INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Provision

The components of the income tax expense (benefit) are as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Current income tax expense (benefit):
Federal	$	201		$	(1,470	)	$	10,055
State	(125		)	(204		)	2,606
Current income tax expense (benefit)	76			(1,674		)	12,661
Deferred income tax (benefit) provision:
Federal	(10,857		)	(44,950		)	(3,805		)
State	2,302			(18,951		)	(2,565		)
Deferred income tax benefit	(8,555		)	(63,901		)	(6,370		)
Income tax (benefit) expense	$	(8,479	)	$	(65,575	)	$	6,291

A reconciliation of the income tax expense (benefit) to the amounts computed by applying the statutory federal income tax rate to income from continuing operations before income taxes is shown as follows (in thousands):



	Year Ended December 31,
	2019			2018			2017
Federal statutory income tax	$	6,506		$	9,186		$	8,998
State income taxes, net	(1,832		)	(14,884		)	(268		)
Excess tax deductions on non-cash compensation	(13,971		)	(59,601		)	(11,134		)
Research and experimentation tax credit	(5,794		)	(2,523		)	(1,318		)
Impact of certain state legislation, net	3,932			—			—
Nondeductible executive compensation	988			163			21
Change in (release of) valuation allowance	954			(12		)	593
Uncertain tax positions	922			289			170
Nondeductible meals & entertainment	428			310			90
Impact of Tax Cuts and Jobs Act	—			270			9,062
Other, net	(612		)	1,227			77
Income tax (benefit) expense	$	(8,479	)	$	(65,575	)	$	6,291

During the fourth quarter of 2017, LendingTree recorded a net tax expense of $9.1 million related to the enactment of the TCJA. The expense is primarily related to the remeasurement of LendingTree’s deferred tax assets and liabilities considering the TCJA’s enacted tax rates and certain other impacts. Simultaneous with the Act, the SEC Staff released Accounting Bulletin No. 118 ("SAB 118"), which allows the use of provisional amounts (reasonable estimates) if the analysis of the impacts of the Act have not been completed when financial statements are issued. During the fourth quarter of 2018, the Company finalized the computations of the income tax effects of the Act. As such, in accordance with SAB 118, the Company's accounting for the effects of the Act is complete. The Company did not significantly adjust provisional amounts recorded in 2017 and the SAB 118 measurement period subsequently ended on December 22, 2018. Although the Company no longer considers these amounts to be provisional, the determination of the Act’s income tax effects may change following future legislation or further interpretation of the Act based on the publication of recently proposed U.S. Treasury regulations and guidance from the Internal Revenue Service and state tax authorities.

Deferred Income Taxes

The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Provision for accrued expenses	$	12,234		$	5,953
Leasing ^(a)	7,299			—
Net operating loss carryforwards ^(b)	56,450			59,817
Non-cash compensation expense	15,805			12,505
Interest limitation	987			3,532
Contingent liabilities	9,366			3,053
Tax credits	6,124			1,569
Other	1,624			2,976
Total gross deferred tax assets	109,889			89,405
Less: valuation allowance ^(c)	(4,102		)	(2,229		)
Total deferred tax assets, net of the valuation allowance	105,787			87,176
Deferred tax liabilities:
Intangible and other assets	(1,744		)	(4,623		)
Leasing ^(a)	(6,596		)	—
Other	(1,835		)	(892		)
Total gross deferred tax liabilities	(10,175		)	(5,515		)
Net deferred taxes	$	95,612		$	81,661


(a)	As of December 31, 2019, the adoption of ASC Topic 842 has no material impact to the effective tax rate. Related deferred tax positions are individually disclosed as components of deferred tax as of December 31, 2019.

(b)

At December 31, 2019, the Company had pre-tax consolidated federal net operating losses ("NOLs") of $188.2 million. The federal NOLs no longer expire under the new TCJA. The Company's NOLs will be available to offset taxable income subject to the Internal Revenue Code Section 382 annual limitation. In addition, the Company has state NOLs of approximately $484.7 million at December 31, 2019 that will expire at various times between 2021 and 2039.


(c)	The valuation allowance is related to items for which it is "more likely than not" that the tax benefit will not be realized.

Deferred income taxes are presented in the accompanying consolidated balance sheets as follows (in thousands):



	December 31,
	2019		2018
Deferred income tax assets	$	87,664	$	79,289
Non-current assets of discontinued operations	7,948		3,266
Deferred income tax liabilities	—		(894		)
Net deferred taxes	$	95,612	$	81,661

Valuation Allowance

A valuation allowance is provided on deferred tax assets if it is determined that it is "more likely than not" that the deferred tax asset will not be realized. As of each reporting date, management considers both positive and negative evidence regarding the likelihood of future realization of the deferred tax assets.

At December 31, 2019, 2018 and 2017, the Company recorded a partial valuation allowance of $4.1 million, $2.2 million and $2.7 million, respectively, primarily related to state net operating losses, which the Company does not expect to be able to utilize prior to expiration.

A reconciliation of the beginning and ending balances of the deferred tax valuation allowance is as follows (in thousands):



	Year Ended December 31,
	2019		2018			2017
Balance, beginning of the period	$	2,229	$	2,694		$	2,101
Charges to earnings	1,873		(465		)	593
Balance, end of the period	$	4,102	$	2,229		$	2,694

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):



	Year Ended December 31,
	2019		2018
Balance, beginning of the period	$	1,127	$	748
Additions based on tax positions of the current period	525		249
Additions based on tax positions of the prior period	344		130
Balance, end of the period	$	1,996	$	1,127

Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. Interest and penalties on unrecognized tax benefits included in income tax expense for each of the years ended December 31, 2019, 2018 and 2017 is immaterial.

As of December 31, 2019 and 2018, the accrual for unrecognized tax benefits, including interest, was $2.1 million and $1.2 million, respectively, which would benefit the effective tax rate if recognized. Management also believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease by $0.6 million within the next twelve months due to settlement of audits and expiration of statutes of limitations.

Tax Audits

LendingTree is subject to audits by federal, state and local authorities in the area of income tax. These audits include questioning the timing and the amount of deductions and the allocation of income among various tax jurisdictions. Income taxes payable include amounts considered sufficient to pay assessments that may result from examination of prior year returns; however, any amounts paid upon resolution of issues raised may differ from the amount provided. Differences between the reserves for tax contingencies and the amounts owed by the Company are recorded in the period they become known. As of December 31, 2019, the Company is subject to a federal income tax examination for the tax years 2014 through 2018. In addition, the Company is subject to state and local tax examinations for the tax years 2014 through 2018.