Annual report pursuant to section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The Company files a consolidated federal income tax return and certain combined state and local income tax returns with its subsidiaries. The Company is on a tax year ending December 31st.

Income taxes consist of the following:
 
Federal
 
State and
Local
 
Total
2013:
           
 
 
 
 
Current
$
403

 
$
1,492

 
$
1,895

Deferred
731

 
223

 
954

Benefit applied to reduce goodwill
—

 
77

 
77

 
$
1,134

 
$
1,792

 
$
2,926

2012:
           
 
       
 
          
Current
$
—

 
$
514

 
$
514

Deferred
527

 
350

 
877

Benefit applied to reduce goodwill
—

 
71

 
71

 
$
527

 
$
935

 
$
1,462

2011:
 
 
 
 
 
Current
$
—

 
$
311

 
$
311

Deferred
(14,066
)
 
(2,524
)
 
(16,590
)
Benefit applied to reduce goodwill
—

 
84

 
84

 
$
(14,066
)
 
$
(2,129
)
 
$
(16,195
)


The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate (34%) to pre-tax income (loss) as a result of the following differences:

 
2013
 
2012
 
2011
Income (loss) before income taxes
$
2,404

 
$
(14,892
)
 
$
(12,302
)
Expense (benefit) under statutory U.S. tax rates
817

 
(5,063
)
 
(4,183
)
Increase (decrease) in taxes resulting from:
 
 
 
 
 
Increase (decrease) in valuation allowance
(272
)
 
8,500

 
(12,600
)
Change in fair value of contingent consideration, not taxable
41

 
(2,844
)
 
—

Other nondeductible items
1,085

 
346

 
129

State taxes, net of federal benefit
1,183

 
340

 
206

Other, net
72

 
183

 
253

Income tax expense (benefit)
$
2,926

 
$
1,462

 
$
(16,195
)


The Company accounts for income taxes under the asset and liability method, which requires the recognition of tax benefits or expense on the temporary differences between the tax basis and financial statement basis of its assets and liabilities as well as tax loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled.

Deferred tax amounts are comprised of the following at December 31:

 
2013
 
2012
 
Deferred tax assets (liabilities):
 
 
 
 
 Net operating loss carryforwards
$
28,806

 
$
35,241

*
 AMT credit carryforward
706

 
303

 
 Accrued expenses
3,380

 
1,697

 
 Compensation and benefits
15,167

 
12,934

 
 Deferred compensation liability
7,299

 
6,877

 
 Fixed assets
(41
)
 
384

*
 Other
—

 
18

 
 Unrealized gain
649

 
936

 
 Intangibles
(20,496
)
 
(22,807
)
*
 Goodwill
(6,578
)
 
(5,465
)
 
 
28,892

 
30,118

*
Valuation allowance
(36,391
)
 
(36,663
)
*
Net deferred taxes
$
(7,499
)
 
$
(6,545
)
 

*Includes increases in both deferred tax assets and valuation allowance of $2,656 from amounts previously reported related to fixed assets. In addition, includes adjustments of $2,378 to the net operating loss carryforwards and intangibles.

As discussed in Note 3, a net deferred tax liability of $19,604, as corrected, was recorded on the acquisition of Securities America for the excess financial statement basis over tax basis of the acquired assets and assumed liabilities.

As Securities America will be included in the Company’s consolidated federal and certain combined state and local income tax returns, deferred federal and a substantial portion of deferred state and local tax liabilities assumed in the acquisition are able to offset the reversal of the Company’s pre-existing deferred tax assets. Accordingly, the Company’s deferred tax valuation allowance has been reduced to the extent of $18,329 of the deferred tax liability recorded in the acquisition and recorded as a deferred tax benefit in the accompanying statements of operations for the year ended December 31, 2011.

Realization of deferred tax assets is dependent on the existence of sufficient taxable income within the carryforward period, including future reversals of taxable temporary differences. The taxable temporary difference related to goodwill, which is amortized for tax purposes, will reverse when goodwill is disposed of or impaired. Because such period is not determinable and, based on available evidence, management was unable to determine that realization of the deferred tax assets was more likely than not, management has provided a valuation allowance at December 31, 2013 and 2012 to fully offset the deferred tax assets.

At December 31, 2013, the Company and its subsidiaries had a consolidated net operating loss carryforward of approximately $80,000 for federal income tax purposes expiring in various years from 2021 through 2032. The annual utilization of the net operating loss carryforwards may be limited in future years due to the change in ownership provisions prescribed by Section 382 of the U.S. Internal Revenue Code. Goodwill for tax purposes recognized in connection with the acquisition of Triad by the Company, all of which is tax deductible, exceeded the amount of goodwill recognized in the financial statements. Authoritative accounting guidance in effect when the acquisition was consummated requires the tax benefit for the excess goodwill to be recognized when realized and applied first to reduce goodwill and thereafter reduce non-current intangible assets with the remaining benefit recognized as a reduction of income tax expense. The federal net operating loss carryforward at December 31, 2013 includes $1,953 applicable to amortization of excess tax goodwill. Upon utilization of the carryforward the related tax benefit will be applied to reduce goodwill. The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2013.

The Company has elected to classify interest and penalties that would accrue according to the provisions of relevant tax law as interest and other expense, respectively.

The Company’s tax years 2011 through 2013 remain open to examination by most taxing authorities. Further, tax years in which the Company generated net operating loss carryforwards are subject to examination only with respect to such net operating loss carryforwards upon utilization in future years.

Securities America was included in consolidated federal and state income tax returns filed by Ameriprise. Accordingly, Securities America is jointly, with other members of the consolidated group, and severally liable for any additional taxes that may be assessed against the group. In connection with the acquisition, Ameriprise has agreed to indemnify the Company for any such assessments imposed on any members of the group other than Securities America.

Ameriprise has disclosed that the IRS is currently auditing its U.S. income tax returns for 2008 through 2011 and further that certain of its subsidiaries’ state income tax returns are currently under examination by various jurisdictions for years ranging from 1997 through 2011.