INCOME TAXES

The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands):



	Year Ended December 31,
	2017			2016			2015
United States	$	194,239		$	1,679		$	(18,604	)
Foreign	(9,890		)	(4,964		)	(2,334		)
Total	$	184,349		$	(3,285	)	$	(20,938	)

The income tax provision is composed of the following (in thousands):



	Year Ended December 31,
	2017			2016		2015
Current:
Federal	$	25,785		$	—	$	(10	)
State	5,069			35		370
Foreign	354			86		1,010
	$	31,208		$	121	$	1,370
Deferred:
Federal	$	(28	)	$	106	$	3,505
State	15			13		6,245
Foreign	296			1,145		842
	283			1,264		10,592
Total provision for income taxes	$	31,491		$	1,385	$	11,962

The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented:



	Year Ended December 31,
	2017		2016		2015
Income tax at federal statutory rate	35.00	%	35.00	%	35.00	%
State tax, net of federal tax effect	3.57		21.29		4.59
Foreign income tax rate differential	0.50		(1.54	)	(10.03	)
Stock-based compensation	(4.83	)	10.50		(3.60	)
Income tax credits	(5.39	)	163.87		14.30
Change in valuation allowance	(30.24	)	(189.19	)	(96.18	)
Goodwill associated with Disposition	17.43		—		—
Meals and entertainment	0.24		(13.84	)	(2.63	)
Other non-deductible expenses	0.12		(6.16	)	(1.58	)
Benefit for tax only asset	—		—		4.99
Prior year deferred tax true-up	(0.12	)	(11.81	)	(0.57	)
Expiration of deferred tax benefit	—		(50.76	)	—
Other	0.80		0.47		(1.38	)
Effective tax rate	17.08	%	(42.17	)%	(57.09	)%

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code that impact the Company's provision for income taxes, including, but not limited to, reducing the U.S. federal corporate tax rate and requiring a one-time Deemed Repatriation Tax (the "Transition Tax”) on certain un-repatriated earnings of foreign subsidiaries.

The Tax Act reduces the federal statutory income tax rate from 35.0% to 21.0% effective January 1, 2018. The Company re-measured the future tax benefit for deferred tax assets, which resulted in a $3.8 million adjustment to long-term deferred tax assets. This had no impact on the Company's income tax provision for the year ended December 31, 2017, as the effect of this re-measurement was offset by a corresponding change in the valuation allowance recorded against the Company's U.S. deferred tax assets.

The Transition Tax is a tax on previously untaxed accumulated earnings and profits (“E&P”) of certain foreign subsidiaries. The Transition Tax is determined based on, among other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. Because the Company has a net cumulative deficit on its E&P, it is not subject to the Transition Tax.

Prior to the effectiveness of the Tax Act, the Company did not recognize a deferred tax liability related to un-remitted foreign earnings because such earnings were expected to be reinvested indefinitely. Although the Company is not subject to the Transition Tax, an actual repatriation from its non-U.S. subsidiaries could still be subject to additional foreign withholding taxes and U.S. state taxes. However, it remains the Company's intention to reinvest the earnings from its non-U.S. subsidiaries. As of December 31, 2017, the Company estimates that it had $2.3 million of cumulative earnings upon which U.S. income taxes had not been provided. Determination of the amount of unrecognized deferred tax liability with respect to un-remitted foreign earnings, if any, is not practicable.

Under GAAP, the Company is required to recognize the impact of tax legislation in the period in which the law was enacted. However, in December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the Tax Act’s enactment date to allow the Company sufficient time to obtain, prepare and analyze information to complete the required accounting. SAB 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Accordingly, the income tax provision for the year ended December 31, 2017 includes the Company's reasonable estimates for re-measurement of deferred taxes and valuation allowance due to the change in tax rate and the Transition Tax, each as described above. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, the Company considers the accounting of other areas of the Tax Act to be incomplete. The Company expects to finalize the analysis and record any adjustments to provisional estimates within the measurement period in accordance with SAB 118.

The following table presents the significant components of the Company’s deferred tax assets and liabilities for the periods presented (in thousands):



	As of December 31,
	2017			2016
Deferred tax assets:
Reserves and others	$	10,869		$	13,382
Stock-based compensation	19,556			29,402
Contribution carryforward	—			11
Net operating loss carryforward	8,115			64,478
Tax credit carryforward	14,183			17,185
Gross deferred tax assets	52,723			124,458
Valuation allowance	(30,895		)	(92,191		)
Total deferred tax assets	21,828			32,267
Deferred tax liabilities:
Depreciation and amortization	(12,813		)	(30,140		)
Disposal of a business unit	(7,152		)	—
Total deferred tax liabilities	(19,965		)	(30,140		)
Net deferred tax assets (liabilities)	$	1,863		$	2,127

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The Company maintained a valuation allowance against all U.S. deferred tax assets as of December 31, 2017 and 2016. The Company intends to continue maintaining a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. As of December 31, 2017, the Company believes it is more likely than not that its domestic deferred tax assets will not be realized. Accordingly, a full valuation allowance against domestic net deferred tax assets continues to be maintained.

At December 31, 2017, the Company had federal and state net operating loss carry-forwards of approximately $17.7 million and $35.8 million, respectively, expiring beginning in 2033 and 2018, respectively. A wholly-owned entity, Yelp GmbH, also had trading losses of $7.6 million at December 31, 2017 in Germany, which may be carried forward indefinitely against profits. At December 31, 2017, the Company had federal research credit carry-forwards of approximately $7.4 million that expire beginning in 2024, and California research credit carry-forwards of approximately $22.9 million that do not expire. At December 31, 2017, the Company also had $2.6 million of California Enterprise Zone credit, expiring beginning in 2024.

Utilization of net operating loss carry-forwards and credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company does not expect any previous ownership changes, as defined under Section 382 and 383 of the Internal Revenue Code, to result in a limitation that will materially reduce the total amount of net operating loss carry-forwards and credits that can be utilized. Further, foreign loss carry-forwards may be subject to limitations under the applicable laws of the taxing jurisdictions due to ownership change limitations.

As of December 31, 2017, 2016 and 2015, the Company had $18.2 million, $10.3 million and $5.0 million, respectively, of unrecognized tax benefits. A reconciliation of the beginning and ending amount of unrecognized benefits is as follows (in thousands):



	Year Ended December 31,
	2017			2016			2015
Balance at the beginning of the year	$	10,340		$	5,049		$	3,276
Increase (decrease) based on tax positions related to the prior year	667			1,381			(31		)
Increase based on tax positions related to the current year	7,209			4,131			1,804
Lapse of statute of limitations	(1		)	(221		)	—
Balance at the end of the year	$	18,215		$	10,340		$	5,049

As of December 31, 2017, the Company had $0.9 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company’s policy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During each of the years ended December 31, 2017, 2016 and 2015, the Company recorded an immaterial amount of interest and penalties.

In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities. The Company’s federal and state income tax returns for fiscal years subsequent to 2003 remain open to examination. In the Company’s most significant foreign jurisdictions – Ireland, United Kingdom and Germany – the tax years subsequent to 2010 remain open to examination. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations to determine the adequacy of its provision for income taxes, and monitors the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Although the timing of the resolution or closure of audits is not certain, the Company believes that it is reasonably possible that its unrecognized tax benefits could be reduced by an immaterial amount over the 12 months following December 31, 2017.