Income Taxes

12 Months Ended

Dec. 31, 2020

Income before income taxes included the following components:


	Year Ended December 31,
(in thousands)	2020		2019		2018
Domestic	$	465,382	$	448,271	$	455,478
Foreign	28,543		74,312		31,607
Total	$	493,925	$	522,583	$	487,085

The provision for income taxes was composed of the following:


	Year Ended December 31,
(in thousands)	2020		2019		2018
Current:
Federal	$	26,855	$	44,824	$	58,138
State	12,738		9,554		12,888
Foreign	51,377		31,421		30,359
Deferred:
Federal	(12,203)		(8,833)		(20,764)
State	(2,119)		(965)		(2,901)
Foreign	(16,610)		(4,713)		(10,010)
Total	$	60,038	$	71,288	$	67,710

The reconciliation of the U.S. federal statutory tax rate to the consolidated effective tax rate was as follows:


	Year Ended December 31,
	2020		2019		2018
Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.6		1.5		1.5
Foreign rate differential	0.4		0.8		0.8
Uncertain tax positions	0.1		(0.2)		0.5

Valuation allowance release	(0.8)		(1.3)		—

Benefit from entity structuring activities	(1.5)		—		(1.4)
Foreign-derived intangible income deduction	(2.8)		(3.8)		(3.9)
Research and development credits	(3.2)		(2.2)		(2.3)
Stock-based compensation	(3.6)		(3.1)		(3.3)
Other	1.0		0.9		1.0
	12.2	%	13.6	%	13.9	%

The components of deferred tax assets and liabilities are as follows:


	December 31,
(in thousands)	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	47,551	$	35,044
Operating lease liabilities	34,803		26,628
Stock-based compensation	24,738		24,254
Uncertain tax positions	18,565		19,227
Employee benefits	13,290		9,392
Research and development credits	9,847		5,865
Allowance for doubtful accounts	3,193		1,841
Other	6,856		4,468
Valuation allowance	(15,398)		(17,524)
Total deferred tax assets	143,445		109,195
Deferred tax liabilities:
Other intangible assets	(147,960)		(99,193)
Operating lease right-of-use assets	(33,304)		(25,648)
Deferred revenue	(26,839)		(13,744)
Accounting method change	(10,781)		(21,396)
Property and equipment	(6,052)		(3,780)
Total deferred tax liabilities	(224,936)		(163,761)
Net deferred tax liabilities	$	(81,491)	$	(54,566)

The valuation allowance decreased by $2.1 million for the year ended December 31, 2020. Intercompany debt restructuring resulted in the ability to utilize losses in a foreign jurisdiction where we previously determined that utilization was remote, resulting in the release of $2.3 million of valuation allowance. In addition, a favorable tax ruling in a foreign jurisdiction resulted in the release of $1.8 million of valuation allowance recorded against losses where we previously determined that utilization was remote. These decreases in the valuation allowance are offset by other increases in unrealizable tax assets. As of each reporting date, management considers new evidence, both positive and negative, that could affect the future realization of deferred tax assets. If management determines it is more likely than not that an asset, or a portion of an asset, will not be realized, a valuation allowance is recorded.

As of December 31, 2020, we had federal net operating loss carryforwards of $28.3 million, which are subject to limitations of their utilization. Losses totaling $25.6 million are not currently subject to expiration dates, while the remaining $2.7 million of losses expire between 2025 - 2037. Deferred tax assets of $1.9 million have been recorded for state operating loss carryforwards. These losses expire between 2030 - 2042, and are subject to limitations on their utilization. We had total foreign net operating loss carryforwards of $166.1 million, of which $141.7 million are not currently subject to expiration dates. The remainder, $24.4 million, expires between 2025 - 2036. We had tax credit carryforwards of $11.2 million, of which $6.9 million are subject to limitations on their utilization. Approximately $0.7 million of these tax credit carryforwards are not currently subject to expiration dates. The remainder, $10.5 million, expires in various years between 2021 - 2040.

In general, it is our intention to permanently reinvest all earnings in excess of previously taxed amounts. Substantially all of the pre-2018 earnings of our non-U.S. subsidiaries were taxed through the transition tax and post-2018 current earnings are taxed as part of global intangible low-taxed income tax expense. These taxes increase our previously taxed earnings and allow for the repatriation of the majority of our foreign earnings without any residual U.S. federal tax. While we believe that the financial reporting bases may be greater than the tax bases of investments in foreign subsidiaries for any earnings in excess of previously taxed amounts, such amounts are considered permanently reinvested. The cumulative temporary difference related to such permanently reinvested earnings is approximately $93.0 million and we would anticipate the tax effect on those earnings to be immaterial.

The following is a reconciliation of the total amounts of unrecognized tax benefits:


	Year Ended December 31,
(in thousands)	2020		2019		2018
Unrecognized tax benefit as of January 1	$	49,085	$	22,827	$	19,657
Gross changes—acquisitions	(24,963)		26,914		—
Gross increases—tax positions in prior period	1,572		207		1,229
Gross decreases—tax positions in prior period	—		(1,743)		(376)
Gross increases—tax positions in current period	1,281		3,563		4,014
Reductions due to a lapse of the applicable statute of limitations	(3,502)		(2,230)		(994)
Changes due to currency fluctuation	994		(453)		(703)
Settlements	(392)		—		—
Unrecognized tax benefit as of December 31	$	24,075	$	49,085	$	22,827

We believe that it is reasonably possible that approximately $5.0 million of uncertain tax positions included in the table above may be resolved within the next twelve months as a result of settlement with a taxing authority or a lapse of the statute of limitations. If the unrecognized tax benefit as of December 31, 2020 were to be recognized, a benefit of $16.3 million would impact the effective tax rate.

We recognize interest and penalties related to income taxes as income tax expense. We recorded penalty expense of $0.2 million, $0.5 million and $0.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. We recorded interest expense of $0.3 million and less than $0.1 million for the years ended December 31, 2020 and 2019, respectively, and interest income of $0.1 million for the year ended December 31, 2018. As of December 31, 2020, we accrued a liability for penalties of $5.5 million and interest of $5.4 million. As of December 31, 2019, we accrued a liability for penalties of $11.7 million and interest of $6.6 million.

We are subject to taxation in the U.S. and various states and foreign jurisdictions. In the U.S., our only major tax jurisdiction, the 2017 - 2020 tax years are open to examination by the Internal Revenue Service.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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