The following table presents a summary of our domestic and foreign income before income taxes:

	Year Ended December 31,
	2018		2017		2016
	(in millions)
Domestic	$	104	$	81	$	64
Foreign		69		29		87
Total	$	173	$	110	$	151

The following table presents a summary of the components of our provision for income taxes:

	Year Ended December 31,
	2018			2017		2016
	(in millions)
Current income tax expense:
Federal	$	37		$	93	$	38
State		12			1		2
Foreign		17			6		11
Current income tax expense		66			100		51
Deferred income tax expense (benefit):
Federal		(10	)		25		(12	)
State		(1	)		2		(3	)
Foreign		5			2		(5	)
Deferred income tax expense (benefit):		(6	)		29		(20	)
Provision for income taxes	$	60		$	129	$	31

The Company reduced its current income tax payable by $15 million, $27 million and $21 million for the years ended December 31, 2018, 2017 and 2016, respectively, for tax deductions attributable to the exercise or settlement of the Company’s stock-based awards.

The significant components of our deferred tax assets and deferred tax liabilities as of December 31, 2018 and 2017 are as follows:

	December 31,
	2018			2017
	(in millions)
Deferred tax assets:
Stock-based compensation	$	44		$	36
Net operating loss carryforwards		38			56
Provision for accrued expenses		6			4
Deferred rent		3			3
Lease financing obligation		22			22
Foreign advertising spend		15			13
Deferred expense related to cost-sharing arrangement		31			26
Interest carryforward		14			7
Other		10			7
Total deferred tax assets	$	183		$	174
Less: valuation allowance		(57	)		(55	)
Net deferred tax assets	$	126		$	119
Deferred tax liabilities:
Intangible assets	$	(57	)	$	(59	)
Property and equipment		(22	)		(21	)
Prepaid expenses		(2	)		(4	)
Building - corporate headquarters		(23	)		(20	)
Deferred income related to cost-sharing arrangement		(16	)		(13	)
Total deferred tax liabilities	$	(120	)	$	(117	)
Net deferred tax asset (liability)	$	6		$	2

At December 31, 2018, we had federal, state and foreign net operating loss carryforwards (“NOLs”) of approximately $6 million, $39 million and $126 million, respectively. If not utilized, the federal and state NOLs will expire at various times between 2020 and 2037 and the foreign NOLs will expire at various times between 2019 and 2028.

As of December 31, 2018, we had a valuation allowance of approximately of $57 million related to certain NOL carryforwards for which it is more likely than not, the tax benefit will not be realized. This amount represented an overall increase of $2 million over the amount recorded as of December 31, 2017. The increase is primarily related to additional foreign net operating losses, offset by releases of certain foreign valuation allowances. Except for such foreign deferred tax assets, we expect to realize all of our deferred tax assets based on a strong history of earnings in the U.S. and other jurisdictions, as well as future reversals of taxable temporary differences.

A reconciliation of the provision for income taxes to the amounts computed by applying the statutory federal income tax rate to income before income taxes is as follows:

	Year Ended December 31,
	2018			2017			2016
	(in millions)
Income tax expense at the federal statutory rate	$	36		$	38		$	53
Foreign rate differential		(17	)		(25	)		(35	)
State income taxes, net of effect of federal tax benefit		9			5			4
Unrecognized tax benefits and related interest		15			12			11
Change in cost-sharing treatment of stock-based compensation		(3	)		(5	)		(6	)
FDII, GILTI and other provisions		(5	)		—			—
Impacts related to the 2017 Tax Act		—			73			—
Research tax credit		(9	)		(8	)		(10	)
Stock-based compensation		8			13			2
Change in valuation allowance		9			25			9
Local income tax on intercompany transaction (1)		10			—			—
Executive compensation		2			1			—
Other, net		5			—			3
Provision for income taxes	$	60		$	129		$	31

(1)

During 2018, we completed an intra-entity transfer from Australia to the U.S. of certain intangible property (“IP”) rights associated with a subsidiary’s technology platform. This transfer resulted in an income tax expense for Australian tax purposes of approximately $10 million. As a result of the IP transfer, we utilized NOLs and consequently released the valuation allowance on our Australian entity.

During 2011, the Singapore Economic Development Board accepted our application to receive a tax incentive under the International Headquarters Award. This incentive provides for a reduced tax rate on qualifying income of 5% as compared to Singapore’s statutory tax rate of 17% and is conditional upon our meeting certain employment and investment thresholds. This agreement has been extended until June 30, 2021 as we have met certain employment and investment thresholds. This benefit resulted in a decrease to our 2018 provision for income tax expense of $2 million.

The 2017 Tax Act was signed into United States tax law on December 22, 2017. The 2017 Tax Act significantly changed the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The 2017 Tax Act also provided for a mandatory one-time tax on the deemed repatriation of accumulative foreign earnings of foreign subsidiaries (the “Transition Tax”), as well as prospective changes beginning in 2018, including additional limitations on executive compensation. Under GAAP, the effects of changes in income tax rates and laws are recognized in the period in which the new legislation is enacted.

On December 22, 2017, the Securities and Exchange Commission issued SAB 118, which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Accordingly, we recorded an estimate of $67 million of Transition Tax, and $6 million due to a remeasurement of our net deferred tax assets, during the year ended December 31, 2017, which reflected provisional amounts for those specific income tax effects of the 2017 Tax Act. December 22, 2018 marked the end of the measurement period for the purposes of SAB 118. During the measurement period, impacts of the law were recorded at the time a reasonable estimate for all or a portion of the effects were made, and provisional amounts were recognized and adjusted as information became available, prepared, or analyzed.

As permitted by SAB 118, we recorded provisional estimates for the impact of the Tax Act during the year ended December 31, 2017, and have subsequently finalized our accounting analysis based on the guidance, interpretations, and data available as of December 31, 2018. During the year ended December 31, 2018, we recorded a $2 million income tax expense related to the Transition Tax, which reflects additional information that we obtained during 2018 related to uncertain tax positions, earnings and profits, foreign tax credits, and state taxes. We also recorded a $2 million benefit related to the adjustment of deferred taxes based on the income tax rate that is expected to apply when such deferred taxes are settled or realized in future periods.

We are subject to additional requirements of the 2017 Tax Act during the year ended December 31, 2018. Those provisions include a deduction for foreign derived intangible income (“FDII”), a tax on global intangible low-taxed income (“GILTI”), a limitation of certain executive compensation, and other immaterial provisions. We have elected to account for GILTI as a period cost, and therefore included GILTI expense in the effective income tax rate calculation. Our 2018 effective income tax rate includes our estimates of these new provisions, with a net tax benefit of $5 million recorded during the year ended December 31, 2018. Our estimates may be revised in future periods as we obtain additional data, and as the IRS issues new guidance implementing the law changes.

By virtue of consolidated income tax returns previously filed with Expedia, we are currently under an IRS audit for the 2009, 2010, and short-period 2011 tax years, and have various ongoing state income tax audits. We are separately under examination by the IRS for the short-period 2011, 2012 and 2013 tax years and under an employment tax audit with the IRS for the 2013 and 2014 tax years. These audits include questioning of the timing and the amount of income and deductions and the allocation of income among various tax jurisdictions. These examinations may lead to proposed or ordinary course adjustments to our taxes. We are no longer subject to tax examinations by tax authorities for years prior to 2009. As of December 31, 2018, no material assessments have resulted, except as noted below regarding our 2009 and 2010 IRS audit with Expedia.

In January 2017, as part of the IRS audit of Expedia, we received Notices of Proposed Adjustment from the IRS for the 2009 and 2010 tax years. These proposed adjustments are related to certain transfer pricing arrangements with our foreign subsidiaries, and would result in an increase to our worldwide income tax expense in an estimated range of $10 million to $14 million after consideration of competent authority relief, exclusive of interest and penalties. We disagree with the proposed adjustments and we intend to defend our position through applicable administrative and, if necessary, judicial remedies. Our policy is to review and update tax reserves as facts and circumstances change. Based on our interpretation of the regulations and available case law, we believe the position we have taken with regard to transfer pricing with our foreign subsidiaries is sustainable. In addition to the risk of additional tax for 2009 and 2010 transactions, if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, we would be subject to significant additional tax liabilities.

In July 2015, the United States Tax Court (the “Court”) issued an opinion favorable to Altera Corporation (“Altera”) with respect to Altera’s litigation with the IRS. This opinion was submitted as a final decision under Tax Court Rule 155 during December 2015. The litigation relates to the treatment of stock-based compensation expense in an inter-company cost-sharing arrangement with Altera’s foreign subsidiary. In its opinion, the Court accepted Altera’s position of excluding stock based compensation from its inter-company cost-sharing arrangement. The IRS appealed the Court decision on February 19, 2016. At this time, the U.S. Department of the Treasury has not withdrawn the requirement from its regulations to include stock-based compensation in intercompany cost-sharing arrangements. The Company recorded a tax benefit of $3 million, $5 million and $6 million in its consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016, respectively. Since the Court’s 2015 opinion, the Company has taken total income tax benefits of $15 million as of December 31, 2018. On July 24, 2018, the IRS won the appeals court case at the Ninth Circuit; however, on August 7, 2018, the Ninth Circuit withdrew its decision regarding Altera and the case was reheard. While we have taken an income tax benefit based on the Court’s 2015 opinion, as discussed above, we will continue to review the latest decisions on the case and its impact to our consolidated financial statements.

Cumulative undistributed earnings of foreign subsidiaries totaled approximately $651 million as of December 31, 2018. During the year ended December 31, 2018, we made a one-time repatriation of $325 million of foreign earnings to the United States primarily to repay our remaining outstanding debt under the 2015 Credit Facility. We intend to indefinitely reinvest the remaining foreign undistributed earnings although we will continue to evaluate the impact of the 2017 Tax Act on our capital deployment within and outside the U.S. Should we distribute, or be treated under certain U.S. tax rules as having distributed, the earnings of foreign subsidiaries in the form of dividends or otherwise, we may be subject to U.S. income taxes or tax benefits. The amount of any unrecognized deferred income tax on this temporary difference is not material.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (excluding interest and penalties) is as follows:

	December 31,
	2018		2017		2016
	(in millions)
Balance, beginning of year	$	123	$	105	$	89
Increases to tax positions related to the current year		11		17		16
Increases to tax positions related to the prior year		2		1		1
Reductions due to lapsed statute of limitations		—		—		(1	)
Decreases to tax positions related to the prior year		—		—		—
Settlements during current year		—		—		—
Balance, end of year	$	136	$	123	$	105

As of December 31, 2018, we had $136 million of unrecognized tax benefits, net of interest, which is classified as long-term and included in other long-term liabilities and deferred income taxes, net on our consolidated balance sheet. The amount of unrecognized tax benefits, if recognized, would reduce income tax expense by $87 million, due to correlative adjustments in other tax jurisdictions. We recognize interest and penalties related to unrecognized tax benefits in income tax expense on our consolidated statement of operations. As of December 31, 2018 and 2017, total gross interest accrued was $20 million and $13 million, respectively. We do not anticipate any material changes in the next fiscal year.