Income Taxes

12 Months Ended

Mar. 31, 2020

INCOME TAXES

The components of income tax expense were as follows:



	Fiscal Year Ended March 31,
	2020			2019			2018
Current
U.S. Federal	$	(2,638	)	$	34,019		$	89,300
State and local	18,410			26,232			20,074
Foreign	15,625			13,617			10,014
Total current	31,397			73,868			119,388
Deferred
U.S. Federal	59,856			23,258			11,356
State and local	5,578			(252		)	(2,400		)
Total deferred	65,434			23,006			8,956
Total	$	96,831		$	96,874		$	128,344

A reconciliation of the provision for income tax to the amount computed by applying the statutory federal income tax rate to income from continuing operations before income taxes for each of the three years ended March 31 is as follows:



	Fiscal Year Ended March 31,
	2020			2019			2018
Income tax expense computed at U.S. federal statutory rate ⁽¹⁾	$	121,681		$	108,235		$	135,667

Increases (reductions) resulting from:
State and local income taxes, net of federal tax	20,031			22,450			14,565
Foreign income taxes, net of federal tax	12,344			10,758			6,855
Meals and entertainment	1,761			1,771			2,247
Re-measurement of deferred taxes related to the 2017 Tax Act	—			(27,908		)	(9,107		)
Excess tax benefits from stock-based compensation	(10,265		)	(10,777		)	(14,457		)
Research and development and other federal credits	(90,898		)	(6,355		)	(6,563		)
Executive compensation -162(M)	2,346			2,615			345
IRS audit settlement	—			(2,573		)	—
Foreign-Derived Intangible Income (FDII)	(4,915		)	—			—
Changes in uncertain tax positions	44,621			(278		)	140
Other	125			(1,064		)	(1,348		)
Income tax expense from operations	$	96,831		$	96,874		$	128,344

(1) The U.S. federal statutory income tax rates for fiscal 2020, 2019 and 2018 are 21.0%, 21.0% and 31.5%, respectively. The fiscal 2018 rate is a blended rate of 31.5% due to the 2017 Tax Act.

The significant components of the Company’s deferred income tax assets and liabilities were as follows:



	March 31,
	2020			2019
Deferred income tax assets:
Accrued expenses	$	67,230		$	59,569
Deferred compensation	36,448			32,765
Stock-based compensation	6,909			6,265
Pension and postretirement benefits	32,437			32,697
Net operating loss carryforwards	5,741			4,570
Deferred rent and tenant allowance	—			24,565
Extended disability benefits	2,779			3,041
Interest rate swaps	14,774			752
State tax credits	19,214			13,420
Operating lease liabilities	86,565			—
Other	1,567			3,804
Total gross deferred income tax assets	273,664			181,448
Less: Valuation allowance	(4,296		)	(2,853		)
Total net deferred income tax assets	269,368			178,595
Deferred income tax liabilities:
Unbilled receivables	(199,869		)	(138,944		)
Intangible assets	(64,530		)	(60,694		)
Debt issuance costs	(1,939		)	(3,146		)
Property and equipment	(12,820		)	(926		)
Operating lease right-of-use assets	(62,623		)	—
Internally developed software	(15,673		)	(8,123		)
Total deferred income tax liabilities	(357,454		)	(211,833		)
Net deferred income tax liability	$	(88,086	)	$	(33,238	)

Deferred tax balances arise from temporary differences between the carrying amount of assets and liabilities and their tax basis and are stated at the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is more likely than not that some or all of the deferred tax asset will not be realized. In determining if the Company's deferred tax assets are realizable, management considers all positive and negative evidence, including the history of generating financial reporting earnings, future reversals of existing taxable temporary differences, projected future taxable income, as well as any tax planning strategies.

As of March 31, 2020, the Company has available federal, state, and foreign net operating loss ("NOL carryforwards") of $2.0 million, $1.3 million and $2.4 million, respectively, that may be applied against future taxable income. The federal net operating losses are primarily attributable to an acquisition and will begin to expire in fiscal 2037. We recorded a full valuation allowance against state and foreign net operating losses and a partial valuation allowance against the federal net operating losses, as we do not believe those losses will be fully utilized in the future.

Uncertain Tax Positions

The Company maintains reserves for uncertain tax positions related to unrecognized income tax benefits. These reserves involve considerable judgment and estimation and are evaluated by management based on the best information available including changes in tax laws and other information. As of March 31, 2020, 2019, and 2018, the Company has recorded $56.1 million, $11.5 million, and $11.8 million, respectively, of reserves for uncertain tax positions which includes potential tax benefits of $55.2 million, $11.1 million, and $11.6 million, respectively, that, when recognized, impact the effective tax rate.

A reconciliation of the beginning and ending amount of potential tax benefits for the periods presented is as follows:



	March 31,
	2020			2019			2018
Beginning of year	$	11,083		$	11,608		$	11,588
Increases in prior year position	34,001			93			41
Increases in current year position	10,970			575			—
Decreases in prior year position	(765		)	—			—
Settlements with taxing authorities	—			(731		)	—
Lapse of statute of limitations	(68		)	(462		)	(21		)
End of year	$	55,221		$	11,083		$	11,608

During fiscal 2020, the Company recognized an increase in reserves for uncertain tax positions of approximately $34.0 million related to an increase in research and development tax credits available for fiscal years 2016 to 2019 and $11.0 million for fiscal 2020. The Company recognized accrued interest and penalties of $0.5 million, $0.2 million and $0.1 million for fiscal 2020, 2019, and 2018, respectively, related to the reserves for uncertain tax positions in the income tax provision. Included in the total reserve for uncertain tax positions are accrued penalties and interest of approximately $0.9 million, $0.4 million and $0.2 million at March 31, 2020, 2019, and 2018, respectively.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. As of March 31, 2020, the Company's tax years ended March 31, 2016 and forward are open and subject to examination by the federal tax authorities. The other jurisdictions' currently open or under examination are not considered to be material. It is reasonably possible that during the next twelve months the Company's liability for uncertain tax positions, mostly relating to a prior year acquisition, may be reduced by $11.2 million primarily due to the lapse in the statute of limitations.

The Company is currently contesting tax assessments from the District of Columbia Office of Tax and Revenue for fiscal years 2013 through 2015 at various stages of applicable administrative and judicial processes, with a combined amount at issue of approximately $11.7 million, net of associated tax benefits as of March 31, 2020. The Company has taken similar tax positions with respect to subsequent fiscal years, net of expiring statute of limitation, totaling in aggregate $32.5 million. As of March 31, 2020, the Company does not maintain reserves for any uncertain tax positions related to the contested tax benefits or the similar tax positions taken in the subsequent fiscal years. Given the Company's position on the recoverable nature of the state tax expense, it does not believe the resolution of these matters will have a material adverse effect on its results of operations, cash flows or financial condition.