U.S. federal and state and foreign income tax laws and regulations are voluminous and often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in its future consolidated balance sheets, statements of operations and statements of comprehensive income. For example, the Tax Act significantly revised the U.S. corporate tax regime, which, among other things, resulted in a reduction of Quanta’s effective tax rate and a remeasurement of its deferred tax assets and liabilities. Quanta completed its analysis of the Tax Act, and the adjustments determined during the measurement period were included within “Net income” as an adjustment to “Provision for income taxes” on Quanta’s consolidated statements of operations and are described in further detail below.

The Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, limited and eliminated certain tax deductions and created new taxes on certain foreign-sourced earnings. Consequently, for the year ended December 31, 2017,

Quanta recorded one-time net tax benefits that were Quanta’s provisional estimate, utilizing the information that was available at the time. During the year ended December 31, 2018, Quanta recorded $6.3 million of additional benefit related to the remeasurement of U.S. federal deferred tax assets and liabilities, as the estimate of such amount was revised in connection with the preparation and filing of Quanta’s 2017 income tax returns, and decreased the estimated benefit associated with entity restructuring and recapitalization transactions by $1.8 million based on actual 2017 earnings and profit balances. Additionally, as a result of subsequent regulations, Quanta also recorded a valuation allowance of $43.5 million against foreign tax credits during 2018. As of December 31, 2018, Quanta completed its accounting for the tax effects of the enactment of the Tax Act; however, additional regulations could have a material impact on Quanta’s effective tax rate in future periods. Further, to the extent there are settlements of certain foreign unrecognized tax benefits in future periods, changes to the estimates associated with the transition tax may be required.

The Tax Act also imposed a tax on global intangible low-taxed income (GILTI). Quanta analyzed the impacts of GILTI and made an accounting policy election in the fourth quarter of 2018, whereby it determined that such income will be recognized in the period earned and deferred taxes for basis differences that may reverse as GILTI will not be recognized in future years.


	Year Ended December 31,
	2020		2019		2018
Current:
Federal	$	134,538	$	121,214	$	50,306
State	45,610		35,329		26,170
Foreign	(745)		16,848		23,209
Total current tax provision	179,403		173,391		99,685

Deferred:
Federal	(46,251)		7,379		62,482
State	(3,850)		(1,776)		(4,152)
Foreign	(9,915)		(13,522)		3,644
Total deferred tax provision (benefit)	(60,016)		(7,919)		61,974
Total provision for income taxes	$	119,387	$	165,472	$	161,659


	Year Ended December 31,
	2020		2019		2018
Provision at the statutory rate	$	119,983	$	120,180	$	96,110
Increases (decreases) resulting from —
State taxes	31,791		23,399		18,504
Employee per diems, meals and entertainment	10,680		13,817		11,949
Valuation allowance on deferred tax assets	(31,138)		35,761		48,862
Foreign taxes	(9,641)		(21,565)		(2,621)
Stock-based compensation	(3,109)		(1,863)		(1,449)
Contingency reserves, net	(2,125)		(3,173)		(2,619)
Taxes on unincorporated joint ventures	(1,093)		(930)		(578)
Tax Cuts and Jobs Act	—		—		(6,295)
Entity restructuring and recapitalization efforts	—		—		(4,424)
Other	4,039		(154)		4,220
Total provision for income taxes	$	119,387	$	165,472	$	161,659

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):


	December 31,
	2020		2019
Deferred income tax liabilities:
Property and equipment	$	(236,256)	$	(208,751)
Goodwill	(85,467)		(72,244)
Leased assets	(77,344)		(73,861)
Customer holdbacks	(30,457)		(11,882)
Other intangibles	(4,438)		(11,384)
Other book/tax accounting method differences	—		(1,801)
Total deferred income tax liabilities	(433,962)		(379,923)

Deferred income tax assets:
Net operating loss carryforwards	82,817		78,310
Lease liabilities	76,826		74,044
Accruals and reserves	70,335		36,372
Tax credits	42,202		46,621
Stock and incentive compensation	36,590		26,045
Deferred tax benefits on unrecognized tax positions	10,108		16,542
Other	9,617		3,933
Subtotal	328,495		281,867
Valuation allowance	(43,255)		(104,178)
Total deferred income tax assets	285,240		177,689
Total net deferred income tax liabilities	$	(148,722)	$	(202,234)

The valuation allowances for deferred income tax assets at December 31, 2020, 2019 and 2018 were $43.3 million, $104.2 million and $67.6 million. These valuation allowances relate to state and foreign net operating loss carryforwards and foreign tax credits. The net changes in the total valuation allowance for each of the years ended December 31, 2020, 2019 and 2018 were a decrease of $60.9 million, an increase of $36.6 million and an increase of $48.3 million. The valuation allowances were established primarily as a result of uncertainty in Quanta’s outlook as to the amount and character of future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

At December 31, 2020, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was $88.1 million. These carryforwards will expire as follows: 2021, $0.5 million; 2022, $0.2 million; 2023, $3.2 million; 2024, $1.0 million; 2025, $7.4 million; and $75.8 million thereafter. A valuation allowance of $42.3 million has been recorded against certain foreign and state net operating loss carryforwards.

Quanta generally does not provide for taxes related to undistributed earnings of its foreign subsidiaries because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Quanta could also be subject to additional foreign withholding taxes if it were to repatriate cash that is indefinitely reinvested outside the United States, but it does not expect such amount to be material.


	December 31,
	2020		2019		2018
Balance at beginning of year	$	40,878	$	41,110	$	36,229
Additions based on tax positions related to the current year	4,398		7,708		6,231
Additions for tax positions of prior years	—		1,200		9,377
Reductions for tax positions of prior years	(2,410)		—		(2,870)
Reductions for audit settlements	(930)		(3,205)		—
Reductions resulting from a lapse of the applicable statute of limitations periods	(8,717)		(5,935)		(7,857)
Balance at end of year	$	33,219	$	40,878	$	41,110

For the year ended December 31, 2020, the $12.1 million of aggregate reductions were primarily due to the favorable settlement of U.S. and Canadian tax audits and the expiration of U.S. federal and state statutes of limitations. For the year ended December 31, 2019, the $9.1 million of aggregate reductions were primarily due to the favorable settlement of certain non-U.S. income tax obligations of an acquired business and the expiration of U.S. state income tax statutes of limitations. For the year ended December 31, 2018, the $7.9 million reduction was primarily due to the expiration of certain federal and state statutes of limitations.


	December 31,
	2020		2019		2018
Unrecognized tax benefits	$	33,219	$	40,878	$	41,110
Portion that, if recognized, would reduce tax expense and effective tax rate	30,868		40,695		40,977
Accrued interest on unrecognized tax benefits	5,204		6,240		5,459
Accrued penalties on unrecognized tax benefits	14		14		631
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months	$0 to $11,859		$0 to $6,268		$0 to $9,541
Portion that, if recognized, would reduce tax expense and effective tax rate	$0 to $10,217		$0 to $5,693		$0 to $8,224

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest income of $0.7 million, interest expense of $0.8 million and interest expense of $0.1 million in the provision for income taxes for the years ended December 31, 2020, 2019 and 2018.

Quanta and certain subsidiaries remain under examination by various U.S. state and Canadian and other foreign tax authorities for multiple periods. Quanta does not consider any state in which it does business to be a major tax jurisdiction.