Income Taxes

The components of income before provision for income taxes were as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
U.S.	$	94,518	$	273,176	$	233,247
Foreign	221,604		186,270		223,377
Income before provision for income taxes	$	316,122	$	459,446	$	456,624

The provision for income taxes consisted of the following for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017			2016			2015
Current tax provision (benefit):
Federal	$	41,090		$	89,816		$	70,298
State	6,336			6,238			(1,750		)
Foreign	51,244			39,952			62,572
Deferred tax provision (benefit):
Federal	(17,136		)	4,265			23,381
State	21,689			(86		)	(742		)
Foreign	(4,992		)	3,916			(18,536		)
Change in valuation allowance	(430		)	(787		)	(5		)
Total	$	97,801		$	143,314		$	135,218

The current tax provision includes income taxes incurred on intercompany sales, primarily intellectual property. For financial statement purposes this amount is required to be deferred on the balance sheet with the offset recorded as a deferred tax benefit. The income tax that is deferred is amortized into earnings over the economic life of the intellectual property that was sold. The amount of the current year deferral included in the Company’s deferred tax provision was a benefit of $16.0 million, $9.1 million and $15.5 million in the years ended December 31, 2017, 2016 and 2015, respectively.

The Company’s effective rate differed from the U.S. federal statutory rate as follows for the years ended December 31, 2017, 2016 and 2015:



	2017		2016		2015
U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State taxes	1.6		2.0		1.7
Share-based compensation	3.7		2.7		1.9
U.S. federal, state and foreign research and development credits	(6.9	)	(3.3	)	(4.1	)
Foreign earnings	(7.8	)	(3.4	)	(4.6	)
Domestic production activities deduction	(0.7	)	(1.7	)	(1.2	)
U.S Tax Cuts and Jobs Act, net	8.2		—		—
Impact of acquisition-related uncertain tax position	(2.9	)	—		—
Other	0.7		(0.1	)	0.9
	30.9	%	31.2	%	29.6	%

In December 2017 the TCJA was enacted, making significant changes to the U.S. Internal Revenue Code. Changes include a corporate income tax rate decrease from 35% to 21%, the implementation of a modified territorial tax system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017 and the repeal of the domestic production activities deduction, among other items.

The Company has recognized a provisional net tax expense of $26.0 million for the impact of the TJCA which is comprised of a one-time transition tax expense of $43.4 million on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, offset by a $17.4 million tax benefit related to the re-measurement of deferred tax assets and liabilities due to the lower corporate income tax rate. Any subsequent adjustments to the provisional amounts will be recorded to current tax expense or benefit in the quarter of 2018 in which the analysis is completed.

The components of the net deferred tax assets and liabilities and the related valuation allowance as of December 31, 2017 and 2016 were as follows (in thousands):



	2017			2016
Accrued bonus	$	19,950		$	18,390
Deferred revenue	8,861			10,055
Deferred rent	8,000			12,592
Stock-based compensation	20,557			32,030
Net operating losses	26,698			7,855
Unrealized losses	1,239			1,862
Tax credit carryforwards	49,135			23,629
License income	6,611			16,932
Other	11,909			7,048
Deferred tax assets	152,960			130,393
Depreciation and amortization	(13,933		)	(10,470		)
Acquired intangible assets	(48,781		)	(44,788		)
Internal-use software development costs capitalized	(54,687		)	(77,375		)
Deferred tax liabilities	(117,401		)	(132,633		)
Valuation allowance	—			(430		)
Net deferred tax assets (liabilities)	$	35,559		$	(2,670	)

The Company re-measured the U.S. deferred tax assets and liabilities as of December 31, 2017 included in the table above at the applicable tax rate of 21% in accordance with the TCJA.

The table below summarizes the Company's NOL and tax credit carryforwards in federal, state, and foreign jurisdictions as of December 31, 2017 and 2016 (in thousands, except for years):



	2017		2016		Expirations at Various Dates Through:
NOL carryforwards:
Federal	$	99,200	$	16,500	2037
State	89,500		11,400		2035
Foreign	—		—		—
Federal and state research and development tax credit and other credit carryforwards	65,900		41,500		2032

The Company's U.S. federal and state NOL carryforwards relate to acquisitions completed in 2012 and 2017.

As of December 31, 2017, foreign earnings of approximately $603.2 million have been taxed due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings required by the TCJA. No provision for U.S. income and foreign withholding taxes has been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested. Determination of the amount of the unrecognized deferred tax liability on outside basis differences is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios, and the variation due to multiple potential assumptions relating to the timing of any future repatriation.

The following is a roll forward of the Company’s unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017			2016			2015
Balance at beginning of year	$	69,117		$	65,290		$	33,320
Gross increases — tax positions of prior periods	2,692			6,391			11,238
Gross increases — current period tax positions	27,163			6,252			27,043
Gross decreases — tax positions of prior periods	(277		)	(6,491		)	(5,739		)
Gross decreases — lapse of applicable statute of limitations	(12,850		)	(287		)	(257		)
Gross decreases — settlements	—			(2,038		)	(315		)
Balance at end of year	$	85,845		$	69,117		$	65,290

As of December 31, 2017, 2016 and 2015, the Company had approximately $90.7 million, $77.1 million and $72.3 million of unrecognized tax benefits, respectively. The total unrecognized tax benefits include $10.7 million, $13.7 million, and $10.0 million of accrued interest and penalties as of December 31, 2017, 2016 and 2015, respectively. Interest and penalties related to unrecognized tax benefits are recorded in the provision for income taxes and were $2.3 million, $3.9 million and $2.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. The amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is approximately $76.0 million.

As of December 31, 2017, it is reasonably possible that $3.3 million of unrecognized tax benefits may be recognized by the end of 2018 as a result of the expiration of local statutes of limitations. Certain state and foreign income tax returns from 2011 through 2016 are currently under audit, including the Commonwealth of Massachusetts.