Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense of $4.8 million for the three months ended March 31, 2020 reflects income taxes, foreign withholding taxes and minimum taxes.

ASC 740 generally requires we provide for income taxes during interim periods based on the estimated annual effective tax rate (“AETR”) for the full year. For the three months ended March 31, 2020, we have excluded a jurisdiction from the AETR calculation and used a discrete method to calculate the income tax provision for that jurisdiction. We believe inclusion of this jurisdiction in the AETR calculation is impractical at this time given that normal deviations in the projected pre-tax net income (loss) would result in a disproportionate and unreliable annual effective tax rate under the AETR method.

We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations.

We maintain a valuation allowance on certain U.S. and foreign deferred tax assets. Such valuation allowances are released as the related tax benefits are realized or when sufficient evidence exists to conclude that it is more likely than not that the deferred tax assets will be realized.

Unrecognized tax benefits represent reserves for potential tax deficiencies or reductions in tax benefits that could result from federal, state or foreign tax audits. Gross unrecognized tax benefits decreased from $26.2 million at December 31, 2019 to $23.1 million as of March 31, 2020, primarily due to the lapse of statutes of limitations in foreign jurisdictions. All of our unrecognized tax benefits would reduce our effective tax rate if recognized. Our unrecognized tax benefits are subject to change for effective settlement of examinations, changes in the recognition threshold of tax positions, the expiration of statutes of limitations and other factors.

We have tax returns that are open to examination in various jurisdictions for tax years 2012-2019. The open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions and tax credits. There can be no assurance that the outcome of the examinations will be favorable. In certain circumstances where we elect to appeal the results of an examination, we may be required to make tax assessment payments to proceed with the administrative appeal process.