The Tax Act, enacted in December 2017, significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system, and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduced the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.

Effective for tax years beginning after December 31, 2017, the Tax Act provides a foreign-derived intangible income (“FDII”) deduction, which is derived from the taxpayer’s Foreign Derived Deduction Eligible Income ("FDDEI") among other factors. For tax years 2018 to 2025, the allowable deduction is 37.5% of the gross FDII after the taxable income limitation, and 21.875% thereafter. For tax years 2018 to 2025, this equates to a 13.125% effective tax rate on excess returns earned directly by a U.S. corporation from foreign derived sales (including licenses and leases) or services, and 16.406% thereafter. The preferential rate is reflected on the U.S. tax return as a deduction for FDII.



	Year Ended December 31,
	2019			2018			2017
				(In millions)
Current income tax expense:
Federal	$	76		$	186		$	12
State	20			42			6
Foreign	198			167			130
Current income tax expense	294			395			148
Deferred income tax (benefit) expense:
Federal	(53		)	(273		)	(94		)
State	(9		)	(25		)	(1		)
Foreign	(29		)	(10		)	(8		)
Deferred income tax (benefit) expense	(91		)	(308		)	(103		)
Income tax expense	$	203		$	87		$	45



	December 31,
	2019			2018
	(In millions)
Deferred tax assets:
Provision for accrued expenses	$	100		$	87
Deferred loyalty rewards	183			166
Net operating loss and tax credit carryforwards	100			123
Stock-based compensation	86			67
Property and equipment	102			55
Operating lease liabilities	136			—
Other	72			68
Total deferred tax assets	779			566
Less valuation allowance	(77		)	(80		)
Net deferred tax assets	$	702		$	486
Deferred tax liabilities:
Goodwill and intangible assets	(485		)	(486		)
Operating lease ROU assets	(128		)	—
Total deferred tax liabilities	$	(613	)	$	(486	)
Net deferred tax liability	$	89		$	—

As of December 31, 2019, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately $77 million, $80 million and $538 million. If not utilized, the federal and state NOLs will expire at various times between 2020 and 2039. Foreign NOLs of $176 million may be carried forward indefinitely, and foreign NOLs of $362 million expire at various times starting from 2020.

As of December 31, 2019, we had a valuation allowance of approximately $77 million related to certain NOL carryforwards for which it is more likely than not the tax benefits will not be realized. The valuation allowance decreased by $3 million from the amount recorded as of December 31, 2018 primarily due to historic pre-acquisition losses that were surrendered during 2019. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits, the majority of previously unremitted earnings have now been subjected to U.S. federal income tax. To the extent that this repatriation resulted in differences between the book and tax carrying values of Expedia Group’s investment in foreign subsidiaries whose offshore earnings are not indefinitely reinvested, or to the extent that future distributions from these subsidiaries will be taxable, a deferred tax liability has been accrued. The amount of undistributed earnings in foreign subsidiaries where the foreign subsidiary has or will invest undistributed earnings indefinitely outside of the United States, and for which future distributions could be taxable, was $85 million as of December 31, 2019. The unrecognized deferred tax liability related to the U.S. federal income tax consequences of these earnings was $18 million as of December 31, 2019.



	Year Ended December 31,
	2019			2018			2017
				(In millions)
Income tax expense at the federal statutory rate of 21% for 2019 and 2018 and 35% for 2017	$	163		$	102		$	146
Foreign tax rate differential	40			(42		)	(82		)
Federal research and development credit	(25		)	(23		)	(16		)
Excess tax benefits related to stock-based compensation	(13		)	(10		)	(60		)
Unrecognized tax benefits and related interest	17			23			27
Change in valuation allowance	(3		)	8			4
Return to provision true-ups	(12		)	(7		)	1
trivago stock-based compensation	7			7			5
State taxes	22			11			3
Non-deductible goodwill impairment	—			16			—
Tax Act transition tax	—			—			144
U.S. statutory tax rate change	—			—			(158		)
Global intangible low-taxed income	—			13			—
Foreign-derived intangible income	(14		)	(38		)	—
Other, net	21			27			31
Income tax expense	$	203		$	87		$	45

Our effective tax rate for 2019 was higher than the 21% federal statutory income tax rate due to state income taxes, foreign income taxed at higher than the federal statutory tax rate, as well as losses in foreign jurisdictions for which we do not record a tax benefit. Our effective tax rate for 2018 was lower than the 21% federal statutory income tax rate due to earnings in foreign jurisdictions outside of the United States, primarily Switzerland, where the statutory income tax rate is lower as well as excess tax benefits relating to stock-based payments and FDII. Our effective tax rate for 2017 was lower than the 35% federal statutory rate due to earnings in foreign jurisdictions outside of the United States well as excess tax benefits related to stock-based payments.



	2019			2018			2017
				(In millions)
Balance, beginning of year	$	293		$	261		$	220
Increases to tax positions related to the current year	12			24			35
Increases to tax positions related to prior years	5			2			4
Decreases to tax positions related to prior years	—			—			(1		)
Reductions due to lapsed statute of limitations	(2		)	(2		)	(3		)
Settlements during current year	(11		)	—			(1		)
Interest and penalties	8			8			7
Balance, end of year	$	305		$	293		$	261

As of December 31, 2019, we had $305 million of gross unrecognized tax benefits, $188 million of which, if recognized, would affect the effective tax rate. As of December 31, 2018, we had $293 million of gross unrecognized tax benefits, $180 million of which, if recognized, would affect the effective tax rate. As of December 31, 2017, we had $261 million of gross unrecognized tax benefits, $155 million of which, if recognized, would affect the effective tax rate.

As of December 31, 2019 and 2018, total gross interest and penalties accrued was $37 million and $30 million, respectively. We recognized interest expense in 2019 and 2018 of $8 million in both periods and $7 million in 2017 in connection with our unrecognized tax benefits.

The Company is routinely under audit by federal, state, local and foreign income tax authorities. These audits include questioning the timing and the amount of income and deductions, and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently examining Expedia Group’s U.S. consolidated federal income tax returns for the periods ended December 31, 2011 through December 31, 2013. The Company has consented to an extension of the statute of limitations, until March 31, 2021, related to these tax years. As of December 31, 2019, for the Expedia Group, Inc. & Subsidiaries group, statute of limitations for tax years 2011 through 2018 remain open to examination in the federal jurisdiction and most state jurisdictions. For the HomeAway and Orbitz groups, statutes of limitations for tax years 2001 through 2015 remain open to examination in the federal and most state jurisdictions due to NOL carryforwards.

We are subject to taxation in the United States and various other state and foreign jurisdictions. During 2017, the Internal Revenue Service (“IRS”) issued proposed adjustments related to transfer pricing with our foreign subsidiaries for our 2009 to 2010 audit cycle. On July 12, 2019, we settled the audit for an immaterial impact to the consolidated financial statements. In addition, we are under examination by the IRS for our 2011 through 2013 tax years. During the fourth quarter of 2019, the IRS issued final adjustments related to transfer pricing with our foreign subsidiaries for our 2011 to 2013 audit cycle. The proposed adjustments would increase our U.S. taxable income by $696 million, which would result in federal tax of approximately $244 million subject to interest. We do not agree with the position of the IRS and are formally protesting the IRS position. Subsequent years remain open to examination by the IRS. We do not anticipate a significant impact to our gross unrecognized tax benefits within the next 12 months related to these years.