Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2017

The provision for income taxes for 2017, 2016 and 2015 consisted of the following:



	Federal			State and Local		Total
2017:
Current	$	364		$	807	$	1,171
Deferred	(7,695		)	22		(7,673		)
	$	(7,331	)	$	829	$	(6,502	)
2016:
Current	$	—		$	929	$	929
Deferred	8,992			104		9,096
	$	8,992		$	1,033	$	10,025
2015:
Current	$	(1,491	)	$	1,331	$	(160	)
Deferred	(1,623		)	1,223		(400		)
Benefit applied to reduce goodwill	—			78		78
	$	(3,114	)	$	2,632	$	(482	)

The difference between the income taxes expected at the U.S. federal statutory income tax rate of 35% and the reported income tax expense (benefit) is summarized as follows:



	2017			2016			2015
Income (loss) before income taxes	$	1,180		$	(12,286	)	$	(11,695	)
Expense (benefit) under statutory U.S. tax rates	413			(4,300		)	(4,093		)
Increase (decrease) in taxes resulting from:
(Decrease) increase in valuation allowance	(11,261		)	12,540			79
Nondeductible items	4,475			1,323			1,701
State taxes, net of federal benefit	431			671			1,600
Impact of tax reform	(660		)	—			—
Other, net	100			(209		)	231
Income tax (benefit) expense	$	(6,502	)	$	10,025		$	(482	)

On December 22, 2017, the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under GAAP, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) bonus depreciation that will allow for full expensing of qualified property; (4) creating a new limitation on deductible interest expense; (5) eliminating the corporate alternative minimum tax; (6) allowing for unused alternative minimum tax credit carryovers to be refunded over a period of time or available to offset any future federal tax liabilities; (7) limitation on the deductibility of executive compensation under IRC §162(m); and (8) new tax rules related to foreign operations.

On December 22, 2017 ,the SEC staff issued Staff Accounting Bulletin No. (SAB 118), which provides guidance on accounting for the tax effects of TCJA. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying GAAP in the reporting period in which the TCJA was enacted. SAB 118 addresses situations where the accounting is incomplete for certain income tax effects of the TJCA upon issuance of a company’s financial statements for the reporting period which include the enactment date. SAB 118 allows for a provisional amount to be recorded if it is a reasonable estimate of the impact of the TCJA. Additionally, SAB 118 allows for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment.

The Company recognized an income tax benefit of $6,502 million for the year ended December 31, 2017 related to (i) a deferred tax benefit related to the reduction in the deferred tax liability of $3,364 attributable to the re-measurement of the deferred tax liability for indefinite lived intangibles and goodwill for the reduced federal tax rate of 21% as a result of the TCJA; (ii) a deferred tax benefit related to the reduction of the valuation allowance of $4,837 attributable to deferred tax liabilities associated with indefinite lived intangibles and goodwill that became available as a source of income to offset existing deferred tax assets due to the modifications in the net operating loss carryforwards period as a result of the TCJA; (iii) deferred tax provision of $937 related to the current year tax amortization of indefinite lived intangibles and goodwill and changes in separate state taxing jurisdiction deferred tax liabilities; (iv) a deferred tax benefit of $411 related to Alternative Minimum Tax credits carryforwards that will be refundable as a result of the TCJA; and (v) an income tax provision of $1,171 for current federal and state taxes.

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.

Significant components of the Company's deferred tax assets and liabilities as of December 31, 2017 and December 31, 2016 are as follows:



	2017			2016
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	8,642		$	14,132
AMT credit carryforward	440			76
Accrued expenses	4,105			5,084
Compensation and benefits	10,877			18,333
Deferred compensation liability	4,492			6,496
Securities owned	514			900
Total deferred tax assets	29,070			45,021
Valuation allowance	(5,520		)	(13,766		)
Net deferred tax assets	23,550			31,255
Fixed assets	(4,707		)	(6,025		)
Intangibles	(13,589		)	(25,097		)
Goodwill	(8,222		)	(10,775		)
Total deferred liabilities	(26,518		)	(41,897		)
Net deferred tax liability	$	(2,968	)	$	(10,642	)

At December 31, 2017, the Company had a consolidated federal net operating loss carryforward of approximately $29,756, which expires in various years from 2031 to 2036. The annual utilization of the net operating loss carryforward may be limited in future years due to the change in ownership provisions prescribed by Section 382 of the U.S. Internal Revenue Code. In addition, the Company has a Florida state net operating loss carryforward of approximately $22,731 expiring between 2031 and 2036; a New York state net operating loss carryforward of approximately $41,580 expiring in 2036; and a New York City net operating loss carryforward of approximately $42,007 expiring in 2036.

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.

In assessing the Company's ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. As of December 31, 2017, the Company continued to have a cumulative three year loss. As such, the Company has recorded a valuation allowance against its net deferred tax assets with the exception of Alternative Minimum Tax credit carryforwards.

As of December 31, 2017, the deferred tax liability of $2,968 relates to (i) a deferred tax liability of $7,415 related to the tax effects of differences between the financial reporting and tax basis of indefinite-lived intangible assets and goodwill; (ii) a deferred tax liability of $801 related to subsidiaries which file in separate state jurisdictions; (iii) a deferred tax asset of $4,837 for certain existing deferred tax assets that are expected to have an indefinite life as result of the TCJA modifications to the federal net operating loss carryforward rules as the indefinite-lived intangibles and goodwill are now a source of future taxable income; and (iv) $411 related to Alternative Minimum Tax credits which are refundable in future years as a result of modifications made by the TCJA .

During 2017, the Company’s valuation allowance decreased by approximately $8.2 million, $11.2 million primarily related to re-measurement due to the reduction as a result of the TCJA in the U.S. federal corporate income tax rate from 35% to 21% and the realization of certain existing deferred tax assets that are expected to have an indefinite life as the indefinite lived intangibles and goodwill may now be considered a source of future taxable income, offset by $3.0 million related to accounting for stock based compensation under ASU 2016-09.

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 unrecognized state tax benefits as of December 31, 2017 and December 31, 2016. The Company has elected to classify interest and penalties that would accrue with respect to unrecognized tax benefits as interest and other expense, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	2017			2016
Balance at January 1,	$	503		$	423
Increases in tax positions for prior years	(33		)	9
Increases in tax positions for current years	56			71
Balance at December 31,	$	526		$	503

Of the amounts reflected in the above table at December 31, 2017, the entire amount would reduce the Company’s annual effective tax rate if recognized. As of December 31, 2017, the Company accrued interest and penalties of approximately $181. As of December 31, 2017, the Company does not anticipate a significant change in unrecognized tax benefits within 12 months of the reporting date.

The Company files income tax returns in the United States and various state jurisdictions. The Company's tax years 2012 through 2017 remain open to examination by most taxing authorities.

Prior to being acquired by the Company in November 2011, Securities America was included in consolidated federal and state income tax returns filed by its parent Ameriprise Financial, Inc. ("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 in 2017 the IRS completed auditing its U.S. income tax returns for 2008 through 2010. However, the years remain open because of certain un-agreed upon issues. Ameriprise has also disclosed that its, or certain of its subsidiaries’, state income tax returns are currently under examination by various jurisdictions for years ranging from 2005 through 2011 and remain open for all years after 2011.