INCOME TAXES

12 Months Ended

Dec. 31, 2019

The domestic and foreign components of income (loss) before income taxes are as follows (in thousands):


	Year Ended December 31,
			2019			2018			2017
Domestic	$	456,335		$	44,538		$	(10,900)
Foreign	(78,122)			(80,665)			(51,764)
Income (loss) before income taxes	$	378,213		$	(36,127)		$	(62,664)

The components of the provision for income taxes are as follows (in thousands):


	Year Ended December 31,
			2019			2018			2017
Current:
Federal	$	114		$	(4)		$	(1,192)
State	930			752			739
Foreign	3,099			2,224			1,987
Total current provision for income taxes	4,143			2,972			1,534
Deferred:
Federal	(777)			(404)			(1,169)
State	(399)			35			57
Foreign	(200)			(277)			(273)
Total deferred provision for income taxes	(1,376)			(646)			(1,385)
Total provision for income taxes	$	2,767		$	2,326		$	149

The following is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:


	Balance at December 31,
			2019			2018			2017
Tax at federal statutory rate	21.0	%		21.0	%		34.0	%
State taxes, net of federal benefit	0.1			(1.1)			(0.4)
Foreign rate differential	1.4			(14.7)			(14.9)
Non-deductible meals	0.3			(3.4)			(0.3)
Other non-deductible expenses	1.5			(1.7)			(0.7)
Credits	(13.9)			164.8			41.5
Other items	(0.5)			2.3			(1.2)
Change in valuation allowance	34.9			(718.5)			(119.5)
Impact of U.S. tax reform	—			—			(209.1)
Share-based compensation	(45.8)			549.0			243.5
Change in uncertain tax positions	0.5			(4.1)			(2.4)
Termination of warrant	—			—			29.3
Sale of Caviar business line	1.2			—			—
Total	0.7	%		(6.4)	%		(0.2)	%

The tax effects of temporary differences and related deferred tax assets and liabilities are as follows (in thousands):


	Balance at December 31,
			2019			2018			2017
Deferred tax assets:
Capitalized costs	$	23,708		$	30,131		$	35,608
Accrued expenses	33,044			31,494			23,553
Net operating loss carryforwards	575,245			485,562			244,197
Tax credit carryforwards	183,977			133,275			60,567
Property, equipment and intangible assets	—			—			7,390
Share-based compensation	38,427			38,265			35,728
Deferred Interest	4,072			8,290			—
Other	3,424			105			2,519
Operating Lease, net	5,761			—			—
Total deferred tax assets	867,658			727,122			409,562
Valuation allowance	(859,564)			(719,040)			(409,043)
Total deferred tax assets, net of valuation allowance	8,094			8,082			519
Deferred tax liabilities:
Property, equipment and intangible assets	(6,862)			(7,361)			—
Indefinite-lived intangibles	(253)			(275)			(644)
Total deferred tax liabilities	(7,115)			(7,636)			(644)
Net deferred tax assets (liabilities)	$	979		$	446		$	(125)

Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. Due to the history of losses generated in the U.S. and certain foreign jurisdictions, the Company believes that it is more likely than not that its deferred tax assets in these jurisdictions will not be realized as of December 31, 2019. Accordingly, the Company retained a full valuation allowance on its deferred tax assets in these jurisdictions. The amount of deferred tax assets considered realizable in future periods may change as management continues to reassess the underlying factors it uses in estimating future taxable income.

The valuation allowance increased by approximately $140.5 million, $310.0 million, and $154.1 million during the years ended December 31, 2019, 2018, and 2017, respectively.

As of December 31, 2019, the Company had $2,012.8 million of federal, $2,311.3 million of state, and $300.1 million of foreign net operating loss carryforwards, which will begin to expire in 2031 for federal and 2021 for state tax purposes. The foreign net operating loss carryforwards do not expire.

As of December 31, 2019, the Company had $141.7 million of federal, $88.2 million of state, and $4.1 million of Canadian research credit carryforwards. The federal credit carryforward will begin to expire in 2029, the state credit carryforward has no expiration date, and the Canadian credit carryforward will begin to expire in 2037.

The Company has federal AMT credit carryforwards of $1.4 million that will be refunded over the 2018-2021 tax years under the 2017 Tax Act. The Company has California Enterprise Zone credit carryforwards of $3.4 million, which will begin to expire in 2023.

Utilization of the net operating loss carryforwards and credits may be subject to annual limitations due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before they are able to be utilized. 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 reduce the total amount of net operating loss carryforwards and credits that can be utilized.

As of December 31, 2019, the unrecognized tax benefit was $217.6 million, of which $7.6 million would impact the annual effective tax rate if recognized and the remainder of which would result in a corresponding adjustment to the valuation allowance.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is presented below (in thousands):


	Year Ended December 31,
			2019			2018			2017
Balance at the beginning of the year	$	198,540		$	70,799		$	92,134
Gross increases and decreases related to prior period tax positions	(11,571)			513			—
Gross increases and decreases related to current period tax positions	30,676			119,261			4,193


Reductions related to lapse of statute of limitations	(149)			(142)			(91)
Gross increases and decreases related to U.S. tax reform	—			—			(25,437)
Gross increases and decreases related to acquisition	78			8,109			—
Balance at the end of the year	$	217,574		$	198,540		$	70,799

The Company recognizes interest and penalties related to income tax matters as a component of income tax expense. As of December 31, 2019, there were no significant accrued interest and penalties related to uncertain tax positions. It is reasonably possible that over the next 12-month period the Company may experience a decrease in its unrecognized tax benefits as a result of tax examinations or lapses of statute of limitations. The estimated decrease in unrecognized tax benefits may range up to $5.7 million.

The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company is currently under examination in California for tax years 2013 and 2014 and in Texas for tax years 2015-2017. The Company’s various tax years starting with 2009 to 2018 remain open in various taxing jurisdictions.

As of December 31, 2019, the Company has not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences resulting from earnings for certain non-U.S. subsidiaries, which are permanently reinvested outside the U.S. Cumulative undistributed earnings for these non-U.S. subsidiaries as of December 31, 2019 are $5.8 million.