On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was signed into law. The TCJA significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing a hybrid territorial tax system, and imposing a mandatory one-time repatriation tax on foreign cash and earnings.

We are subject to additional requirements of the TCJA during the year ended September 30, 2019. Those provisions include a tax on global intangible low-taxed income (“GILTI”), a limitation of certain executive compensation, a base erosion and anti-abuse tax (“BEAT”) and other immaterial provisions. We have elected to account for GILTI as a period cost and therefore included GILTI expense in the effective tax rate calculation. Our fiscal year 2019 effective tax rate includes our estimates of these new provisions. Our estimates may be revised in future period as we obtain additional data and as the IRS issues new guidance implementing the law changes

As a result of the TCJA, in fiscal year 2018 we remeasured certain deferred tax assets and liabilities at the lower rates and recorded approximately $92.9 million of tax benefits. Additionally, as of September 30, 2018, we recorded a $5.8 million provision for the deemed repatriation of foreign cash and earnings, which is estimated based upon estimated foreign earnings and foreign income taxes.



	Year Ended September 30,
	2019			2018			2017
Current:
Federal	$	11,294		$	1,542		$	(5,856	)
State	1,020			(198		)	1,105
Foreign	22,855			23,177			23,196
Total current	35,169			24,521			18,445
Deferred:
Federal	(10,931		)	(83,319		)	7,291
State	1,477			2,302			1,133
Foreign	(114,309		)	(5,824		)	(3,198		)
Total deferred	(123,763		)	(86,841		)	5,226
(Benefit) provision for income taxes	$	(88,594	)	$	(62,320	)	$	23,671
Effective income tax rate	(344.1		)%	25.2		%	(15.3		)%



	Year Ended September 30,
	2019			2018			2017
Federal tax provision (benefit) at statutory rate	$	5,407		$	(60,647	)	$	(54,138	)
State tax provision, net of federal benefit	2,175			1,096			1,858
Foreign tax rate and other foreign related tax items	(1,341		)	(10,695		)	(15,768		)
Stock-based compensation	3,368			3,290			6,934
Non-deductible expenditures	8,389			2,375			3,086
Change in U.S. and foreign valuation allowance	168,726			56,557			72,318
Capital losses	(187,822		)	—			—
Intangible property transfers	(171,040		)	—			—
Uncertain tax positions	61,339			4,782			3,111
Global intangible low-taxed income	7,460			—			—
Base erosion and anti-abuse tax	11,216			—			—
TCJA impact	—			(87,058		)	—
Goodwill impairment	—			28,640			—
Executive compensation	1,662			503			5,492
Other	1,867			(1,163		)	778
(Benefit) provision for income taxes	$	(88,594	)	$	(62,320	)	$	23,671

The effective income tax rate is based upon the income for the year, the composition of the income in different countries, changes relating to valuation allowances for certain countries if and as necessary, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other tax contingencies. Our aggregate income tax rate in foreign jurisdictions is lower than our effective income tax rate in the United States; the majority of our income before provision for income taxes from foreign operations has been earned by subsidiaries in Ireland. Our effective income tax rate may be adversely affected by earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory tax rates.

The effective income tax rate in fiscal year 2019 differs from the U.S. federal statutory rate of 21.0% primarily due to a net tax benefit of $112.1 million related to intangible property transfers, partially offset by an uncertain tax position. The net tax benefit is also partially offset by a BEAT tax expense of $11.2 million and a GILTI tax expense of $7.5 million. As part of the restructuring for the spin-off of our Automotive business, we recognized an $896.8 million gross U.S. capital loss with a potential tax benefit of $188.3 million. We believe that it is not more likely than not that the tax benefit from the U.S. capital loss will be realized. As a result, we recorded a full valuation allowance against the capital loss.

The effective income tax rate in fiscal year 2018 differs from the U.S. federal statutory rate of 24.5% primarily due to the net tax benefits resulting from the TCJA remeasurement of deferred tax assets and liabilities at the lower enacted rate, and our foreign earnings subject to lower tax rates, offset in part by additional valuation allowance related to current period losses, and the tax effect of goodwill impairment charges that are not deductible.

The effective income tax rate in fiscal year 2017 differs from the U.S. federal statutory rate of 35% primarily due to additional valuation allowance related to current period losses in the United States, and an increase in deferred tax liabilities related to goodwill, partially offset by our earnings in foreign operations that are subject to significantly lower tax rates than the U.S. statutory tax rate.

As of September 30, 2019, we have not provided taxes on $243.3 million of undistributed earnings of our foreign subsidiaries, which may be subject to foreign withholding taxes upon repatriation, as we consider these earnings indefinitely reinvested. Our indefinite reinvestment determination is based on the future operational and capital requirements of our domestic and foreign operations. We expect our international cash and cash equivalents and marketable securities of $135.9 million will continue to be used for our foreign operations and therefore do not anticipate repatriating these funds. As of September 30, 2019, it is not practicable to calculate the unrecognized deferred tax liability on these earnings due to the complexities of the utilization of foreign tax credits and other tax assets.



	September 30, 2019			September 30, 2018
Deferred tax assets:
Net operating loss carryforwards	$	166,224		$	192,017
Capital loss carryforwards	188,320			—
Federal and state credit carryforwards	43,897			46,721
Accrued expenses and other reserves	33,150			41,371
Difference in timing of revenue related items	24,832			81,647
Deferred compensation	22,917			19,315
Other	11,579			13,802
Total deferred tax assets	490,919			394,873
Valuation allowance for deferred tax assets	(303,378		)	(183,295		)
Net deferred tax assets	187,541			211,578
Deferred tax liabilities:
Depreciation	(16,833		)	(15,729		)
Convertible debt	(87,046		)	(92,452		)
Acquired intangibles	(7,517		)	(131,959		)
Net deferred tax liabilities	$	76,145		$	(28,562	)
Reported as:
Other assets	$	130,361		$	21,369
Long-term deferred tax liabilities	(54,216		)	(49,931		)
Net deferred tax liabilities	$	76,145		$	(28,562	)

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all the deferred tax assets will not be realized. During fiscal year 2019, the valuation allowance for deferred tax assets increased by $120.1 million. This increase relates to the valuation allowance for the U.S. capital loss of $188.3 million, partially offset by reduction of revenue related deferred tax assets due to ASC 606 implementation and the reversal of valuation allowance related to current period earnings. As of September 30, 2019, we have $269.6 million and $33.8 million in valuation allowance against our net domestic and foreign deferred tax assets, respectively. As of September 30, 2018, we had $142.8 million and $40.5 million in valuation allowance against our net domestic and foreign deferred tax assets, respectively.

Other than the capital loss carryforward, the majority of domestic deferred tax assets relate to net operating losses, the use of which may not be available as a result of limitations on the use of acquired losses. With respect to these operating losses, there is no assurance that they will be used given the current assessment of the limitations on their use or our current projection of future taxable income in the entities for which these losses relate. Based on our analysis, we have concluded that it is not more likely than not that the majority of our domestic deferred tax assets can be realized and therefore a valuation allowance has been assigned to these deferred tax assets. If we are subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then we may be required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to our results of operations in the period in which the benefit is determined.

At September 30, 2019 and 2018, we had U.S. federal net operating loss carryforwards of $551.1 million and $692.9 million, respectively. At September 30, 2019 and 2018, we had state net operating loss carryforwards of $194.6 million and $259.1 million, respectively. The net operating loss and credit carryforwards are subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state tax provisions. As of September 30, 2019 and 2018, we had foreign net operating loss carryforwards of $191.7 million and $164.9 million, respectively. These carryforwards will expire at various dates beginning in 2019 and extending up to an unlimited period.

As of September 30, 2019 and 2018, we had federal research and development carryforwards and foreign tax credit carryforwards of $27.7 million and $30.2 million, respectively. As of September 30, 2019 and 2018, we had state research and development credit and investment tax credit carryforwards of $3.9 million and $5.3 million, respectively. As of September 30, 2019 and 2018, we had foreign investment tax credit carryforwards of $14.3 million and $14.7 million, respectively.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit which is more likely than not to be realized upon ultimate settlement. We recognize interest and penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations.



	Year Ended September 30,
	2019			2018
Balance at the beginning of the year	$	29,456		$	33,245
Increases related to tax positions from prior fiscal years	—			1,590
Decreases related to tax positions from prior fiscal years	—			(2,281		)
Increases for tax positions taken during current period	60,225			1,709
Decreases for tax settlements and lapse in statutes	(1,803		)	(4,083		)
Cumulative translation adjustments	(2,291		)	(724		)
Balance at the end of the year	$	85,587		$	29,456

As of September 30, 2019, 85.6 million of the unrecognized tax benefits, if recognized, would impact our effective income tax rate. In fiscal year 2019, there was an increase in unrecognized tax benefits of $58.9 million related to intercompany intangible property transfers. Within the next 12 months, we expect the unrecognized tax benefits to decrease by $56.6 million as it is transferred to Cerence as part of the spin-off on October 1, 2019. We recognized interest and penalties related to uncertain tax positions in our provision for income taxes of $1.9 million, $1.3 million, and $2.0 million during fiscal years 2019, 2018, and 2017, respectively. We recorded interest and penalties of $12.7 million and $10.8 million as of September 30, 2019 and 2018, respectively.

We are subject to U.S. federal income tax, various state and local taxes, and international income taxes in numerous jurisdictions. The federal tax returns for 2000 through 2016 remain subject to examination for the purpose of determining the amount of remaining tax NOL and other carryforwards. Additionally, the federal tax returns for 2017 through 2019 years remain open for all purposes of examination by the IRS and other taxing authorities in material jurisdictions.