Income Taxes

3 Months Ended

Mar. 31, 2020



	Three Months Ended
	March 31, 2020			March 31, 2019
	(in thousands, except percentages)
Provision for income taxes	$	86,803		$	55,607
Effective tax rate	11		%	14		%

In connection with the Tax Cuts and Jobs Act of 2017 the Company simplified its global corporate structure, effective April 1, 2019. The tax impacts of such simplifications were not material to the financial statements taken as a whole.

The effective tax rate for the three months ended March 31, 2020 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation, Federal and California research and development (“R&D”) credits, and the international provisions of U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses. The effective tax rate for the three months ended March 31, 2019 differed from the Federal statutory rate primarily due to the recognition of excess tax benefits of stock-based compensation, Federal and California R&D credits, and effects of the international tax provisions from U.S. tax reform that became effective in 2018, partially offset by state taxes, foreign taxes, and non-deductible expenses.

The decrease in effective tax rate for the three months ended March 31, 2020, as compared to the same period in 2019 was primarily due to changes from the global corporate structure simplification, offset by a lower benefit on a percentage basis for excess tax benefits of stock-based compensation and Federal and California R&D credits due to higher pre-tax income. For the three months ended March 31, 2020, the Company recognized a discrete tax benefit related to the excess tax benefits from stock-based compensation of $65 million, compared to the three months ended March 31, 2019 of $41 million.

Gross unrecognized tax benefits were $71 million and $67 million as of March 31, 2020 and December 31, 2019, respectively. The gross unrecognized tax benefits, if recognized by the Company, will result in a reduction of approximately $60 million to the provision for income taxes thereby favorably impacting the Company’s effective tax rate. As of March 31, 2020, gross unrecognized tax benefits of $19 million were classified as “Other non-current liabilities” and $52 million as a reduction to deferred tax assets which was classified as "Other non-current assets" in the Consolidated Balance Sheets. The Company includes interest and penalties related to unrecognized tax benefits within the "Provision for income taxes" on the Consolidated Statements of Operations and “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 any of the periods presented.

Deferred tax assets of $612 million and $658 million were classified as “Other non-current assets” on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively. 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. The Company has a valuation allowance of $132 million and $135 million as of March 31, 2020 and December 31, 2019, respectively. The valuation allowance is primarily related to certain foreign tax credits that are not likely to be realized.

The Company files U.S. Federal, state and foreign tax returns. The Company is currently under examination by the IRS for 2016, 2017, and 2018. The 2011 through 2018 state tax returns are subject to examination by state tax authorities. The Company is also currently under examination in the U.K. for 2018 and 2019. The Company has no other significant foreign jurisdiction audits underway. The years 2014 through 2019 remain subject to examination by foreign tax authorities.

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. At this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.