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Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The effective income tax rate is based on estimated income for the year, the estimated composition of the income in different jurisdictions and discrete adjustments, if any, in the applicable quarterly periods. Potential discrete adjustments include tax charges or benefits related to stock-based compensation, changes in tax legislation, settlements of tax audits or assessments, uncertain tax positions and acquisitions, among other items.

The Company is currently under audit in multiple jurisdictions and, in certain cases, is involved in litigation related to adverse audit determinations.  In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board contesting adverse audit findings related to certain tax benefits and exemptions. Over the next 12 months, the Company’s current assumptions and positions could change based on audit determinations and other events impacting its analysis. Such events, if resolved unfavorably, could significantly impact the Company’s effective income tax rate.

The Company’s effective income tax rate was 11.2% and 30.8% for the nine months ended September 30, 2018 and 2017, respectively. The lower effective tax rate for the nine months ended September 30, 2018, is primarily due to a reduction in the U.S. federal statutory tax rate from 35.0% to 21.0% as part of the TCJA, an increase in the excess tax benefit related to stock-based compensation and a decrease in the provisional amount of the one-time transition tax that was recorded in the fourth quarter of 2017. These amounts were partially offset by U.S. federal taxes on Global Intangible Low-Taxed Income (“GILTI”) enacted as part of the TCJA and an intercompany sale of intellectual property.

For the nine months ended September 30, 2018, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation, a decrease in the provisional amount of the one-time transition tax that was recorded in the fourth quarter of 2017, the release of certain tax reserves related to the expiration of local statutes and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by U.S. federal taxes on GILTI enacted as part of the TCJA and an intercompany sale of intellectual property.

For the nine months ended September 30, 2017, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits, partially offset by the effects of accounting for stock-based compensation in accordance with the authoritative guidance for share-based payments and state income taxes.

As of September 30, 2018, the Company has not finalized the accounting for all of the tax effects of the TCJA. However, upon further analysis of certain aspects of the TCJA and refinements to the calculations, the provisional estimate of the one-time transition tax, which was recorded in the Company’s consolidated financial statements for the year ended December 31, 2017, decreased by $5.5 million. This decrease in the provisional estimate has been included as a discrete item in the interim period ended September 30, 2018. The Company will continue to refine the provisional amounts of the tax effect of the TCJA as additional guidance and information is available, including clarity regarding state income tax conformity to the current federal tax code. Any further changes to the provisional estimate of the tax effect of the TCJA will be recorded in the period in which the adjustments are made and within the prescribed measurement period.

Beginning in 2018, the TCJA provides for a modified territorial tax system imposing an incremental tax on foreign income deemed to be taxed at a “low rate” (the aforementioned GILTI provisions). Under GAAP, an election must be made to either (1) treat taxes due related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factor such amounts into the measurement of deferred taxes (the “deferred method”). The Company is still evaluating the effects of these provisions and has not yet adopted a policy to account for the related impacts.

As of September 30, 2018, the Company believes it is reasonably possible that its gross unrecognized tax benefits could decrease within the next twelve months by $30.8 million as a result of the expiration of local statutes of limitations.