The income tax provision for the fiscal years ended June 30, 2020, 2019 and 2018, consists of the following (in thousands):



	Years Ended June 30,
	2020			2019			2018
Current:
Federal	$	4,568		$	12,308		$	11,090
State	1,727			2,917			815
Foreign	10,399			16,531			12,984
	16,694			31,756			24,889
Deferred:
Federal	(10,108		)	(13,078		)	14,304
State	(1,621		)	(2,888		)	265
Foreign	(2,043		)	(906		)	(1,015		)
	(13,772		)	(16,872		)	13,554
Income tax provision	$	2,922		$	14,884		$	38,443



	June 30,
	2020			2019
Research and development credits	$	24,304		$	20,858
Deferred revenue	20,354			18,963
Inventory valuation	13,946			11,856
Capitalized research and development costs	7,509			—
Stock-based compensation	4,075			6,080
Lease obligations	3,632			—
Accrued vacation and bonus	3,281			2,681
Prepaid and accrued expenses	2,560			—
Warranty accrual	2,051			1,948
Bad debt and other reserves	1,917			1,283
Marketing fund accrual	548			554
Other	3,652			3,276
Total deferred income tax assets	87,829			67,499
Deferred tax liabilities-depreciation and other	(4,428		)	(5,406		)
Right of use asset	(3,612		)	—
Valuation allowance	(24,891		)	(20,967		)
Deferred income tax assets, net	$	54,898		$	41,126

The Company assesses its deferred tax assets for recoverability on a regular basis, and where applicable, a valuation allowance is recorded to reduce the total deferred tax asset to an amount that will, more likely than not, be realized in the future. As of June 30, 2020, the Company believes that most of its deferred tax assets are “more-likely-than not” to be realized with the exception state research and development tax credits that have not met the “more-likely than not” realization threshold criteria. As a result, at June 30, 2020, the gross excess credits of $30.8 million, or net of federal tax benefit of $24.3 million, are subject to a full valuation allowance. At June 30, 2019, the gross excess credits of $26.4 million, or net of federal tax benefit of $20.9 million, are subject to a full valuation allowance. The change in valuation allowance is $3.9 million and $4.7 million for the fiscal years ended June 30, 2020 and 2019, respectively. The Company will continue to review its deferred tax assets in accordance with the applicable accounting standards. The net deferred tax assets balance as of June 30, 2020 and 2019 was $54.9 million and $41.1 million, respectively.

In December 2017, the U.S. federal government enacted the 2017 Tax Reform Act. The 2017 Tax Reform Act reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 and created a one-time transition tax on foreign earnings of U.S. subsidiaries that were not previously subject to U.S. income tax. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are measured at the enacted tax rate. As a result, the Company has completed its analysis and has recorded a one-time $12.9 million, net write down of its U.S. deferred tax assets and liabilities resulting from the U.S. federal corporate income tax rate decrease from 35% to 21%, and a one-time transition tax of $2.8 million, in its income tax provision for the fiscal year ended June 30, 2018.

The 2017 Tax Reform Act also creates a new requirement that Global Intangible Low-Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) that must be included currently in the gross income of a CFC’s U.S. stockholder starting in the tax year that begins after 2017. GILTI does not have material impact on the Company's income tax provision.

Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (i) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (ii) factoring such amounts into a company’s measurement of its deferred taxes. The Company's selection of an accounting policy with respect to the GILTI tax rules is to treat GILTI tax as a current period expense under the period cost method.

Under the 2017 Tax Reform Act, starting on July 1, 2018, the Company is no longer subject to federal income tax on earnings remitted from our foreign subsidiaries. The Company previously asserted that all of its foreign undistributed earnings

were indefinitely reinvested. As a result of the 2017 Tax Reform Act, the Company has determined that its foreign undistributed earnings are indefinitely reinvested except for Netherlands. The Company may repatriate foreign earnings from Netherlands which are previously taxed income as a result of the 2017 Tax Reform Act. The tax impact of such repatriation is estimated to be immaterial.

As a result of the 2017 Tax Reform Act, in December 2019, the Company realigned its international business operations and group structure. As a part of this restructuring, the Company moved certain intellectual property back to the United States. As a result of this restructuring, the Company estimated approximately $1.9 million additional tax benefit from foreign derived intangible income in fiscal year 2020 as compared to fiscal year 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides temporary relief from certain aspects of the 2017 Tax Reform Act that imposed limitations on the utilization of certain losses, interest expense deductions and alternative minimum tax credits and made a technical correction to the 2017 Tax Reform Act related to the depreciable life of qualified improvement property. The CARES Act did not have a material impact on the Company.



	Years Ended June 30,
	2020		2019		2018
Income tax provision at statutory rate	21.0	%	21.0	%	28.1	%
State income tax, net of federal tax benefit	—		0.5		(0.1	)
Foreign rate differential	—		1.1		(6.0	)
Research and development tax credit	(13.1	)	(9.5	)	(8.7	)
Uncertain tax positions, net of (settlement) with Tax Authorities	(2.3	)	4.1		6.3
Foreign derived intangible / Subpart F income inclusion	(3.8	)	(2.1	)	0.7
Stock-based compensation	(2.8	)	2.1		1.8
Non deductible penalty on SEC matter	4.4		—		—
Provision to return true-up	(1.1	)	(1.6	)	1.5
Tax reform related charge	—		—		17.9
Qualified production activity deduction	—		—		(1.3	)
Other, net	1.1		1.0		3.4
Effective tax rate	3.4	%	16.6	%	43.6	%

The following table summarizes the activity related to the unrecognized tax benefits (in thousands):



	Gross* Unrecognized Income Tax Benefits
Balance at June 30, 2017	19,217
Gross increases:
For current year’s tax positions	6,864
For prior years’ tax positions	—
Gross decreases:
Decreases due to a lapse of the statute of limitations	(964		)
Balance at June 30, 2018	25,117
Gross increases:
For current year’s tax positions	7,789
For prior years’ tax positions	—
Gross decreases:
Decreases due to settlements with taxing authority	(1,504		)
Decreases due to lapse of statute of limitations	(3,354		)
Balance at June 30, 2019	28,048
Gross increases:
For current year’s tax positions	8,769
For prior years’ tax positions	505
Gross decreases:
Decreases due to settlements with taxing authority	(7,632		)
Decreases due to lapse of statute of limitations	(2,484		)
Balance at June 30, 2020	$	27,206

________________________

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the income tax provision in the consolidated statements of operations. As of June 30, 2020 and 2019, the Company had accrued $2.1 million and $1.5 million for the payment of interest and penalties relating to unrecognized tax benefits, respectively.

In October 2019, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2018 and proposed a transfer pricing adjustment on the Company which resulted in additional tax liability of $1.6 million. The Company accepted the proposed adjustment in October 2019 and paid the $1.6 million tax liability in February 2020. In February 2020, the Taiwan tax authority completed its audit in Taiwan for fiscal year 2019 and proposed a transfer pricing adjustment on the Company which resulted in additional tax liability of $1.0 million. The Company accepted the proposed adjustment and paid the $1.0 million tax liability in February 2020. The impact of these adjustments on the income statement was offset by the release of previously unrecognized tax benefits related to the fiscal years audited in the periods in which the proposed adjustments were accepted.

The Company believes that it has adequately provided reserves for all uncertain tax positions; however, amounts asserted by tax authorities could be greater or less than the Company’s current position. Accordingly, the Company’s provision on federal, state and foreign tax related matters to be recorded in the future may change as revised estimates are made or as the underlying matters are settled or otherwise resolved.

The federal statute of limitations remains open in general for tax years ended June 30, 2017 through 2020. Various states statute of limitations remain open in general for tax years ended June 30, 2016 through 2020. Certain statutes of limitations in major foreign jurisdictions remain open in general for the tax years ended June 30, 2016 through 2020. It is

reasonably possible that our gross unrecognized tax benefits will decrease by approximately $1.2 million, in the next 12 months, due to the lapse of the statute of limitations. These adjustments, if recognized, would positively impact our effective tax rate, and would be recognized as additional tax benefits.