Income taxes

The Company’s loss before provision for (benefit from) income taxes for fiscal 2019, 2018 and 2017 were as follows:



	2019			2018			2017
(In thousands)
Domestic	$	(858	)	$	2,803		$	(25,005	)
Foreign	(218		)	(17,351		)	8,497
Loss before provision for (benefit from) income taxes	$	(1,076	)	$	(14,548	)	$	(16,508	)

Components of the provision for (benefit from) income taxes consisted of the following:



	2019			2018			2017
(In thousands)
Current:
U.S. Federal	$	1,366		$	—		$	—
U.S. State	1,132			177			62
Foreign	1,463			816			(3,791		)
Total current	3,961			993			(3,729		)
Deferred:
U.S. Federal	—			(168		)	—
U.S. State	—			—			—
Foreign	(271		)	231			1,438
Total deferred	(271		)	63			1,438
Provision for (benefit from) income taxes	$	3,690		$	1,056		$	(2,291	)

Components of the Company’s net deferred income tax assets (liabilities) are as follows:



	2019			2018
(In thousands)
Deferred tax assets
Accrued expenses and reserves	$	12,582		$	5,639
Deferred revenue	11,185			10,317
U.S. net operating loss carryforwards	15,112			18,385
Foreign net operating loss carryforwards	3,414			5,625
Tax credit carryforwards	43,411			22,969
Stock-based compensation	10,368			7,237
Amortization	4,131			3,237
Depreciation	672			—
Other	453			427
Total deferred tax assets	101,328			73,836
Valuation allowance	(95,088		)	(72,380		)
Deferred tax assets, net of valuation allowance	6,240			1,456
Deferred tax liabilities
Tax accounting method change	(5,086		)	—
Depreciation	—			(515		)
Total deferred tax liabilities	(5,086		)	(515		)
Net deferred tax assets	$	1,154		$	941

After considering all available positive and negative evidence, the Company has determined it is more likely than not that deferred tax assets in the United States and the Netherlands will not be realized and that a full valuation allowance is required. The Company has maintained a full valuation allowance on its U.S. deferred tax assets due to its history of U.S. operating losses. It is possible that within the next 12 months there may be sufficient positive evidence to release a significant portion of the valuation allowance. Release of the U.S. valuation allowance would result in the establishment of certain deferred tax assets and a benefit to income tax expense for the period the release is recorded, which could have a material impact on net earnings. The exact timing and amount of the valuation allowance release are subject to change based on the level of profitability achieved. The Company has deferred tax assets in other foreign jurisdictions which it determined are more likely than not to be fully realized.

As of September 28, 2019, the Company had gross federal and post-apportionment state net operating loss carryforwards of $60.6 million and $36.2 million, respectively, available to reduce future taxable income. The earliest federal and state net operating loss carryforwards expire in varying amounts beginning in 2035 and 2027, respectively. As of September 28, 2019, the Company had gross foreign net operating loss carryforwards of $16.1 million, of which $1.4 million have an indefinite life and $14.7 million will expire in 2027. The Company also has gross federal and state research and development tax credits carryforwards of $33.8 million and $25.9 million, respectively. The federal research credits will begin to expire in the year 2025, and the state research credits will begin to expire in the year 2024.

Because of the change of ownership provisions of Sections 382 and 383 of the Code, use of a portion of the Company’s domestic net operating losses and tax credit carryforwards may be limited in future periods depending upon future changes in ownership. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities if sufficient taxable income is not generated in future periods.

The following table summarizes changes in the valuation allowance for fiscal 2019, 2018 and 2017:



(In thousands)	2019		2018			2017
Beginning balance	$	72,380	$	94,956		$	95,882
Increase (decrease) during the period	22,708		(22,576		)	(926		)
Ending balance	$	95,088	$	72,380		$	94,956

Reconciliation of U.S. statutory federal income taxes to the Company’s provision for (benefit from) income taxes is as follows:



(In thousands)	2019			2018			2017
U.S. federal income taxes at statutory rate	$	(226	)	$	(3,570	)	$	(5,778	)
U.S. state and local income taxes	(9,315		)	(1,441		)	(2,454		)
Foreign income tax rate differential	129			(53		)	(1,101		)
Dutch tax settlement	—			—			7,361
Stock-based compensation	(2,399		)	4,025			1,503
Federal research tax credits	(8,418		)	(4,333		)	(2,978		)
Unrecognized federal tax benefits	(2,806		)	1,990			1,191
Change in tax rate	1,161			25,725			—
Net Impact of GILTI	239			—			—
BEAT	781			—			—
Other	822			259			1,197
Change in valuation allowance	23,722			(21,546		)	(1,232		)
Provision for (benefit from) income taxes	$	3,690		$	1,056		$	(2,291	)

In January 2017, the Company entered into a unilateral Advance Pricing Agreement (the "APA") with the Dutch Tax Administration. The APA establishes an intercompany licensing arrangement whereby the operating profit or loss, as determined under U.S. GAAP, of Sonos Europe B.V. and Sonos, Inc. will be allocated between the two companies based on relative contribution to the development of marketing and technology intangibles. The APA has a five-year term that commenced on October 2, 2016 and ends on September 30, 2021.

Change in unrecognized tax benefits as a result of uncertain tax positions are as follows:



	2019			2018
(In thousands)
Beginning balance	$	17,794		$	13,780
Increase (decrease) - tax positions in prior periods	(8,226		)	636
Increase (decrease) - tax positions in current periods	2,959			3,378
Ending balance	$	12,527		$	17,794

The Company does not anticipate changes to unrecognized benefits within the next 12 months that would result in a material change to the Company’s financial position.

The Company conducts business in a number of tax jurisdictions and, as such, is required to file income tax returns in multiple jurisdictions globally. U.S. federal income tax returns for the 2015 tax year and earlier are no longer subject to examination by the U.S. Internal Revenue Service (the "IRS"). All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and state purposes.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. There was no accrued interest or penalties as of September 28, 2019 and September 29, 2018.

As of September 28, 2019, no tax provision has been made for $5.9 million of undistributed earnings of certain of the Company’s subsidiaries as these earnings are considered indefinitely reinvested. If, in the future, the Company decides to repatriate the undistributed earnings from these subsidiaries in the form of dividends or otherwise, the Company could be subject to withholding taxes payable at that time. The amount of withholding tax liability is dependent on circumstances existing if and when a remittance occurs but could be reasonably estimated to be $0.5 million.