Income Taxes

Income before provision for income taxes was as follows:



	Year Ended December 31,
	2016		2015		2014
	(in thousands)
United States	$	188,078	$	95,644	$	325,081
Foreign	72,429		46,241		24,288
Income before income taxes	$	260,507	$	141,885	$	349,369

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



	Year Ended December 31,
	2016			2015			2014
	(in thousands)
Current tax provision:
Federal	$	54,315		$	52,557		$	86,623
State	5,790			(1,576		)	9,866
Foreign	60,571			26,918			16,144
Total current	120,676			77,899			112,633
Deferred tax provision:
Federal	(24,383		)	(37,669		)	(10,994		)
State	(14,080		)	(17,635		)	(17,794		)
Foreign	(8,384		)	(3,351		)	(1,275		)
Total deferred	(46,847		)	(58,655		)	(30,063		)
Provision for income taxes	$	73,829		$	19,244		$	82,570

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 $121.1 million of undistributed earnings for certain foreign subsidiaries as of December 31, 2016. 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 $42.4 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,
	2016			2015			2014
	(in thousands)
Expected tax expense at U.S. Federal statutory rate of 35%	$	91,179		$	49,658		$	122,279
State income taxes, net of Federal income tax effect	7,261			4,783			13,274
R&D tax credit	(41,144		)	(29,363		)	(18,655		)
Release of tax reserves on previously unrecognized tax benefits	—			(13,438		)	(38,612		)
Foreign earnings at other than US rates	14,639			5,310			2,959
Other	1,894			2,294			1,325
Provision for income taxes	$	73,829		$	19,244		$	82,570

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



	As of December 31,
	2016			2015
	(in thousands)
Deferred tax assets (liabilities):
Stock-based compensation	$	188,458		$	131,339
Accruals and reserves	29,231			14,367
Depreciation and amortization	(93,760		)	(43,204		)
R&D credits	107,283			74,091
Other	(2,363		)	3,980
Gross deferred tax assets	228,849			180,573
Valuation allowance	(1,601		)	—
Net deferred tax assets	$	227,248		$	180,573

All deferred tax assets are classified as “Other non-current assets” on the Consolidated Balance Sheets as of December 31, 2016 and December 31, 2015. 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, 2016 and 2015, it was considered more likely than not that substantially all deferred tax assets would be realized, and no significant valuation allowance was recorded.

As of December 31, 2016, the Company's Federal R&D tax credit and state tax credit carryforwards for tax return purposes were $72.5 million, and $77.7 million, respectively. The Federal R&D tax credit carryforwards expire through 2036. State tax credit carryforwards of $77.3 million can be carried forward indefinitely and $0.4 million expire in 2024.

As of December 31, 2016, the Company’s net operating loss carryforwards for Federal and state tax return purposes were $108.9 million and $100.0 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 $45.1 million tax benefit from the Federal and state net operating losses attributable to excess stock option deductions in gross deferred tax assets. The $45.1 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 $64.3 million, $79.9 million and $88.9 million for the years ended December 31, 2016, 2015 and 2014, respectively, were recorded directly to additional paid-in-capital.

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, 2016, the total amount of gross unrecognized tax benefits was $19.7 million, of which $17.0 million, if recognized, would favorably impact the Company’s effective tax rate. 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. 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, 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		)
Balances as of December 31, 2015	17,117
Increases related to tax positions taken during prior periods	1,047
Decreases related to tax positions taken during prior periods	(7,105		)
Increases related to tax positions taken during the current period	8,713
Decreases related to expiration of statute of limitations	(33		)
Balances as of December 31, 2016	$	19,739

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 the years 2014 and 2015. The years 2010 through 2015 remain subject to examination by the state of California. The Company has no significant foreign jurisdiction audits underway. The years 2012 through 2015 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.