Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income before provision for income taxes was as follows:

	Year Ended December 31,
	2020		2019		2018
	(in thousands)
United States	$	2,789,064	$	1,719,326	$	845,402
Foreign	410,285		342,905		381,056
Income before income taxes	$	3,199,349	$	2,062,231	$	1,226,458

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

	Year Ended December 31,
	2020		2019		2018
	(in thousands)
Current tax provision:
Federal	$	24,221	$	21,498	$	(22,176)
State	65,821		45,228		(10,234)
Foreign	277,846		223,328		133,146
Total current	367,888		290,054		100,736
Deferred tax provision:
Federal	(57,765)		(28,003)		(37,396)
State	164,685		(54,507)		(52,391)
Foreign	(36,854)		(12,229)		4,267
Total deferred	70,066		(94,739)		(85,520)
Provision for income taxes	$	437,954	$	195,315	$	15,216

As of December 31, 2020, the Company had a California research and development ("R&D") credit carryforward of $250 million which can be carried forward indefinitely. On June 29, 2020, California enacted legislative changes that impose an annual cap of $5 million on the amount of business incentive tax credits we can utilize in California effective for tax years 2020 through 2022. As a result, we evaluated the Company's ability to realize the California R&D credit, the Company considered all available positive and negative evidence, including operating results, ongoing tax planning, and forecasts of future taxable income and determined it is more likely than not that the pre-2020 credits and a portion of the current year R&D credit would not be realized. In the twelve months ended December 31, 2020, the Company has recorded a valuation allowance of $250 million. The Company will monitor its business strategies, weighing positive and negative evidence in assessing its realization of this asset in the future and in the event there is a need to release the valuation allowance, a tax benefit will be recorded.

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,
	2020			2019			2018
	(in thousands)
Expected tax expense at U.S. Federal statutory rates	$	671,864		$	433,059		$	257,556
State income taxes, net of Federal income tax effect	65,808			47,909			33,611
Foreign earnings at other than U.S. rates	12,212			56,969			63,519
Federal and California R&D tax credits	(113,882)			(134,523)			(140,749)
Valuation allowance on California R&D tax credits	183,283			—			—
Excess tax benefits on stock-based compensation	(339,436)			(148,693)			(191,323)
Impact of the Tax Cuts and Jobs Act of 2017
Rate Change / Transition Tax	—			—			(71,516)
Tax effects of the Tax Cuts and Jobs Act	(87,194)			(127,534)			43,099
Global corporate structure simplification	—			35,939			—
Nondeductible Officers Compensation	30,351			24,111			14,377
Other	14,948			8,078			6,642
Provision for income taxes	$	437,954		$	195,315		$	15,216
Effective Tax Rate	14		%	9		%	1		%

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

	As of December 31,
	2020		2019
	(in thousands)
Deferred tax assets:
Stock-based compensation	$	296,646	$	258,376
Federal and California tax R&D credits	513,413		408,715
Foreign tax credits	—		137,818
Accruals and reserves	74,239		42,450
Operating leases	436,838		349,208
Foreign Net Operating Losses	29,894		411
Unrealized Gain/Loss	114,884		5,477
Other	2,543		622
Gross deferred tax assets	1,468,457		1,203,077
Depreciation & amortization	(229,142)		(80,921)
Operating leases	(400,380)		(329,168)
Gross deferred tax liabilities	(629,522)		(410,089)
Valuation allowance	(249,844)		(134,782)
Net deferred tax assets	$	589,091	$	658,206

All deferred tax assets are classified as “Other non-current assets” on the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019. 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, 2020, the valuation allowance of $250 million was related to the California R&D credits that the Company does not expect to realize.

As of December 31, 2020, the Company's Federal R&D tax credit and state tax credit carryforwards for tax return purposes were $317 million, and $365 million, respectively. The Federal R&D tax credit carryforwards expire through 2040. State tax credit carryforwards can be carried forward indefinitely.

In the fourth quarter of 2020, the Company determined that the likelihood of utilizing its non-U.S. foreign tax credits of $135 million for which there was a valuation allowance of $135 million was remote given its recent global corporate simplification. As such, the Company has written off the deferred tax asset against the valuation allowance and will no longer disclose these amounts.

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, 2020, the total amount of gross unrecognized tax benefits was $140 million, of which $86 million, if recognized, would favorably impact the Company’s effective tax rate. As of December 31, 2019, the total amount of gross unrecognized tax benefits was $67 million, of which $57 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):

Balances as of December 31, 2018	$	47,534
Increases related to tax positions taken during prior periods	925
Decreases related to tax positions taken during prior periods	(417)
Increases related to tax positions taken during the current period	18,826
Decreases related to expiration of statute of limitations	(100)
Balances as of December 31, 2019	66,768
Increases related to tax positions taken during prior periods	11,943
Decreases related to tax positions taken during prior periods	(3,697)
Increases related to tax positions taken during the current period	65,110
Decreases related to expiration of statute of limitations	—
Balances as of December 31, 2020	$	140,124

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. The Company is currently under examination by the IRS for 2016 through 2018 and is subject to examination for 2019. The 2015 through 2019 state tax returns are subject to examination by various state tax authorities. The Company is also currently under examination in the UK for 2018 and 2019. The company has no other significant foreign jurisdiction audits underway. The years 2014 through 2019 generally 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. However, an estimate of the range of reasonably possible adjustments cannot be made at this time.