NOTE 25 – Income Taxes

The provision for income taxes/(benefit) consists of the following (in thousands):


	Year Ended December 31,
	2013		2012		2011
Current taxes:
Federal	$	26,695	$	32,111		20,847
State		9,954		9,199		6,416
Foreign		365		(174)		295
		37,014		41,136		27,558
Deferred taxes:
Federal		(20,724)		35,072		20,262
State		(2,000)		8,498		5,958
Foreign		(1,968)		(255)		102
		(24,692)		43,315		26,322
Provision for income taxes/(benefit)	$	12,322	$	84,451	$	53,880

Reconciliation of the statutory federal income tax rate with our company’s effective income tax rate is as follows:


	Year Ended December 31,
	2013		2012		2011
Current taxes:
Statutory rate	$	64,831	$	80,413		48,357
State income taxes, net of federal income tax		11,433		11,766		7,288
Change in valuation allowance		1,659		(55)		(4,180)
Investment in subsidiary		(58,153)		-		-
Non-taxable book gain		(2,647)		-		-
Revaluation of deferred taxes		(2,290)		(8,450)		1,448
Other, net		(2,511)		777		967
	$	12,322	$	84,451	$	53,880

Tax effect of temporary differences and carryforwards that comprise significant portions of deferred tax assets and liabilities (in thousands):


	December 31, 2013		December 31, 2012
Deferred tax assets:
Deferred compensation	$	163,411	$	116,770
Net operating loss carryforwards		53,325		29,061
Accrued expenses		45,210		32,555
Unrealzed gain on investments		30,211		-
Depreciation		11,537		5,472
Receivable reserves		6,010		3,956
Investment and jobs creation credit		1,627		2,057
Other		-		164
Total deferred tax assets		311,331		190,035
Valuation allowance		(9,854)		(5,608)
		301,477		184,427
Deferred tax liabilities:
Goodwill and other intangibles		(25,826)		(15,605)
Change in accounting method		(21,852)		(32,806)
Prepaid expenses		(4,938)		(4,265)
Unrealzed gain on investments		-		(7,175)
Other		(5,307)		-
		(57,923)		(59,851)
Net deferred tax asset	$	243,554	$	124,576

Our net deferred tax asset at December 31, 2013, includes net operating loss carryforwards of $242.6 million that expire between 2014 and 2024. A valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. The valuation allowance was increased by $4.3 million to adjust the tax benefit of certain state and foreign net operating loss carryforwards and state tax credits to the amount that we have determined is more likely than not to be realized. We believe the realization of the remaining net deferred tax asset of $243.6 million is more likely than not based on the ability to carry back losses against prior year taxable income and expectations of future taxable income.

The current tax payable, included in accounts payable and accrued expenses, is $30.1 million and $19.1 million as of December 31, 2013 and 2012, respectively.

We have recorded income tax expense at U.S. tax rates on all profits, except for undistributed profits of our foreign subsidiaries that are considered indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible. If management’s intentions or U.S. tax laws change in the future, there may be a significant impact on the provision for income taxes to record a change in the tax liability in the period the change occurs.

Uncertain Tax Positions

As of December 31, 2013 and 2012, we had $5.2 million and $1.8 million, respectively, of gross unrecognized tax benefits, all of which, if recognized, would impact the effective tax rate. We recognize interest and penalties related to uncertain tax positions in provision for income taxes/(benefits) in the consolidated statements of operations. As of December 31, 2013 and 2012, we had accrued interest and penalties of $1.0 million and $1.0 million, respectively, before benefit of federal tax deduction, included in accounts payable and accrued expenses on our consolidated statements of financial condition. The amount of interest and penalties recognized on our consolidated statements of operations for the years ended December 31, 2013, 2012, and 2011 was not significant.

The following table summarizes the activity related to our company’s unrecognized tax benefits from January 1, 2011 to December 31, 2013 (in thousands):


	Year Ended December 31,
	2013		2012		2011
Beginning balance	$	1,750	$	3,091	$	3,138
Increase related to prior year tax positions		3,044		440		21
Decrease related to prior year tax positions		(40)		(881)		(1,075)
Increase related to current year tax positions		133		-		1,260
Decrease related to settlements with taxing authorities		(6,086)		(900)		(253)
Decrease related to lapsing of statute of limitations		(356)		-		-
Increase related to business acquisitions		6,713		-		-
Ending balance	$	5,158	$	1,750	$	3,091

We file income tax returns with the U.S. federal jurisdiction, various states, and certain foreign jurisdictions. We are not subject to U.S. federal, certain state and local, or non-U.S. income tax examination by tax authorities for taxable years before 2010.

There is a reasonable possibility that the unrecognized tax benefits will change within the next 12 months as a result of the expiration of various statutes of limitations or for the resolution of U.S. federal and state examinations, but we do not expect this change to be material to the consolidated financial statements.