INCOME TAXES

U.S. and foreign earnings (loss) before income taxes and noncontrolling interests are as follows:



	Years Ended December 31,
	2018		2017			2016
	(In thousands)
U.S.	$	630,417	$	(52,606	)	$	(248,433	)
Foreign	131,141		119,564			167,348
Total	$	761,558	$	66,958		$	(81,085	)

The components of the income tax provision (benefit) are as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Current income tax provision (benefit):
Federal	$	(2,849	)	$	(31,844	)	$	23,343
State	2,569			1,964			3,662
Foreign	38,770			24,108			27,242
Current income tax provision (benefit)	38,490			(5,772		)	54,247

Deferred income tax provision (benefit):
Federal	(21,792		)	(255,477		)	(100,798		)
State	172			(28,364		)	(9,518		)
Foreign	(13,059		)	(1,437		)	(8,865		)
Deferred income tax benefit	(34,679		)	(285,278		)	(119,181		)
Income tax provision (benefit)	$	3,811		$	(291,050	)	$	(64,934	)

The tax provision for the year ended December 31, 2018 includes a $143.3 million benefit for excess tax deductions attributable to stock-based compensation. Of this amount, $142.2 million reduced income taxes payable and $1.1 million increased the deferred tax asset for net operating losses ("NOLs"). The deferred tax asset for NOLs was increased by $361.8 million for the year ended December 31, 2017 for excess tax deductions attributable to stock-based compensation. The related income tax benefit was recorded as a component of the deferred income tax benefit. The current income tax payable was reduced by $51.8 million for the year ended December 31, 2016 for excess tax deductions attributable to stock-based compensation. For the year ended December 31, 2016, the related income tax benefits were recorded as increases to additional paid-in capital.

Income taxes receivable (payable) and deferred tax assets (liabilities) are included in the following captions in the accompanying consolidated balance sheet at December 31, 2018 and 2017:



	December 31,
	2018			2017
	(In thousands)
Income taxes receivable (payable):
Other current assets	$	10,132		$	33,239
Other non-current assets	11,401			1,949
Accrued expenses and other current liabilities	(12,745		)	(11,798		)
Income taxes payable	(37,584		)	(25,624		)
Net income taxes payable	$	(28,796	)	$	(2,234	)

Deferred tax assets (liabilities):
Other non-current assets	$	64,786		$	66,321
Deferred income taxes	(23,600		)	(35,070		)
Net deferred tax assets	$	41,186		$	31,251

The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.



	December 31,
	2018			2017
	(In thousands)
Deferred tax assets:
Accrued expenses	$	23,525		$	22,234
NOL carryforwards	291,639			292,812
Tax credit carryforwards	89,397			78,715
Stock-based compensation	82,698			77,976
Other	30,106			42,331
Total deferred tax assets	517,365			514,068
Less valuation allowance	(115,853		)	(132,598		)
Net deferred tax assets	401,512			381,470

Deferred tax liabilities:
Investment in subsidiaries	(238,650		)	(247,167		)
Intangibles	(77,669		)	(87,811		)
Fair value investment	(22,927		)	—
Other	(21,080		)	(15,241		)
Total deferred tax liabilities	(360,326		)	(350,219		)
Net deferred tax assets	$	41,186		$	31,251

At December 31, 2018, the Company has federal and state NOLs of $856.0 million and $698.7 million, respectively. If not utilized, $13.9 million of federal NOLs can be carried forward indefinitely, and the remainder will expire at various times primarily between 2023 and 2037, and the state NOLs, if not utilized, will expire at various times between 2019 and 2038. Federal and state NOLs of $569.9 million and $350.4 million, respectively, can be used against future taxable income without restriction and the remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable state law. At December 31, 2018, the Company has foreign NOLs of $383.4 million available to offset future income. Of these foreign NOLs, $352.0 million can be carried forward indefinitely and $31.4 million will expire at various times between 2019 and 2038. During 2018, the Company recognized tax benefits related to NOLs of $9.5 million.

At December 31, 2018, the Company has tax credit carryforwards of $105.4 million. Of this amount, $53.2 million relates to credits for foreign taxes, $48.3 million relates to credits for research activities and $3.9 million relates to various other credits. Of these credit carryforwards, $24.2 million can be carried forward indefinitely and $81.2 million will expire between 2019 and 2038.

The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience.

During 2018, the Company's valuation allowance decreased by $16.7 million primarily due to a decrease in foreign tax credits subject to valuation allowance and the realization of previously unbenefited capital losses. At December 31, 2018, the Company has a valuation allowance of $115.9 million related to the portion of tax loss carryforwards, foreign tax credits and other items for which it is more likely than not that the tax benefit will not be realized.

A reconciliation of the income tax provision (benefit) to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Income tax provision (benefit) at the federal statutory rate of 21% (35% for 2017 and 2016)	$	159,927		$	23,435		$	(28,446	)
State income taxes, net of effect of federal tax benefit	14,887			86			(3,880		)
Stock-based compensation	(129,654		)	(358,901		)	3,998
Realization of certain deferred tax assets	(13,200		)	(3,133		)	—
Transition tax	(9,190		)	62,667			—
Deferred tax adjustment for enacted changes in tax laws and rates	(7,488		)	705			(4,594		)
Research credit	(4,023		)	(5,304		)	(2,231		)
Foreign income taxed at a different statutory tax rate	(3,206		)	(14,725		)	(27,115		)
Non-taxable sale and non-deductible goodwill associated with ShoeBuy	—			—			(13,142		)
Goodwill impairment of Dotdash and Emerging & Other	—			—			10,649
Non-deductible impairments for certain cost method investments	—			2,669			3,489
Other, net	(4,242		)	1,451			(3,662		)
Income tax provision (benefit)	$	3,811		$	(291,050	)	$	(64,934	)

A reconciliation of the beginning and ending amount of unrecognized tax benefits, including penalties but excluding interest, is as follows:



	December 31,
	2018			2017			2016
	(In thousands)
Balance at January 1	$	36,732		$	38,372		$	40,808
Additions based on tax positions related to the current year	10,334			2,050			2,033
Additions for tax positions of prior years	4,716			1,994			2,676
Reductions for tax positions of prior years	(400		)	(3,761		)	(743		)
Settlements	—			—			(5,107		)
Expiration of applicable statutes of limitations	(2,507		)	(1,923		)	(1,295		)
Balance at December 31	$	48,875		$	36,732		$	38,372

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. Included in the income tax provision for the years ended December 31, 2018, 2017 and 2016 is a $0.3 million expense, $0.1 million benefit and $0.4 million expense, respectively, net of related deferred taxes of $0.1 million, less than $0.1 million and $0.2 million, respectively, for interest on unrecognized tax benefits. At December 31, 2018 and 2017, the Company has accrued $3.4 million and $3.0 million, respectively, for the payment of interest. At December 31, 2018 and 2017, the Company has accrued $1.4 million and $1.7 million, respectively, for penalties.

The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service ("IRS") is currently auditing the Company’s federal income tax returns for the years ended December 31, 2010 through 2016. The statute of limitations for the years 2010 through 2015 has been extended to December 31, 2019. Various other jurisdictions are open to examination for tax years beginning with 2009. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

At December 31, 2018 and 2017, unrecognized tax benefits, including interest and penalties, were $52.3 million and $39.7 million, respectively. If unrecognized tax benefits at December 31, 2018 are subsequently recognized, $49.1 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2017 was $37.2 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $21.6 million by December 31, 2019, due to expirations of statutes of limitations or other settlements; $21.6 million of which would reduce the income tax provision.

On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act subjected to U.S. taxation certain previously deferred earnings of foreign subsidiaries as of December 31, 2017 ("Transition Tax") and implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on GILTI earned by foreign subsidiaries. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional tax expense in the fourth quarter of 2017. In the third quarter of 2018, the Company finalized this calculation, which resulted in a $9.2 million reduction in the Transition Tax. The net reduction in the Transition Tax was due primarily to the utilization of additional foreign tax credits and a reduction in state taxes, partially offset by additional taxable earnings and profits of our foreign subsidiaries based on recently issued IRS guidance. The adjustment of the Company’s provisional tax expense was recorded as a change in estimate in accordance with Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which is also included in the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB 118"), which was issued and adopted by the Company in March 2018. Despite the completion of the Company’s accounting for the Tax Act under SAB 118, many aspects of the law remain unclear and we expect ongoing guidance to be issued at both the federal and state levels. We will continue to monitor and assess the impact of any new developments.

At December 31, 2018, all of the Company’s international cash can be repatriated without significant tax consequences. The Company has not provided for approximately $1.0 million of foreign deferred taxes for the $103.1 million of the foreign cash earnings that is indefinitely reinvested outside the U.S. The Company reassesses its intention to remit or permanently reinvest these cash earnings each reporting period; any required adjustment to the income tax provision would be reflected in the period that the Company changes this intention.