In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code. As a result, the Company recorded a preliminary net tax benefit of $115 million in fiscal 2017, and in accordance with Staff Accounting Bulletin No.118, the company decreased its preliminary net tax benefit estimate by $4 million during fiscal 2018.

Less than 10% of the Company's income before income taxes for fiscal 2019, 2018 and 2017 was earned outside of the United States. The provision for income taxes for the periods presented included the following:



	Year Ended
	January 3, 2020			December 28, 2018			December 29, 2017
	(in millions)
Current:
Federal and foreign	$	147		$	54		$	130
State	31			23			30
Deferred:
Federal and foreign	21			(39		)	(141		)
State	(3		)	(10		)	10
Total	$	196		$	28		$	29

A reconciliation of the provision for income taxes to the amount computed by applying the statutory federal income tax rate to income before income taxes for the periods presented was as follows:



	Year Ended
	January 3, 2020			December 28, 2018			December 29, 2017
	(in millions)
Amount computed at the statutory federal income tax rate	$	182		$	128		$	138
State income taxes, net of federal tax benefit	22			10			31
Excess tax benefits from stock-based compensation	(11		)	(9		)	(12		)
Research and development credits	(11		)	(9		)	(7		)
Change in valuation allowance for deferred tax assets	6			(49		)	7
Stock basis in subsidiary held for sale	5			(16		)	—
Change in accruals for uncertain tax positions	4			1			—
Dividends paid to employee stock ownership plan	(2		)	(2		)	(4		)
Impact of foreign operations	2			—			(4		)
Taxable conversion of a subsidiary	—			(17		)	—
Change in statutory federal tax rate	—			(10		)	(125		)
Capitalized transaction costs	—			—			9
Other	(1		)	1			(4		)
Total	$	196		$	28		$	29
Effective income tax rate	22.6		%	4.6		%	7.4		%

The Company's effective tax rate for fiscal 2019 was favorably impacted primarily by excess tax benefits related to employee stock-based payment transactions and federal research tax credits, partially offset by an increase in valuation allowances arising from foreign withholding tax and an increase in taxes related to the sale of the commercial cybersecurity business.

The Company's effective tax rate for fiscal 2018 was favorably impacted primarily by a decrease in valuation allowances arising from the taxable conversion of a subsidiary and the utilization of capital losses, an increase in deferred tax assets related to stock basis of a subsidiary held for sale, excess tax benefits related to employee stock-based payment transactions and federal research tax credits.

The Company's effective tax rate for fiscal 2017 was favorably impacted primarily by the Tax Act's reduction of the federal corporate tax rate from 35% to 21% applied to the Company's fiscal 2017 year-end deferred tax balances and excess tax benefits related to employee stock-based payment transactions.

Deferred income taxes are recorded for differences in the basis of assets and liabilities for financial reporting purposes and tax reporting purposes. Deferred tax assets (liabilities) were comprised of the following:



	January 3, 2020			December 28, 2018
	(in millions)
Operating lease liabilities	$	115		$	—
Accrued vacation and bonuses	54			48
Reserves	46			57
Deferred compensation	26			25
Credits and net operating losses carryovers	25			31
Vesting stock awards	18			20
Accumulated other comprehensive loss	12			—
Deferred rent and tenant allowances	4			18
Investments	2			18
Deferred gain	—			20
Other	9			13
Total deferred tax assets	311			250
Valuation allowance	(20		)	(28		)
Deferred tax assets, net of valuation allowance	291			222

Purchased intangible assets	$	(339	)	$	(326	)
Operating lease right-of-use assets	(103		)	—
Deferred revenue	(17		)	(40		)
Employee benefit contributions	(6		)	(4		)
Accumulated other comprehensive income	—			(6		)
Partnership interest	—			(2		)
Other	(10		)	(14		)
Total deferred tax liabilities	(475		)	(392		)
Net deferred tax liabilities	$	(184	)	$	(170	)

At January 3, 2020, the Company had state net operating losses of $77 million and state tax credits of $7 million. Both will begin to expire in fiscal 2020; however, the Company expects to utilize $24 million and $7 million of these state net operating losses and state tax credits, respectively. The Company also had foreign net operating losses of $44 million, which do not expire. The Company expects to utilize $9 million of these foreign net operating losses.

Our valuation allowance for deferred tax assets was $20 million and $28 million as of January 3, 2020 and December 28, 2018, respectively. The valuation allowance decreased by $8 million primarily due to the sale of the commercial cybersecurity business and releases related to the expected utilization of certain carryover attributes, partially offset by an increase related to foreign withholding taxes.

The Company's income tax balance sheet items are included in the accompanying consolidated balance sheets as follows:



	January 3, 2020		December 28, 2018
	(in millions)
Other current assets:
Prepaid income taxes and tax refunds receivable	$	24	$	43
Accounts payable and accrued liabilities:
Income taxes payable	$	19	$	3
Deferred tax liabilities	184		170
Other long-term liabilities:
Unrecognized tax benefits	$	1	$	3

The Company's unrecognized tax benefits are primarily related to certain recurring deductions customary for the Company’s industry. The changes in the unrecognized tax benefits, excluding $1 million of accrued interest and penalties for fiscal 2018 and 2017, were as follows:



	Year Ended
	January 3, 2020			December 28, 2018			December 29, 2017
	(in millions)
Unrecognized tax benefits at beginning of year	$	6		$	10		$	9
Additions for tax positions related to current year	—			3			2
Additions for tax positions related to prior years	11			—			2
Reductions for tax positions related to prior years⁽¹⁾	(1		)	(5		)	(2		)
Settlements with taxing authorities⁽¹⁾	(11		)	(2		)	(1		)
Unrecognized tax benefits at end of year	$	5		$	6		$	10
Unrecognized tax benefits that, if recognized, would affect the effective income tax rate	$	4		$	6		$	7

⁽¹⁾Settlements with taxing authorities for fiscal 2018 and 2017 have been reclassified from "Reductions for tax positions related to prior years" to "Settlements with taxing authorities" to reflect the current year change in presentation.

At January 3, 2020, the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $5 million, $1 million of which were classified as other long-term liabilities on the Company's consolidated balance sheets. At December 28, 2018, the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $7 million, $3 million of which were classified as other long-term liabilities on the Company's consolidated balance sheets. At December 29, 2017, the balance of unrecognized tax benefits included liabilities for uncertain tax positions of $11 million, $7 million of which were classified as other long-term liabilities on the Company's consolidated balance sheets.

The Company files income tax returns in the United States and various state and foreign jurisdictions. The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Process, a real-time audit of the Company's consolidated federal corporate income tax return. The IRS has examined the Company's consolidated federal income tax returns through the year ended December 29, 2017. With a few exceptions, as of January 3, 2020, the Company is no longer subject to state, local, or foreign examinations by the tax authorities for fiscal years ending on or before January 1, 2016.

During the next 12 months, it is reasonably possible that resolution of reviews by taxing authorities, both domestic and international, could be reached with respect to $3 million of the Company's unrecognized tax benefits, depending on the timing of ongoing examinations, any litigation and expiration of statute of limitations, either because the Company's tax positions are sustained or because the Company agrees to their disallowance and pays the related income tax. While the Company believes it has adequate accruals for uncertain tax positions, the tax authorities may determine that the Company owes taxes in excess of recorded accruals or the recorded accruals may be in excess of the final settlement amounts agreed to by tax authorities.