INCOME TAXES

The components of the provision for income taxes attributable to operations consist of the following (in thousands):



	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	36,167		$	41,453		$	32,198
State	5,140			3,518			3,682
Foreign	708			295			76
Total current	42,015			45,266			35,956
Deferred:
Federal	6,576			(7,917		)	12,586
State	(2,582		)	4,695			3,014
Foreign	(328		)	319			35
Total deferred	3,666			(2,903		)	15,635
Total provision for income taxes	$	45,681		$	42,363		$	51,591

The components of deferred tax assets and liabilities consist of the following (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Reserve for bad debts	$	1,457		$	1,636
Accrued compensation	4,803			6,706
Stock compensation	10,041			10,568
Net operating losses	26,349			25,899
Accrued reserve and other	1,773			1,578
Deferred rent	5,928			6,533
Deferred gain on the sale of building	4,140			4,741
Research and development credits	6,331			—
Total deferred tax assets, prior to valuation allowance	60,822			57,661

Valuation allowance	(14,246		)	(13,032		)
Total deferred tax assets, net of valuation allowance	46,576			44,629

Deferred tax liabilities:
Deferred commission costs, net	(19,314		)	—
Prepaid expenses	(2,204		)	(1,239		)
Property and equipment, net	(5,367		)	(6,229		)
Intangible assets, net	(82,079		)	(43,800		)
Total deferred tax liabilities	(108,964		)	(51,268		)

Net deferred tax assets (liabilities)	$	(62,388	)	$	(6,639	)

As of December 31, 2018 and 2017, a valuation allowance has been established for certain deferred tax assets due to the uncertainty of realization. The valuation allowance as of December 31, 2018 and 2017 includes an allowance for unrealized losses on ARS investments, foreign deferred tax assets and state net operating losses and tax credits. The valuation allowance for the deferred tax asset for unrealized losses on ARS has been recorded as an adjustment to accumulated other comprehensive loss.

The Company established the valuation allowance because it is more likely than not that a portion of the deferred tax asset for certain items will not be realized based on the weight of available evidence. A valuation allowance was established for the unrealized losses on securities as the Company has not historically generated capital gains, and it is uncertain whether the Company will generate sufficient capital gains in the future to absorb the capital losses. A valuation allowance was established for the foreign deferred tax assets due to the cumulative loss in recent years in those jurisdictions. The Company has not had sufficient taxable income historically to utilize the foreign deferred tax assets, and it is uncertain whether the Company will generate sufficient taxable income in the future to utilize the deferred tax assets. Similarly, the Company has established a valuation allowance for net operating losses and tax credits in certain states where it is uncertain whether the Company will generate sufficient taxable income to utilize the net operating losses and tax credits before they expire.

The Company’s change in valuation allowance was an increase of approximately $1 million for the year ended December 31, 2018 and a decrease of approximately $4 million for the year ended December 31, 2017. The increase for the year ended December 31, 2018 is due to an increase in the valuation allowance for state tax credits related to the D.C. qualified high technology company credit of approximately $1 million. The increase for the year ended December 31, 2017 is due to an increase in the valuation allowance for foreign deferred tax assets related to foreign net operating losses of approximately $4 million.

The Company had U.S. income before income taxes of approximately $294 million, $167 million and $135 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company had foreign losses before income taxes of approximately $10 million and $2 million for the years ended December 31, 2018 and December 31, 2017, respectively. The Company had foreign income before income taxes of approximately $2 million for the year ended December 31, 2016.

The Company’s provision for income taxes resulted in effective tax rates that varied from the statutory federal income tax rate as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016

Expected federal income tax provision at statutory rate	$	59,643		$	57,770		$	47,832
State income taxes, net of federal benefit	10,312			4,776			3,638
Foreign income taxes, net effect	(315		)	(3,540		)	(31		)
Increase (decrease) in valuation allowance	1,214			3,624			(103		)
Tax rate changes	141			(7,340		)	283
Research credits	(15,373		)	(20,547		)	(920		)
Excess tax benefit	(14,227		)	(7,010		)	—
Tax reserves	1,870			12,646			(150		)
Other adjustments	2,416			1,984			1,042
Income tax expense	$	45,681		$	42,363		$	51,591

The Company’s U.K. subsidiaries with foreign losses are disregarded entities for U.S. income tax purposes. Accordingly, the losses from these disregarded entities are included in the Company’s consolidated federal income tax provision at the statutory rate. Federal income taxes attributable to income from these disregarded entities are reduced by foreign taxes paid by those disregarded entities.

The Company recognized an income tax benefit during the year ended December 31, 2018 for state research credits of $14 million for tax years December 31, 2013 through December 31, 2018. These research credits relate to eligible activities including the development of new products, product enhancements and new or improved processes.

The Company has net operating loss carryforwards for international income tax purposes of approximately $53 million, which do not expire. The Company has federal net operating loss carryforwards of approximately $44 million that begin to expire in 2020, state net operating loss carryforwards with a tax value of approximately $4 million that begin to expire in 2020 and state income tax credit carryforwards with a tax value of approximately $11 million primarily relating to state research and development credits and the D.C. qualified high technology company tax credit that begin to expire in 2020. The Company realized a cash benefit relating to the use of its tax loss carryforwards of approximately $6 million, $7 million and $5 million in December 31, 2018, 2017 and 2016, respectively.

The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):



Unrecognized tax benefit as of December 31, 2015	$	7,664
Increase for current year tax positions	368
Decrease for prior year tax positions	(6,115		)
Expiration of the statute of limitation for assessment of taxes	(74		)
Unrecognized tax benefit as of December 31, 2016	1,843
Increase for current year tax positions	12,620
Decrease for prior year tax positions	(34		)
Expiration of the statute of limitation for assessment of taxes	(66		)
Unrecognized tax benefit as of December 31, 2017	14,363
Increase for current year tax positions	9,561
Decrease for prior year tax positions	(70		)
Expiration of the statute of limitation for assessment of taxes	(1,482		)
Unrecognized tax benefit as of December 31, 2018	$	22,372

Approximately $22 million and $14 million of the unrecognized tax benefits as of December 31, 2018 and 2017, respectively, would favorably affect the annual effective tax rate, if recognized in future periods. The increase for current year tax positions of $9 million for the year ended December 31, 2018 is primarily attributable to research credits and state apportionment methodology reserve related to the ForRent acquisition. The decrease of $1 million for the year ended December 31, 2018 is primarily attributable to the expiration of the statute of limitation on the state apportionment methodology reserve. The Company recognized $224,000 for interest and penalties in its consolidated statement of operations for the year ended December 31, 2018. The Company recognized $72,000 for interest and penalties in its consolidated statement of operations for the year ended December 31, 2017. The Company reversed interest and penalties of $416,000 in its consolidated statement of operations for the year ended December 31, 2016. The Company had liabilities of $430,000, $205,000 and $133,000 for interest and penalties in its consolidated balance sheets as of December 31, 2018, 2017, 2016 respectively. The Company does not anticipate the amount of the unrecognized tax benefits will change significantly over the next twelve months.

The Company is subject to taxation in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company’s federal income tax returns for tax years 2013 through 2017 remain open to examination. The Company is under Internal Revenue Service examination for tax year 2013 related to the research and development credit. Most of the Company’s state income tax returns for tax years 2015 through 2017 remain open to examination. For states that have a four-year statute of limitations, the state income tax returns for tax years 2014 through 2017 remain open to examination. The Company’s U.K. income tax returns for tax years 2013 through 2017 remain open to examination. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed U.S. tax law. The Tax Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on deferred foreign income. The Tax Act also created a new minimum tax on certain future foreign earnings under section 951(a) and allows foreign-derived intangible income deduction under section 250(a). The Securities and Exchange Commission staff issued Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provided a measurement period of up to one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.

As of December 31, 2018, the Company's accounting for income tax effects of the Tax Act is complete and the Company has reflected all income tax effects of the Tax Act in the financial statements and related disclosures. Any additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, may result in the Company deciding to make adjustments. Those adjustments may materially impact the provision for income taxes in the period in which the adjustments are made.

As of December 31, 2018 the Company has evaluated the global intangible low taxed income inclusion under section 951(a)("GILTI"). Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the measurement of deferred taxes (the “deferred method”). The Company elected to record the GILTI income inclusion under the current-period cost method.