15. INCOME TAXES

The components of (loss) income before (benefit) provision from income taxes are:



(in thousands)	2018			2017		2016
Domestic	$	(27,494	)	$	57,493	$	39,559
Foreign	15,951			28,742		15,776
(Loss) income before (benefit) provision from income taxes	$	(11,543	)	$	86,235	$	55,335

The components of the provision for income taxes are:



(in thousands)	2018			2017			2016
Current:
Federal	$	(1,862	)	$	(18,109	)	$	7,389
State	287			97			3,081
Foreign	10,313			8,479			4,248
Total current provision (benefit)	8,738			(9,533		)	14,718
Deferred:
Federal	(18,939		)	(2,049		)	(1,125		)
State	(3,702		)	(214		)	(466		)
Foreign	(8,257		)	(517		)	(2,807		)
Total deferred benefit	(30,898		)	(2,780		)	(4,398		)
(Benefit) provision from income taxes	$	(22,160	)	$	(12,313	)	$	10,320

The effective income tax rate differed from the statutory federal income tax rate due to the following ⁽¹⁾:



	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
Valuation allowance	(4.4	)%	0.5	%	0.2	%
Transaction costs	—	%	—	%	0.7	%
State income taxes, net of federal benefit and tax credits	28.9	%	(0.5	)%	2.5	%
Permanent differences	(11.2	)%	1.1	%	1.4	%
GILTI, FDII, and BEAT	(3.5	)%	—	%	—	%
Federal research and experimentation credits	60.6	%	(3.9	)%	(1.5	)%
Tax effects of foreign activities	3.5	%	(0.9	)%	(5.6	)%
Tax-exempt income	1.2	%	(0.1	)%	(0.2	)%
Provision to return adjustments	(2.2	)%	(2.1	)%	—	%
Non-deductible compensation	(8.9	)%	2.1	%	4.0	%
Expiration of statutes and changes in estimates	4.5	%	0.3	%	(1.2	)%
Excess tax benefits related to share-based compensation	117.3	%	(28.4	)%	(12.8	)%
Domestic Production Activities	—	%	—	%	(2.0	)%
Deferred tax asset adjustment	(14.2	)%	(17.9	)%	(0.3	)%
Other	(0.6	)%	0.5	%	(1.5	)%
Effective income tax rate	192.0	%	(14.3	)%	18.7	%

⁽¹⁾ In periods of loss before incomes taxes, income tax benefits are reflected as a positive in this table.

Tax Reform Act

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act makes significant changes in the U.S. tax code including the following:


•	reduction of the corporate federal income tax rate from 35% to 21%;


•	repeal of the domestic manufacturing deduction;


•	repeal of the corporate alternative minimum tax;


•	a one-time transition tax on accumulated foreign earnings (if any);


•	a move to a territorial tax system; and


•	acceleration of business asset expensing.

The Tax Reform Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits through December 31, 2017. The Company has concluded that it is not be subject to the one-time transition tax due to our foreign subsidiaries being in a net accumulated deficit position.

The Company completed its accounting for the tax effects of enactment of the Tax Reform Act recording a final net benefit amount of $14.2 million pertaining to the enactment of the Tax Reform Act and the impact of the reduction of the tax rates on our deferred tax attributes; all of which was recorded in 2017 as a component of tax expense.

Beginning in 2018, the Company was subject to immaterial incremental U.S. tax resulting from global intangible low taxed income (“GILTI”) inclusions. Companies must make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred as a period cost.

Deferred income taxes

Significant components of net deferred tax assets and liabilities are:



	December 31,
(in thousands)	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	40,736		$	52,311
Accruals and reserves	17,576			14,668
Software revenue	—			—
Depreciation	2,874			2,558
Tax credit carryforwards	14,896			13,056
Other	176			52
Total deferred tax assets	76,258			82,645
Valuation allowances	(27,954		)	(27,994		)
Total net deferred tax assets	48,304			54,651
Deferred tax liabilities:
Software revenue	(36,510		)	(70,347		)
Intangibles	(5,748		)	(8,527		)
Total deferred tax liabilities	(42,258		)	(78,874		)
Deferred income taxes	$	6,046		$	(24,223	)

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. This determination requires significant judgment, including assumptions about future taxable income that are based on historical and projected information. In 2018, there was no material change in the valuation allowance.

At December 31, 2018 the Company’s net operating losses and credit carryforwards are:



(in thousands)	Federal		State
Net operating losses ⁽¹⁾	$	81,206	$	2,210
Net operating losses due to acquisitions	$	81,206	$	665
Credit carryforwards ⁽²⁾	$	7,480	$	1,937
Credit carryforwards due to acquisitions	$	640	$	324

⁽¹⁾ Excludes federal and state net operating losses of $60.2 million and $0.8 million, respectively, and federal and state tax credits of $0.1 million and $7.4 million, respectively, that the Company expects will expire unutilized,

⁽²⁾ Carryforward losses and credits expire between 2019 and 2037 except for $0.9 million of state credits that have an unlimited carryforward period.

At December 31, 2018, the Company had foreign net operating losses of $46.1 million, all of which the Company expects will expire unutilized.

The Company’s India subsidiary is a development center in an area designated as a Special Economic Zone (“SEZ”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ expired in March of 2018 and the tax holiday in the Bangalore SEZ is scheduled to expire in 2022. For 2017 and 2016, the effect of the income tax holiday was to reduce the Company’s provision for income taxes by approximately $1.3 million, and $1 million, respectively.

Uncertain tax benefits and other considerations

A rollforward of the Company’s gross unrecognized tax benefits is:



(in thousands)	2018			2017			2016
Balance as of January 1,	$	19,150		$	22,671		$	23,972
Additions based on tax positions related to the current year	978			452			80
Additions for tax positions of prior years	174			238			110
Additions for acquired uncertain tax benefits	—			—			387
Reductions for change in U.S. federal tax rate	—			(2,424		)	—
Reductions for tax positions of prior years	(2,145		)	(1,500		)	(1,541		)
Reductions for a lapse of the applicable statute of limitations	—			(287		)	(337		)
Balance as of December 31,	$	18,157		$	19,150		$	22,671

As of December 31, 2018, the Company had approximately $18.2 million of total unrecognized tax benefits, which would decrease the Company’s effective tax rate if recognized. The $2.1 million reduction for tax positions of prior years primarily relate to the settlement of a foreign uncertain tax position. The Company expects that the changes in the unrecognized benefits within the next twelve months will be approximately $0.5 million due to a lapse of applicable statute of limitations.

The Company files income tax returns in the U.S. and in foreign jurisdictions. The Company has no tax returns under examination by the Internal Revenue Service or state taxing authorities as of December 31, 2018. However, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2010 through 2014. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for the tax years 2014 to the present.