Annual report pursuant to Section 13 and 15(d)

Income Taxes

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

Prior to November 1, 2013, MMREIS was part of a consolidated federal income tax return and various combined and consolidated state tax returns that were filed by MMC. MMREIS and MMC had a tax-sharing agreement whereby MMREIS provided for income taxes in its consolidated statements of income using an effective tax rate of 43.5%. As part of the IPO, the tax-sharing agreement with MMC was terminated effective October 31, 2013 and as a result the tax provision for the period November 1, 2013 through December 31, 2013 is calculated under the asset and liability method. The amount derived under the tax-sharing agreement represented a receivable or obligation of MMREIS from (to) the MMC that MMREIS generally settled on a current basis.


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


     Year Ended December 31,  
     2013     2012      2011  




   $ 20,245      $ 18,866       $ 9,085   


     (8,077     —           —     









     12,168        18,866         9,085   




     2,522        2,641         1,270   


     (1,199     —           —     









     1,323        2,641         1,270   




     244        —           —     


     —          —           —     









     244        —           —     










Provision for Income Taxes

   $ 13,735      $ 21,507       $ 10,355   










Prior to November 1, 2013 all deferred tax assets and liabilities were recorded by MMC. On October 31, 2013, MMC transferred to the Company its allocable net deferred tax assets totaling $26.6 million. See Note 7 – “Stockholders’ Equity” for additional information. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.


Significant components of the Company’s deferred tax assets and liabilities at December 31, 2013 are as follows (in thousands):


Deferred Tax Assets, Net




Accrued expenses and bonuses

   $ 5,668   

Bad debt and other reserves


Deferred compensation


Stock compensation


Deferred rent


Prepaid expenses


State taxes





Current deferred tax assets, net before valuation allowance


Valuation allowance





Current deferred tax assets, net

   $ 8,663   






Fixed assets and leasehold improvements

   $ 427   

Litigation reserve


Deferred compensation


Stock compensation


Deferred rent


Net operating loss carryforwards


State taxes





Net non-current deferred tax assets before valuation allowance


Valuation allowance





Non-Current deferred tax assets, net

   $ 27,185   




As of December 31, 2013, the Company had state and Canadian net operating losses (NOLs) of approximately $16.2 million, which will begin to expire in 2019. Certain limitations may be placed on NOLs as a result of “changes in control” as defined in Section 382 of the Internal Revenue Code. In the event a change in control occurs, it will have the effect of limiting the annual usage of the carryforwards in future years. Additional changes in control in future periods could result in further limitations of the Company’s ability to offset taxable income. In addition, the utilization of these NOLs may be subject to certain limitations under state and foreign laws.

A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Realization of deferred tax asset is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies and reversals of existing taxable temporary differences. Management determined that as of December 31, 2013, $286,000 of the deferred tax assets related to NOLs do not satisfy the recognition criteria and therefore have recorded a valuation allowance for this amount.


The provision for income taxes differs from the amount computed by applying the statutory federal corporate income tax rate of 35% to income before provision for taxes as a result of the following (in thousands):


     Year Ended December 31,  
     2013      2012      2011  

Income tax expense at the federal statutory rate of 35%

   $ 7,679       $ 17,305       $ 8,332   

State income tax expenses, net of federal benefit

     985         2,423         1,165   

Permanent difference related to compensation charges

     3,445         —           —     


     361         8         180   

Differences due to tax-sharing rate

     1,265         1,771         678   










Provision for income taxes

   $ 13,735       $ 21,507       $ 10,355   










As of December 31, 2013, the Company has no liabilities for unrecognized tax benefits. In the event of unrecognized tax benefits, the Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. At December 31, 2013, the Company had not recognized any interest or penalties in its consolidated statements of income or balance sheets.

The Company is subject to tax in various jurisdictions and, as a matter or ordinary course, the Company is subject to tax examinations by the federal, state and foreign taxing authorities of for the tax years 2009 to 2013. The Company is not currently under examination by any taxing authorities.

The Company has not provided for U.S. taxes on undistributed earnings of its foreign subsidiary as it is operating at a loss and has no earnings and profits to remit.