

	Year Ended December 31,
	2018			2017			2016
Current:
Federal	$	73		$	1,426		$	689
State and local	25			(17		)	55
Foreign	245			151			178
	$	343		$	1,560		$	922
Deferred:
Federal	$	(488	)	$	1,788		$	77
State and local	(10		)	4			—
Foreign	345			(64		)	(4,633		)
	(153		)	1,728			(4,556		)
	$	190		$	3,288		$	(3,634	)



	Year Ended December 31,
	2018			2017			2016
Provision at statutory rate	$	571		$	797		$	1,278
Foreign income taxed at different rates	(16		)	(217		)	(451		)
Other taxes on foreign operation	26			330			105
Stock-based compensation	(3		)	(33		)	24
State taxes, net of federal benefit	13			(13		)	55
Research and other tax credits	(30		)	(35		)	(16		)
Tax basis step-up resulting from realignment	(9		)	(695		)	(4,621		)
Impact of tax rate change	108			—			—
U.S. tax reform	(463		)	3,142			—
Other	(7		)	12			(8		)
	$	190		$	3,288		$	(3,634	)

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following (in millions):



	As of December 31,
	2018			2017
Deferred tax assets:
Net operating loss, capital loss and credits	$	136		$	86
Accruals and allowances	168			129
Stock-based compensation	22			40
Amortizable tax basis in intangibles	4,757			5,164
Net deferred tax assets	5,083			5,419
Valuation allowance	(65		)	(19		)
	$	5,018		$	5,400
Deferred tax liabilities:
Unremitted foreign earnings	$	(2,930	)	$	(3,514	)
Acquisition-related intangibles	(46		)	(24		)
Depreciation and amortization	(132		)	(89		)
Net unrealized gain	(27		)	(2		)
Available-for-sale securities	(15		)	(2		)
	(3,150		)	(3,631		)
	$	1,868		$	1,769

As of December 31, 2018, our federal, state and foreign net operating loss carryforwards for income tax purposes were approximately $12 million, $55 million and $247 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2021 and 2020, respectively. The carryforward periods on our foreign net operating loss carryforwards are as follows: $64 million do not expire, $132 million are subject to valuation allowance and begin to expire in 2019, and $51 million are not subject to valuation allowance but will begin to expire in 2024. As of December 31, 2018, state tax credit carryforwards for income tax purposes were approximately $129 million. Most of the state tax credits carry forward indefinitely.

As of December 31, 2018 and 2017, we maintained a valuation allowance with respect to certain of our deferred tax assets relating primarily to operating losses in certain non-U.S. jurisdictions and certain state tax credits that we believe are not likely to be realized.

During the fourth quarter of 2016, we began the process of realigning our legal structure, subsequent to the distribution of PayPal Holdings, Inc., to better reflect how we manage and operate our platforms. We consider many factors in effecting this realignment, including foreign exchange exposures, long-term cash flows and cash needs of our platforms, capital allocation considerations and the associated tax effects. As a result, we achieved a substantial step-up in the tax basis of the intangible assets in our foreign eBay platforms in 2016. The step-up in tax basis of our foreign eBay platforms resulted from our election to terminate an existing tax ruling and finalize a new agreement with the foreign tax authority. In the fourth quarter of 2016, we recognized a tax benefit of $4.6 billion, which represented the income tax effect of this step-up in tax basis. During the first half of 2017, we recognized a noncash income tax charge of $376 million caused by the foreign exchange remeasurement of the associated deferred tax asset. In the first quarter of 2017, we achieved a step-up in the tax basis of the intangible assets in our foreign Classifieds platforms as a result of voluntary domiciling our Classifieds intangible assets into a new jurisdiction and recognized a tax benefit of $695 million.

As a result of the realignment of our legal structure in 2016 and 2017, we no longer benefit from tax rulings previously concluded in several different jurisdictions. Without the benefit of the rulings, the noncash tax impacts of the realignment in our foreign eBay and Classifieds platforms have increased our income tax rate in certain foreign jurisdictions, most significantly Switzerland. The higher rate results from eBay being subject to a higher enacted tax rate for the foreseeable future.

While our tax rate is higher, the realignment allows us to achieve certain foreign cash tax benefits due to the step-up in tax basis achieved in certain foreign jurisdictions. We expect these cash tax benefits to remain consistent, subject to the performance of our foreign platforms, for a period in excess of 10 years. The realignment was substantially completed by the end of 2018 and primarily impact our international entities. However, U.S. tax reform and the new U.S. minimum tax on foreign earnings has reduced our expected consolidated cash tax benefits.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted. U.S. tax reform, among other things, reduces the U.S. federal income tax rate from 35% to 21% in 2018, instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings in 2017 and created a new U.S. minimum tax on earnings of foreign subsidiaries. We recognized a provisional income tax charge of $3.1 billion in the fourth quarter of 2017, which was included as a component of the income tax provision on our consolidated statement of income. We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018 and recognized a $463 million reduction to the provisional tax amounts recorded in the fourth quarter of 2017, which is included as a component of income tax expense from continuing operations.

Included in the provisional amount was $1.4 billion for the income tax on the deemed repatriation of unremitted foreign earnings. We completed the computation of this amount as part of the 2017 income tax return filing and reduced the provisional amount by $18 million. Additionally, we utilized $213 million of foreign tax credits to reduce the net liability. We elected to pay the liability for the deemed repatriation of foreign earnings in installments, as specified by the Act. Accordingly, as of December 31, 2018 and 2017, $968 million and $1.2 billion of our liability for deemed repatriation of foreign earnings was included in other liabilities on our consolidated balance sheet.

The remaining provisional amount of $1.7 billion was for the deferred income tax effects of the Act, primarily the impact of the new U.S. minimum tax on foreign earnings, partially offset by the reversal of our existing deferred tax liability associated with repatriation of unremitted foreign earnings. We completed our analysis of the components of the deferred tax computation in the fourth quarter of 2018 and recognized a tax benefit of $445 million as a reduction to the provisional amounts recorded in the fourth quarter of 2017 for the deferred income tax effects of the Act. This amount includes a $389 million tax benefit as a result of clarification by Swiss tax authorities regarding the applicability of withholding tax to repatriated earnings in October 2018.

We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018. Accordingly, we have recognized the tax consequences of all foreign unremitted earnings and management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of the balance sheet date. We have not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to unremitted earnings. These basis differences will be indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis difference is not practicable.



	2018			2017			2016
Gross amounts of unrecognized tax benefits as of the beginning of the period	$	487		$	458		$	440
Increases related to prior period tax positions	64			37			24
Decreases related to prior period tax positions	(10		)	(28		)	(20		)
Increases related to current period tax positions	28			58			47
Settlements	(18		)	(38		)	(33		)
Gross amounts of unrecognized tax benefits as of the end of the period	$	551		$	487		$	458

Included within our gross amounts of unrecognized tax benefits of $551 million as of December 31, 2018 is $100 million of unrecognized tax benefits indemnified by PayPal. If total unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $466 million. Of this amount, approximately $95 million of unrecognized tax benefit is indemnified by PayPal and a corresponding receivable would be reduced upon a future realization. As of December 31, 2018, our liabilities for unrecognized tax benefits were included in other liabilities on our consolidated balance sheet.

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. In 2018, $14 million was included in tax expense for interest and penalties. The amount of interest and penalties accrued as of December 31, 2018 and 2017 was approximately $61 million and $43 million, respectively.

We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by certain tax authorities for the 2008 to 2016 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these or other examinations. The material jurisdictions where we are subject to potential examination by tax authorities for tax years after 2007 include, among others, the U.S. (Federal and California), Germany, Korea, Israel, Switzerland, United Kingdom and Canada.

Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. We do expect the gross amount of unrecognized tax benefits to be reduced within the next twelve months by at least $196 million.