strategies. Due to the uncertainty of future state apportionment factors and future effective state tax rates, the value of state net operating loss benefits ultimately realized may vary.

As of March 31, 2015, the Company has a valuation allowance of $18,441 for the deferred tax assets related to Martin Currie entities. Of this amount, approximately $17,000 was established as a purchase accounting adjustment recorded upon acquisition based on historical and current net operating losses of Martin Currie.

The following deferred tax assets and valuation allowances relating to carryforwards have been recorded at March 31, 2015 and 2014, respectively.

	2015		2014		Expires Beginning after Fiscal Year
DEFERRED TAX ASSETS
U.S. federal net operating losses	$	96,774	$	80,515	2031
U.S. federal capital losses	—		3,545		n/a
U.S. federal foreign tax credits	247,027		235,661		2015
U.S. charitable contributions	233		—		2020
U.S. state net operating losses (1,2)	168,069		168,173		2016
U.S. state capital losses	44		532		2016
Foreign net operating losses	25,877		19,252		2027
Foreign capital losses	5,290		5,938		n/a
Total deferred tax assets for carryforwards	$	543,314	$	513,616
VALUATION ALLOWANCES
U.S. federal net operating losses	$	1,282	$	—
U.S. federal capital losses	—		74
U.S. federal foreign tax credits	25,429		25,947
U.S. state net operating losses	26,828		34,590
U.S. state capital losses	44		129
Foreign net operating losses	23,504		15,738
Foreign capital losses	5,290		5,938
Valuation allowances for carryforwards	82,377		82,416
Foreign other deferred assets	14,310		8,416
Total valuation allowances	$	96,687	$	90,832

(1) Substantially all of the U.S. state net operating losses carryforward through fiscal 2029.

(2) Due to potential for change in the factors relating to apportionment of income to various states, Legg Mason's effective state tax rates are subject to fluctuation which will impact the value of the Company's deferred tax assets, including net operating losses, and could have a material impact on the future effective tax rate of the Company.

Legg Mason had total gross unrecognized tax benefits of approximately $92,344, $77,892 and $72,650 as of March 31, 2015, 2014 and 2013, respectively. Of these totals, approximately $62,775, $51,518 and $46,340, respectively, (net of the federal benefit for state tax liabilities) are the amounts of unrecognized benefits which, if recognized, would favorably impact future income tax provisions and effective tax rates. During fiscal 2015, as a result of the net impact of effective settlement of tax examinations, previously unrecognized benefits of $6,719 were realized.

A reconciliation of the beginning and ending amount of unrecognized gross tax benefits for the years ended March 31, 2015, 2014 and 2013, is as follows:

	2015			2014			2013
Balance, beginning of year	$	77,892		$	72,650		$	90,831
Additions based on tax positions related to the current year	9,919			5,659			11,726
Additions for tax positions of prior years	13,054			12,610			8,439
Reductions for tax positions of prior years	—			(138		)	(13,083		)
Decreases related to settlements with taxing authorities	(8,521		)	(12,889		)	(25,205		)
Expiration of statutes of limitations	—			—			(58		)
Balance, end of year	$	92,344		$	77,892		$	72,650

Although management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next 12 months by up to $17,000 as a result of the expiration of statutes of limitations and the completion of tax authorities examinations.

On April 13, 2015, reforms to New York City’s corporate tax structure were enacted which included changes in the calculation of net operating loss carryforwards and changes in the way sales revenue is sourced. Legg Mason currently estimates that the revaluation of deferred tax assets and liabilities under the new rules will result in the recognition of a one-time income tax benefit of approximately $10,000 to $20,000 in the first quarter of fiscal 2016.

The Company accrues interest related to unrecognized tax benefits in interest expense and recognizes penalties in other operating expense. During the years ended March 31, 2015, 2014 and 2013, the Company recognized approximately $1,492, $(580), and $5,500, respectively, which was substantially all interest. At March 31, 2015, 2014 and 2013, Legg Mason had approximately $8,570, $7,300, and $14,000, respectively, accrued for interest and penalties on tax contingencies in the Consolidated Balance Sheets.

Legg Mason's prior year tax returns are subject to examination by the Internal Revenue Service, Her Majesty’s Revenue & Customs, Brazilian and other tax authorities in various other countries and states. The following tax years remain open to income tax examination for each of the more significant jurisdictions where Legg Mason is subject to income taxes: after fiscal 2009 for U.S. federal; after fiscal 2013 for the U.K.; after calendar year 2006 for Brazil; after fiscal 2009 for the state of California; after fiscal 2008 for the state of New York; and after fiscal 2010 for the states of Connecticut, Maryland and Massachusetts. The Company does not anticipate making any significant cash payments with the settlement of these audits in excess of amounts that have been reserved.

Except as noted below, Legg Mason intends to permanently reinvest overseas substantially all of the cumulative undistributed earnings of its foreign subsidiaries. Accordingly, no additional U.S. federal income taxes have been provided for undistributed earnings to the extent that they are permanently reinvested in Legg Mason's foreign operations. It is not practical at this time to determine the income tax liability that would result upon repatriation of additional accumulated foreign earnings.

In order to increase the amount of cash available in the U.S. for general corporate purposes, Legg Mason plans to utilize up to $257,000 of foreign cash over the next several years, of which only $16,000 is accumulated foreign earnings. Due to certain tax planning strategies, Legg Mason anticipates that it will generate a tax benefit of approximately $12,000 with respect to this repatriation and adjusted the tax reserve accordingly in fiscal 2014. No further repatriation of accumulated prior period foreign earnings is currently planned.  However, if circumstances change, Legg Mason will provide for and pay any applicable additional U.S. taxes in connection with repatriation of offshore funds.  It is not practical at this time to determine the income tax liability that would result from any further repatriation of accumulated foreign earnings. As of March 31, 2015, Legg Mason had available domestically cash and cash equivalents of approximately $400,000 and a $750,000 undrawn credit facility to meet domestic liquidity needs and to provide flexibility in maximizing cost effective capital deployment without repatriating additional accumulated foreign earnings.