Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2018

The provision for income taxes for 2018, 2017 and 2016 consisted of the following:



	Federal			State and Local		Total
2018:
Current	$	2,933		$	1,776	$	4,709
Deferred	8,329			341		8,670
	$	11,262		$	2,117	$	13,379
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

The difference between the income taxes expected at the U.S. federal statutory income tax rate of 21% for 2018 and 35% for 2017 and 2016 and the reported income tax expense (benefit) is summarized as follows:



	2018			2017			2016
Income (loss) before income taxes	$	47,165		$	1,180		$	(12,286	)
Expense (benefit) under statutory U.S. tax rates	9,905			413			(4,300		)
Increase (decrease) in taxes resulting from:
(Decrease) increase in valuation allowance	(66		)	(11,261		)	12,540
Nondeductible items	1,867			4,475			1,323
State taxes, net of federal benefit	1,625			431			671
Impact of tax reform	—			(660		)	—
Other, net	48			100			(209		)
Income tax expense (benefit)	$	13,379		$	(6,502	)	$	10,025

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 TCJA made broad and complex changes to the U.S. tax code, including, but not limited to: (1) a reduction the U.S. federal corporate tax rate from 35% to 21%; (2) changes to the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) bonus depreciation will allow for full expensing of qualified property; (4) created a new limitation on deductible interest expense; (5) eliminated the corporate alternative minimum tax; (6) allows 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) further limits deductibility of executive compensation under IRC §162(m); and (8) created new tax rules related to taxation of foreign operations.

In response to the TCJA, the SEC staff issued SAB 118, which provided 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 ASC 740 in the reporting period in which the TCJA was enacted. Also, SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. For the year ended December 31, 2017, the Company recorded a provisional decrease in our deferred tax assets and liabilities of $3.4 million as part of 2017 income tax provision in accordance with SAB 118. During the year ended December 31, 2018, the Company finalized the accounting for the tax effects of TCJA with no material changes to the provisional estimate recorded in prior periods.

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, 2018 and December 31, 2017 are as follows:



	2018			2017
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	2,938		$	8,642
AMT credit carryforward	—			440
Accrued expenses	4,731			4,105
Compensation and benefits	9,370			10,877
Deferred compensation liability	5,164			4,492
Securities owned	780			514
Total deferred tax assets	22,983			29,070
Valuation allowance	(1,863		)	(5,520		)
Net deferred tax assets	21,120			23,550
Fixed assets	(6,081		)	(4,707		)
Intangibles	(4,160		)	(13,589		)
Contract acquisition costs	(7,108		)	—
Deferred revenues	(8,576		)	—
Goodwill	(9,263		)	(8,222		)
Total deferred liabilities	(35,188		)	(26,518		)
Net deferred tax liability	$	(14,068	)	$	(2,968	)

At December 31, 2018, the Company had an Alabama state net operating loss carryforward of approximately $30,468 expiring between 2023 and 2029; a Florida state net operating loss carryforward of approximately $1,837 expiring between 2031 and 2036; a New York state net operating loss carryforward of approximately $5,640 expiring in 2036; and a New York City net operating loss carryforward of approximately $4,648 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. As of December 31, 2018, goodwill was reduced by $541 as the excess benefit was fully realized.

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. Based on the reversal pattern of existing taxable temporary difference coupled with objective evidence of cumulative earnings in recent years, the Company concluded that its deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain separate state net operating loss carryforwards.

During 2018, the Company’s valuation allowance decreased by approximately $3.7 million, of which $3.6 million was reflected as a retained earnings adjustment in connection with adoption of ASC 606.

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, 2018 and December 31, 2017. The Company has elected to classify interest and penalties that would accrue with respect to income taxes as interest and other expense, respectively.

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



	2018		2017
Balance at January 1,	$	526	$	503
Increases in tax positions for prior years	—		(33		)
Increases in tax positions for current years	97		56
Balance at December 31,	$	623	$	526

Of the amounts reflected in the above table at December 31, 2018, the entire amount would reduce the Company’s annual effective tax rate if recognized. As of December 31, 2018, the Company accrued interest and penalties of approximately $227. As of December 31, 2018, 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 2018 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 2018 Ameriprise received cash settlements for final resolution of the 2008 through 2010 IRS audits. In the third quarter of 2018, Ameriprise reached an agreement with IRS appeals to resolve the 2012 and 2013 audits. Accordingly, Ameriprise‘s IRS audits are effectively settled through 2013. Ameriprise has also disclosed that its state income tax returns are currently under examination by various jurisdictions for years ranging from 2009 through 2017.