NOTE 10: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. Our U.S. federal income tax returns for 2015 and 2017 remain open for examination. During the current quarter, the IRS completed its examination of our 2016 federal income tax return. As a result, we consider 2016 to be closed for federal income tax purposes. Our U.S. federal income tax returns for 2014 and all prior periods are closed. With respect to state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

On December 22, 2017, the U.S. government enacted legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Legislation), which made broad and complex changes to the U.S. tax code that impacted our financial statements, the most significant being a reduction in the U.S. federal corporate income tax rate from 35% to 21% and the imposition of a one-time transition tax on certain earnings of foreign subsidiaries. In addition, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin 118 (SAB 118), which provided guidance on accounting for the tax effects of Tax Legislation. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Legislation’s enactment date for companies to complete their analysis and apply the provisions of Tax Legislation to their financial statements. During fiscal year 2019, we completed our accounting for all aspects of the Tax Legislation and our financial statements reflect the final effects of the Tax Legislation in computing our deferred taxes, the one-time transition tax, the tax on global intangible low taxed income (GILTI), unrecognized tax benefits, and the indirect impacts of the Tax Legislation on state and local taxes. The adjustments during the year were immaterial to the provisional amounts previously recorded. We have elected to account for GILTI as a period cost at the time it is incurred.

The components of income from continuing operations upon which domestic and foreign income taxes have been provided are as follows:



(in 000s)
Year ended April 30,	2019		2018		2017
Domestic	$	389,319	$	547,101	$	535,378
Foreign	155,841		121,631		93,909
	$	545,160	$	668,732	$	629,287

We operate in multiple income tax jurisdictions both within the United States and internationally. Accordingly, management must determine the appropriate allocation of income to each of these jurisdictions based on transfer pricing analyses of comparable companies and predictions of future economic conditions. Although these intercompany transactions reflect arm’s length terms and the proper transfer pricing documentation is in place, transfer pricing terms and conditions may be scrutinized by local tax authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing statutory tax rates.

The reconciliation between the income tax provision and the amount computed by applying the statutory U.S. federal tax rate to income taxes of continuing operations is as follows:



Year ended April 30,	2019		2018		2017
U.S. statutory tax rate	21.0	%	21.0	%	35.0	%
Change in tax rate resulting from:
State income taxes, net of federal income tax benefit	2.3	%	2.2	%	1.6	%
Earnings taxed in foreign jurisdictions	(2.7	)%	(4.9	)%	(4.6	)%
Permanent differences	0.3	%	0.4	%	(0.4	)%
Uncertain tax positions	(2.3	)%	3.6	%	4.3	%
Remeasurement of deferred tax assets and liabilities	0.2	%	(2.6	)%	—	%
Tax benefit due to effective date of statutory rate change	—	%	(15.9	)%	—	%
One-time transition tax	—	%	2.9	%	—	%
Tax deductible write-down of foreign investment	—	%	(2.4	)%	—	%
Change in valuation allowance - domestic	0.4	%	1.1	%	(0.1	)%
Change in valuation allowance - foreign	(0.8	)%	2.9	%	0.3	%
Other	(0.1	)%	(2.0	)%	(3.0	)%
Effective tax rate	18.3	%	6.3	%	33.1	%

The increase in the effective tax rate compared to the prior year is due to the impact of the reduction in the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, had in fiscal year 2018. The impact of the rate decrease was exaggerated in fiscal year 2018 due to the seasonality of our business and our differing year ends for corporate income tax filing and financial reporting purposes, which is included as "tax benefit due to effective date of statutory rate change" in the table above. Our tax returns for the U.S. are filed on a calendar year-end basis. Therefore, pretax losses for the eight months ended December 31, 2017 resulted in income tax benefits based on the statutory rate of 35% while the pretax income generated in the four months ended April 30, 2018 was taxed at the statutory rate of 21%. The 21% corporate rate was effective for the entire fiscal year-end 2019.

The components of income tax expense (benefit) for continuing operations are as follows:



(in 000s)
Year ended April 30,	2019			2018			2017
Current:
Federal	$	74,993		$	(53,630	)	$	147,961
State	12,345			25,240			15,118
Foreign	6,711			9,953			10,678
	94,049			(18,437		)	173,757
Deferred:
Federal	6,625			50,505			39,299
State	(1,070		)	24,666			(5,064		)
Foreign	300			(14,911		)	378
	5,855			60,260			34,613
Total income taxes for continuing operations	$	99,904		$	41,823		$	208,370

The negative current federal income tax in fiscal year 2018 was primarily driven by the decrease in the federal income tax rate combined with the seasonality of our business and the differing year ends for corporate income tax filing and financial reporting purposes.

The net loss from discontinued operations for fiscal years 2019, 2018 and 2017 totaled $22.7 million, $13.8 million and $12.0 million, respectively, and was net of tax benefits of $6.8 million, $7.0 million and $7.0 million, respectively.

The significant components of deferred tax assets and liabilities are reflected in the following table:



(in 000s)
As of April 30,	2019			2018
Deferred tax assets:
Accrued expenses	$	4,479		$	3,847
Deferred revenue	9,603			9,482
Allowance for credit losses and related reserves	25,849			25,058
Internally-developed software	4,588			15,741
Deferred and stock-based compensation	5,970			4,526
Net operating loss carry-forward	72,618			69,567
Federal tax benefits related to state unrecognized tax benefits	20,141			15,738
Intangibles - intellectual property	93,300			—
Valuation allowance	(47,070		)	(49,215		)
Total deferred tax assets	189,478			94,744

Deferred tax liabilities:
Prepaid expenses and other	(8,592		)	(8,986		)
Property and equipment	(9,726		)	(7,944		)
Intangibles	(59,477		)	(61,226		)
Total deferred tax liabilities	(77,795		)	(78,156		)

Net deferred tax assets	$	111,683		$	16,588

Net deferred tax assets increased by $95.1 million during the current period primarily due to the adoption of ASU 2016-16, which is reflected by the increase in "intangibles - intellectual property" in the table above. See note 1 for additional information.

A reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the consolidated balance sheets is as follows:



(in 000s)
As of April 30,	2019			2018
Deferred income tax assets	$	130,609		$	29,455
Deferred tax liabilities	(18,926		)	(12,867		)
Net deferred tax asset	$	111,683		$	16,588

Changes in our valuation allowance for fiscal years 2019, 2018 and 2017 are as follows:



(in 000s)
Year ended April 30,	2019			2018		2017
Balance, beginning of the year	$	49,215		$	22,844	$	21,515
Additions:
Charged to costs and expenses	2,302			26,371		3,281
Charged to other accounts	—			—		—
Deductions	(4,447		)	—		(1,952		)
Balance, end of the year	$	47,070		$	49,215	$	22,844

Our valuation allowance on deferred tax assets (DTAs) decreased $2.1 million during the current period. The gross decrease in valuation allowance of $4.4 million was entirely offset by a write-off of certain net operating loss (NOL) DTAs primarily related to foreign losses no longer available to be utilized in future years. The $2.3 million increase in valuation allowance is a result of the expiration of certain state NOLs prior to usage.

Certain of our subsidiaries file stand-alone returns in various state, local and foreign jurisdictions, and others join in filing consolidated or combined returns in such jurisdictions. As of April 30, 2019, we had NOLs in various states and foreign jurisdictions. The amount of state and foreign NOLs vary by taxing jurisdiction. We maintain a valuation allowance of $24.2 million on state NOLs and $22.9 million on foreign NOLs for the portion of such losses that, more likely than not, will not be realized. Of the $25.5 million of net NOL DTAs, $3.2 million will expire in varying amounts during fiscal years 2020 through 2039 and the remaining $22.3 million has no expiration.

We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries; therefore, no provision has been made for income taxes that might be payable upon remittance of such earnings. The amount of unrecognized tax liability on these foreign earnings, net of expected foreign tax credits, is immaterial as of April 30, 2019.

Changes in unrecognized tax benefits for fiscal years 2019, 2018 and 2017 are as follows:



(in 000s)
Year ended April 30,	2019			2018			2017
Balance, beginning of the year	$	186,061		$	149,943		$	111,514
Additions based on tax positions related to prior years	9,937			6,657			14,743
Reductions based on tax positions related to prior years	(42,647		)	(25,259		)	(8,469		)
Additions based on tax positions related to the current year	38,611			68,292			33,264
Reductions related to settlements with tax authorities	(2,025		)	(637		)	(293		)
Expiration of statute of limitations	(4,793		)	(12,936		)	(989		)
Other	—			1			173
Balance, end of the year	$	185,144		$	186,061		$	149,943

The total gross unrecognized tax benefit ending balance as of April 30, 2019, 2018 and 2017, includes $122.5 million, $132.4 million and $118.2 million, respectively, which if recognized, would impact our effective tax rate. The difference results from adjusting the gross balances for such items as federal, state and foreign deferred items, interest and deductible taxes. Reductions from prior year are primarily related to settlements with taxing authorities and expirations of statute of limitations.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $27.0 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

Interest and penalties, if any, accrued on the unrecognized tax benefits are reflected in income tax expense. The total gross interest and penalties accrued as of April 30, 2019, 2018 and 2017 totaled $22.4 million, $18.7 million and $21.0 million, respectively.