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Income Taxes
 12 Months Ended
Oct. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The domestic and foreign components of our total income (loss) before provision for income taxes were as follows:
 Year Ended October 31,
 202220212020
 (in thousands)
United States$1,036,279 $640,531 $544,391 
Foreign79,235 164,983 93,768 
Total income (loss) before provision for income taxes$1,115,514 $805,514 $638,159 
The components of the provision (benefit) for income taxes were as follows:
 Year Ended October 31,
 202220212020
 (in thousands)
Current:
Federal$105,493 $85,950 $29,272 
State23,201 11,898 1,863 
Foreign45,297 79,890 55,103 
173,991 177,738 86,238 
Deferred:
Federal(42,086)(108,530)(84,739)
State1,519 1,796 (20,233)
Foreign3,654 (21,849)(6,554)
(36,913)(128,583)(111,526)
Provision (benefit) for income taxes$137,078 $49,155 $(25,288)
The provision (benefit) for income taxes differed from the taxes computed with the statutory federal income tax rate as follows: 
 Year Ended October 31,
 202220212020
 (in thousands)
Statutory federal tax$234,257 $168,745 $133,979 
State tax (benefit), net of federal effect (2,514)(2,419)(29,096)
Federal tax credits(61,582)(45,503)(39,206)
Tax on foreign earnings25,930 7,988 (3,980)
Foreign-derived intangible income deduction(38,924)(31,214)(24,282)
Tax settlements— (7,134)(13,167)
Stock-based compensation(52,625)(62,620)(50,047)
Changes in valuation allowance19,794 15,232 (614)
Other12,742 6,080 1,125 
Provision (benefit) for income taxes$137,078 $49,155 $(25,288)
We have provided for foreign withholding taxes on undistributed earnings of certain of our foreign subsidiaries to the extent such earnings are no longer considered to be indefinitely reinvested in the operations of those subsidiaries. Where foreign subsidiaries are considered indefinitely reinvested, and if the tax effect of undistributed earnings and other outside basis differences were recognized, the nature of taxes expected would be primarily withholding taxes, taxes in non-conforming states, and taxes on intermediate holding companies outside of the U.S., net of foreign tax credits where available. As of October 31, 2022, the taxes due, after allowable foreign tax credits, are not expected to be material.
The significant components of deferred tax assets and liabilities were as follows:
 October 31,
 20222021
 (in thousands)
Net deferred tax assets:
Deferred tax assets:
Deferred revenue41,941 30,113 
Deferred compensation67,782 59,823 
Intangible and depreciable assets119,791 117,211 
Capitalized research and development costs231,733 203,052 
Stock-based compensation60,537 40,922 
Tax loss carryovers59,754 30,305 
Foreign tax credit carryovers27,153 32,498 
Research and other tax credit carryovers316,650 326,164 
Operating Lease Liabilities119,575 94,519 
      Other16,887 — 
Gross deferred tax assets1,061,803 934,607 
Valuation allowance(198,213)(174,117)
Total deferred tax assets863,590 760,490 
Deferred tax liabilities:
      Intangible assets102,796 61,448 
      Operating lease Right-of-Use-Assets96,598 77,877 
      Accruals and reserves5,998 6,216 
      Undistributed earnings of foreign subsidiaries1,000 7,580 
      Other— 628 
Total deferred tax liabilities206,392 153,749 
Net deferred tax assets$657,198 $606,741 
It is more likely than not that the results of future operations will be able to generate sufficient taxable income to realize the net deferred tax assets. The valuation allowance provided against our deferred tax assets as of October 31, 2022 is mainly attributable to foreign tax credits available to non-U.S. subsidiaries and the California research credits. The valuation allowance increased by a net of $24.1 million in fiscal 2022 primarily related to the net increase of valuation allowance on California research credits.
We have the following tax loss and credit carryforwards available to offset future income tax liabilities:
CarryforwardAmountExpiration
Date
 (in thousands) 
Federal net operating loss carryforward$142,645 2023-2041
Federal research credit carryforward140,331 2023-2042
Federal foreign tax credit carryforward16,813 2027-2033
International foreign tax credit carryforward12,025 Indefinite
International net operating loss carryforward37,086 2027-Indefinite
California research credit carryforward226,519 Indefinite
Other state research credit carryforward20,743 2025-2042
State net operating loss carryforward198,348 2023-2044
The federal and state net operating loss carryforward is from acquired companies and the annual use of such loss is subject to significant limitations under Internal Revenue Code Section 382 and certain provisions of the Tax Act. Foreign tax credits may only be used to offset tax attributable to foreign source income.
The gross unrecognized tax benefits decreased by approximately $1.2 million during fiscal 2022 resulting in gross unrecognized tax benefits of $81.2 million as of October 31, 2022. A reconciliation of the beginning and ending balance of gross unrecognized tax benefits is summarized as follows:
As of October 31, 2022As of October 31, 2021
 (in thousands)
Beginning balance$82,360 $83,149 
Increases in unrecognized tax benefits related to prior year tax positions435 794 
Decreases in unrecognized tax benefits related to prior year tax positions(9,791)(7,372)
Increases in unrecognized tax benefits related to current year tax positions6,794 9,168 
Decreases in unrecognized tax benefits related to settlements with taxing authorities(1,104)(1,538)
Reductions in unrecognized tax benefits due to lapse of applicable statute of limitations(2,601)(1,235)
Increases in unrecognized tax benefits acquired14,121 — 
Changes in unrecognized tax benefits due to foreign currency translation(9,031)(606)
Ending balance$81,183 $82,360 
As of October 31, 2022 and 2021, approximately $81.2 million and $82.4 million, respectively, of the unrecognized tax benefits would affect our effective tax rate if recognized upon resolution of the uncertain tax positions.
Interest and penalties related to estimated obligations for tax positions taken in our tax returns are recognized as a component of income tax expense (benefit) in the consolidated statements of income and totaled approximately $0.8 million, $0.4 million and $0.2 million for fiscal years 2022, 2021 and 2020, respectively. As of October 31, 2022 and 2021, the combined amount of accrued interest and penalties related to tax positions taken on our tax returns was approximately $12.7 million and $13.5 million, respectively.
The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. We believe that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0.0 and $28.0 million.
We and/or our subsidiaries remain subject to tax examination in the following jurisdictions:
JurisdictionYear(s) Subject to Examination
United StatesFiscal years after 2020
CaliforniaFiscal years after 2017
HungaryFiscal years after 2018
IrelandFiscal years after 2017
JapanFiscal years after 2016
Korea and TaiwanFiscal years after 2020
ChinaFiscal years after 2012
IndiaFiscal years after 2018
In addition, we have made acquisitions with operations in several of our significant jurisdictions which may have years subject to examination different from the years indicated in the above table.
IRS Examinations
In fiscal 2021, the Examination Division of the IRS completed its pre-filing review for fiscal 2020 and as a result we recognized approximately $7.1 million in unrecognized tax benefits, primarily due to the allowance of research tax credits.
In fiscal 2020, we reached partial settlement with the Examination Division of the IRS for fiscal 2019 and recognized approximately $6.3 million in unrecognized tax benefits, primarily due to the allowance of certain foreign tax credits and research tax credits.
State Examinations
In fiscal 2020, we reached final settlement with the California Franchise Tax Board for fiscal 2015, 2016, and 2017. As a result of the settlement, we recognized $20.2 million in unrecognized tax benefits and increased our valuation allowance by $20.2 million.
Non-U.S. Examinations
Hungarian Tax Authority
In 2017, the Hungarian Tax Authority (the HTA) assessed withholding taxes of approximately $25.0 million and interest and penalties of $11.0 million, against our Hungary subsidiary (Synopsys Hungary). Synopsys Hungary contested the assessment with the Hungarian Administrative Court (Administrative Court). In 2019, as required under Hungarian law, Synopsys Hungary paid the assessment and recorded a tax expense due to an unrecognized tax benefit of $17.4 million, which is net of estimated U.S. foreign tax credits. The Administrative Court found against Synopsys Hungary, and we appealed to the Hungarian Supreme Court. During 2021, the Hungarian Supreme Court heard our appeal and remanded the case to the Administrative Court for further proceedings. The Administrative Court once again ruled against Synopsys Hungary, and we filed another appeal with the Hungarian Supreme Court. The Hungarian Supreme Court heard our appeal on January 27, 2022, vacated the lower court's decision and remanded the case back to the Administrative Court for further proceedings. Hearings with the Administrative Court were held on June 30, 2022 and September 22, 2022. In response to a request by the Administrative Court, we filed an additional brief on November 23, 2022. We expect a hearing to be scheduled in early 2023.
In fiscal 2020, we reached final settlement with the HTA for fiscal years 2014 through 2018. As a result of the settlement, we recognized tax expense of $1.4 million, and recognized $6.9 million in unrecognized tax benefits.