Income Taxes

Income before provision for income taxes was as follows:



	Year Ended December 31,
	2015		2014		2013
	(in thousands)
United States	$	95,644	$	325,081	$	159,126
Foreign	46,241		24,288		11,948
Income before income taxes	$	141,885	$	349,369	$	171,074

The components of provision for income taxes for all periods presented were as follows:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Current tax provision:
Federal	$	52,557		$	86,623		$	58,558
State	(1,576		)	9,866			15,154
Foreign	26,918			16,144			7,003
Total current	77,899			112,633			80,715
Deferred tax provision:
Federal	(37,669		)	(10,994		)	(18,930		)
State	(17,635		)	(17,794		)	(2,751		)
Foreign	(3,351		)	(1,275		)	(363		)
Total deferred	(58,655		)	(30,063		)	(22,044		)
Provision for income taxes	$	19,244		$	82,570		$	58,671

U.S. income taxes and foreign withholding taxes associated with the repatriation of earnings of certain foreign subsidiaries were not provided for on a cumulative total of $65.3 million of undistributed earnings for certain foreign subsidiaries as of December 31, 2015. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes net of available foreign tax credits associated with these earnings. The amount of unrecognized deferred income tax liability related to these earnings is approximately $22.8 million.

A reconciliation of the provision for income taxes, with the amount computed by applying the statutory Federal income tax rate to income before income taxes is as follows:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Expected tax expense at U.S. Federal statutory rate of 35%	$	49,658		$	122,279		$	59,878
State income taxes, net of Federal income tax effect	4,783			13,274			8,053
R&D tax credit	(29,363		)	(18,655		)	(13,841		)
Release of tax reserves on previously unrecognized tax benefits	(13,438		)	(38,612		)	—
Foreign earnings at other than US rates	5,310			2,959			821
Other	2,294			1,325			3,760
Provision for income taxes	$	19,244		$	82,570		$	58,671

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (H.R. 2029) was signed into law which retroactively and permanently extended the Federal R&D credit from January 1, 2015. As a result, the Company recognized the retroactive benefit of the 2015 R&D credit of approximately $16.5 million as a discrete item in the fourth quarter of 2015, the period in which the legislation was enacted.

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



	As of December 31,
	2015			2014
	(in thousands)
Deferred tax assets (liabilities):
Stock-based compensation	$	131,339		$	100,397
Accruals and reserves	14,367			13,415
Depreciation and amortization	(43,204		)	(11,708		)
R&D credits	74,091			21,014
Other	3,980			(2,778		)
Total deferred tax assets	$	180,573		$	120,340

All deferred tax assets are classified as “Other non-current assets” on the Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014. In evaluating its ability to realize the net deferred tax assets, the Company considered all available positive and negative evidence, including its past operating results and the forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. As of December 31, 2015 and 2014, it was considered more likely than not that substantially all deferred tax assets would be realized, and no valuation allowance was recorded.

As of December 31, 2015, the Company's Federal R&D tax credit and state tax credit carryforwards for tax return purposes were $44.1 million, and $59.3 million, respectively. The Federal R&D tax credit carryforwards expire through 2035. State tax credit carryforwards of $58.8 million can be carried forward indefinitely and $0.5 million expire in 2024.

As of December 31, 2015, the Company’s net operating loss carryforwards for Federal and state tax return purposes were $104.8 million and $237.0 million, respectively, which expire in 2035. These net operating losses were generated as a result of excess stock option deductions. Pursuant to Accounting Standards Codification 718, Compensation - Stock Compensation , the Company has not recognized the related $45.0 million tax benefit from the Federal and state net operating losses attributable to excess stock option deductions in gross deferred tax assets. The $45.0 million tax benefit will be credited directly to additional paid-in capital when net operating losses attributable to excess stock option deductions are utilized to reduce taxes payable.

Income tax benefits attributable to the exercise of employee stock options of $79.9 million, $88.9 million and $80.0 million for the years ended December 31, 2015, 2014 and 2013, respectively, were recorded directly to additional paid-in-capital.

The Company classified $3.6 million of unrecognized tax benefits that are expected to result in payment or receipt of cash within one year as “Accrued expenses”. The unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year are classified as “Other non-current liabilities” and a reduction of deferred tax assets which is classified as "Other non-current assets" in the Consolidated Balance Sheets. As of December 31, 2015, the total amount of gross unrecognized tax benefits was $17.1 million, of which $13.5 million, if recognized, would favorably impact the Company’s effective tax rate. As of December 31, 2014, the total amount of gross unrecognized tax benefits was $34.8 million, of which $29.2 million, if recognized, would favorably impact the Company’s effective tax rate. The aggregate changes in the Company’s total gross amount of unrecognized tax benefits are summarized as follows (in thousands):



Balance as of December 31, 2013	$	68,231
Decreases related to tax positions taken during prior periods	(39,015		)
Increases related to tax positions taken during the current period	11,174
Decreases related to settlements with taxing authorities	(5,578		)
Balance as of December 31, 2014	$	34,812
Increases related to tax positions taken during prior periods	1,960
Decreases related to tax positions taken during prior periods	(12,334		)
Increases related to tax positions taken during the current period	7,077
Decreases related to settlements with taxing authorities	(14,398		)
Balance as of December 31, 2015	$	17,117

The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes and in “Other non-current liabilities” in the Consolidated Balance Sheets. Interest and penalties included in the Company's provision for income taxes were not material in all the periods presented.

The Company files U.S. Federal, state and foreign tax returns. In December 2015, the Company reached a settlement with the IRS for tax years 2010 through 2013. The 2014 Federal tax return remains subject to examination by the IRS. California had previously completed its Field Exam of the 2006 and 2007 California tax returns and had issued a Notice of Proposed Assessment primarily related to the Company's R&D Credits claimed in those years. The Company filed a protest against the proposed assessment and settlement was reached with the Franchise Tax Board for tax years 1997 through 2007 in November 2015. The years 2008 through 2014, remain subject to examination by the state of California. As a result of the above audit settlements, the Company has reassessed the tax reserves on the related uncertain tax position for all open years and released $13.4 million of tax reserves in the fourth quarter of 2015. The Company has no significant foreign jurisdiction audits underway. The years 2011 through 2014 remain subject to examination by foreign jurisdictions.

Given the potential outcome of the current examinations as well as the impact of the current examinations on the potential expiration of the statute of limitations, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, an estimate of the range of reasonably possible adjustments cannot be made.