Entity information:
13.
Income Taxes
 
JMP Group LLC qualifies as a publicly traded partnership. This entity is taxed as a partnership for United States Federal income tax purposes. The Company owns
three
intermediate holding subsidiaries, JMP Group Inc., JMP Asset Management Inc., and JMP Investment Holdings LLC. JMP Group Inc. and JMP Asset Management Inc. are wholly-owned corporate subsidiaries. The taxable income earned by these subsidiaries is subject to U.S. Federal and state income taxation. Taxable income earned by JMP Investment Holdings LLC, a wholly-owned non-corporate subsidiary, is
not
subject to U.S. Federal and state corporate income tax. This taxable income is allocated to JMP Group LLC
’s shareholders.
 
The components of the
Company’s income tax expense (benefit) for the years ended
December 31, 2017,
2016
, and
2015
are as follows:
 
(In thousands
)
  
Year Ended December 31
,
  
   
2017
    
2016
    
2015
  
Federa
l
   $
1,303
     $
5,570
     $
2,427
  
Stat
e
    
158
      
230
      
161
  
Total current income tax expense (benefit
)
    
1,461
      
5,800
      
2,588
  
                         
Federal
    
539
      
(9,524
 )    
(2,632
 )
Stat
e
    
(256
 )    
(924
 )    
265
  
Total deferred income tax expense (benefit
)
    
283
      
(10,448
 )    
(2,367
 )
Total income tax expense (benefit
)
   $
1,744
     $
(4,648
 )   $
221
  
 
As of
December 31, 2017
and
2016,
the components of deferred tax assets and liabilities have been recorded in other assets and other liabilities in the Statements of Financial Condition and are as follows:
 
(In thousands
)
  
As of December 31
,
  
   
2017
    
2016
  
Deferred tax assets
:
                
Equity based compensatio
n
   $
1,516
     $
3,094
  
Reserves and allowance
s
    
994
      
1,621
  
Accrued Compensation and related expenses
    
1,592
      
-
  
Federal and Other state net operating los
s
    
202
      
119
  
Deferred compensatio
n
    
740
      
956
  
Investment in partnership
s
    
-
      
1,578
  
Othe
r
    
910
      
574
  
Total deferred tax asset
s
    
5,954
      
7,942
  
Deferred tax liabilities
:
                
Investment in partnership
s
    
(1,186
 )    
(690
 )
Repurchase of Company's debt at market discount
    
(198
 )    
(640
 )
Net unrealized capital gains/losse
s
    
(804
 )    
(799
 )
Accrued compensation and related expense
s
    
-
      
(1,716
 )
Othe
r
    
-
      
(27
 )
Total deferred tax liabilitie
s
    
(2,188
 )    
(3,872
 )
                 
Net deferred tax asset before valuation allowanc
e
    
3,766
      
4,070
  
                 
Valuation allowanc
e
    
-
      
-
  
                 
Net deferred tax (liability) asset
   $
3,766
     $
4,070
  
 
As of
December 31, 2017,
JMP Group Inc. has state NOL carry forwards totaling approxim
ately
$7.0
million and
$1.0
million p
ost-apportioned which expire in
2034.
The Company also has California Enterprise Zone credits totaling
$0.4
million which expire between
2023
and
2026.
Management believes that the federal and state deferred tax assets will be realized based on positive evidence of significant reversing taxable temporary differences over the next
two
years
.
 
On
December 22, 2017,
the Tax Cuts and Jobs Act was signed into law which included a broad range of tax reform proposals. The Securities and Exchange Commission Staff Accounting Bulletin
118
(SAB
118
) expresses views of the staff regarding application of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
740,
Income Taxes (“ASC Topic
740”
), in the reporting period that includes
December 22, 2017, 
the date on which the Tax Cuts and Jobs Act was signed into law. The Company has made reasonable assessments under SAB
118
in accounting for certain effects of tax reform. As a result, the Company revalued its deferred tax assets as at
December 31, 2017
at the reduced corporate federal tax rate of
21
percent, resulting in income tax expense of
$1.4
million. However, the provisional impacts
may
be refined over the prescribed measurement period.
A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate for the years ended
December 31, 2017,
2016
, and
2015
is as follows:
 
   
Year Ended December 31
,
  
   
2017
    
2016
    
2015
  
Tax at federal statutory tax rat
e
    
34.00
 %    
34.00
 %    
34.00
 %
State income tax, net of federal tax benefi
t
    
1.11
 %    
6.93
 %    
1.10
 %
Change in New York State and City allowance valuatio
n
    
0.00
 %    
-23.45
 %    
3.83
 %
Adjustment for permanent items (HCAP Advisors non-controlling interest)
    
0.00
 %    
-8.72
 %    
-5.71
 %
Adjustment for other permanent items
    
-0.99
 %    
2.09
 %    
1.59
 %
Adjustment for PTP investment incom
e
    
-35.34
 %    
-175.90
 %    
-72.08
 %
Deferred tax asset written off related to options and RSU
s
    
0.00
 %    
0.00
 %    
3.11
 %
Adjustment for prior year taxe
s
    
0.00
 %    
1.58
 %    
3.94
 %
California state enterprise zone tax credi
t
    
0.00
 %    
-1.70
 %    
1.13
 %
PTP asset transfer gai
n
    
0.00
 %    
0.00
 %    
32.22
 %
Change in corporate tax rate    
-13.80
 %    
0.00
 %    
0.00
 %
Effective tax rat
e
    
-15.00
 %    
-165.17
 %    
3.13
 %
 
 
 
The increase
 in the effective tax rate for the year ended
December 31, 2017
compared to the same period in
2016
 was primarily attributable to the change in corporate tax rate and the revaluation of deferred tax assets at the reduced corporate federal tax rate. The loss attributed to JMP Investment Holdings of
$12.1
 million resulted in an increase in the effective tax rate as the loss incurred by the pass through entity cannot be applied to offset income of the corporate entity. The effective tax rate is calculated on a consolidated level using tax expense related to the corporate subsidiaries (excluding JMP Investment Holdings LLC) divided by consolidated pre-tax income including JMP Investment Holdings LLC.
 
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates; with the limited exception of certain jurisdictions which do
not
have a significant adverse effect on the Company
’s overall tax exposure. The Company recognizes tax benefits related to its tax positions only where the position is “more likely than
not”
to be sustained in the event of examination by tax authorities.
The Company filed income tax returns with the federal government and various state and local jurisdictions. The Company is
no
longer subject to federal, state and local income tax examinations for years prior to
2014.
 
As of
December 31, 2017,
the total reserve balance including interest and penalties was
$0.1
million.