Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income before provision for income taxes were as follows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	2020		2019		2018
U.S.	$	45,074	$	24,253	$	(27,379)
Foreign	571,008		508,228		370,468
Income before provision for income taxes	$	616,082	$	532,481	$	343,089

The provision for income taxes consisted of the following for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	2020		2019		2018
Current tax (benefit) provision:
Federal	$	(1,765)	$	(22,704)	$	(29,982)
State	5,346		3,835		8,085
Foreign	76,162		71,286		64,274
Deferred tax (benefit) provision:
Federal	(19,845)		(13,987)		5,954
State	(14,509)		(12,212)		701
Foreign	(6,023)		4,968		(7,140)
Change in valuation allowance	6,556		22,164		2,824
Total	$	45,922	$	53,350	$	44,716

The Company’s effective tax rate differed from the U.S. federal statutory tax rate as follows for the years ended December 31, 2020, 2019 and 2018:

	2020		2019		2018
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State taxes	1.0		1.0		1.2
Stock-based compensation	(0.6)		0.3		1.0
U.S. federal, state and foreign research and development credits	(4.4)		(6.0)		(7.6)
Foreign earnings	(7.7)		(6.1)		(6.0)
Nondeductible (nontaxable) foreign items	(0.4)		0.7		0.4
Impact of U.S. Tax Cuts and Jobs Act, net	—		—		(0.8)
Release of uncertain tax position reserve	(0.9)		(5.9)		(1.9)
Intercompany sale of intellectual property	0.2		1.9		3.3
Valuation allowance	1.1		4.2		0.8
Other	(1.8)		(1.1)		1.6
	7.5	%	10.0	%	13.0	%

The components of the net deferred tax assets and liabilities and the related valuation allowance as of December 31, 2020 and 2019 were as follows (in thousands):

	2020		2019
Accrued bonus	$	25,480	$	25,487
Deferred revenue	11,146		3,874
Operating lease liability	141,212		147,375
Stock-based compensation	23,629		20,606
NOLs	25,255		25,851
Unrealized losses	—		1,529
Tax credit carryforwards	110,254		87,305
Convertible senior notes interest	20,953		22,506
Other	11,531		12,501
Deferred tax assets	369,460		347,034
Depreciation and amortization	(6,974)		(16,896)
Acquired intangible assets	(59,128)		(51,758)
Operating lease right-of-use asset	(127,524)		(132,949)
Deferred commissions	(14,952)		(14,843)
Internal-use software development costs capitalized	(58,820)		(57,201)
Deferred tax liabilities	(267,398)		(273,647)
Valuation allowance	(32,602)		(26,046)
Net deferred tax assets	$	69,460	$	47,341

Valuation allowances will be recognized on deferred tax assets if it is more-likely-than-not that some or all of the deferred tax assets will not be utilized. In measuring deferred tax assets, the Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is needed. As of December 31, 2020, the Company recorded a $32.6 million valuation allowance against deferred tax assets related to tax credits and state and foreign NOLs in which it is more-likely-than-not that such attributes will expire prior to utilization. The change in the valuation allowance during 2020 was $6.6 million.

The table below summarizes the Company's NOL and tax credit carryforwards in federal, state and foreign jurisdictions as of December 31, 2020 and 2019 (in thousands, except for years):

	2020		2019		Expirations at Various Dates Through:
NOL carryforwards:
Federal	$	59,200	$	87,500	2037
State	24,800		20,500		2040
Foreign	40,800		11,600		—
Federal and state research and development tax credit and other credit carryforwards	132,800		88,570		2034

The Company's U.S. federal and state NOL carryforwards relate to acquisitions completed in 2019, 2017 and 2012. Foreign NOL carryforwards relate to losses due to the difference in local tax laws.

As of December 31, 2020, accumulated earnings outside the U.S. totaled $985.7 million, the majority of which have been taxed due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings and the tax on global intangible low taxed income required by the U.S. Tax Cuts and Jobs Act ("TCJA"). No provision for U.S. income and foreign withholding taxes has been provided for any remaining undistributed foreign earnings not subject to tax under the TCJA, 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, 2020, 2019 and 2018 (in thousands):

	2020		2019		2018
Balance at beginning of year	$	27,359	$	64,892	$	85,845
Gross increases – tax positions of prior periods	2,539		74		2,704
Gross increases – current period tax positions	1,946		2,006		3,021
Gross decreases – tax positions of prior periods	(3,540)		(5,201)		(15,287)
Gross decreases – lapse of applicable statute of limitations	(4,199)		(28,672)		(6,186)
Gross decreases – settlements	—		(5,740)		(5,205)
Balance at end of year	$	24,105	$	27,359	$	64,892

As of December 31, 2020, 2019 and 2018, the Company had $29.5 million, $32.6 million and $67.8 million of unrecognized tax benefits, respectively. Total interest and penalties for unrecognized tax benefits include $7.7 million, $7.8 million and $11.8 million as of December 31, 2020, 2019 and 2018, respectively. Interest and penalties related to unrecognized tax benefits are recorded in the provision for income taxes and were $1.2 million, $1.1 million and $1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. The amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is approximately $29.5 million.

As of December 31, 2020, it is reasonably possible that $9.6 million of unrecognized tax benefits may be recognized within the next 12 months due to the expiration of local statutes of limitations. Certain U.S. state and foreign income tax returns from 2011 through 2019 are currently under audit. The Company has reserved for those positions that are not more-likely-than-not to be sustained.

The Company is also involved in litigation related to certain adverse audit determinations. In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board contesting the adverse audit findings related to certain tax benefits and exemptions. The appeal hearing was held in late 2019. In July 2020, the Massachusetts Appellate Tax Board ruled in the Company's favor; however the decision is eligible for appeal by the Massachusetts Department of Revenue. The Company has determined that it is more-likely-than-not that it will prevail, and no reserve has been recorded related to these controversies. However, over the next 12 months, the Company's current assumptions and positions could change based on potential appeal decisions and other events impacting its analysis. Such events, if resolved unfavorably, could significantly impact the Company’s effective income tax rate and results of operations. The Company has estimated that an adverse ruling related to its Massachusetts controversy could result in an gross income tax charge of approximately $41.0 million, which could be partially offset by certain state tax credits of $27.0 million which are not currently benefited as a result of the Company's valuation allowance assessment.