INCOME TAXES

The Company is included within IAC’s tax group for purposes of federal and consolidated state income tax return filings. In all periods presented, current and deferred income tax benefit and provision have been computed for the Company on an as if standalone, separate return basis. The Company’s payments to IAC for its share of IAC’s consolidated federal and state tax return liabilities have been reflected within cash flows from operating activities in the accompanying consolidated and combined statement of cash flows. The tax sharing agreement between the Company and IAC governs the parties’ respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to the Company, entitlement to refunds, allocation of tax attributes and other matters. Any differences between taxes currently due or receivable under the tax sharing agreement and the current tax provision computed on an as if standalone, separate return basis for GAAP are payable to or receivable from IAC and are reflected as adjustments to additional paid-in capital or, for periods prior to the Combination, invested capital.

U.S. and foreign earnings (loss) before income taxes and noncontrolling interests are as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
U.S.	$	82,652		$	(132,000	)	$	27,284
Foreign	(12,628		)	(21,633		)	(4,819		)
Total	$	70,024		$	(153,633	)	$	22,465

The components of the income tax (benefit) provision are as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Current income tax provision (benefit):
Federal	$	—		$	(443	)	$	13,440
State	(20		)	21			2,274
Foreign	905			(334		)	(161		)
Current income tax provision (benefit)	885			(756		)	15,553

Deferred income tax benefit
Federal	(5,549		)	(38,587		)	(2,483		)
State	(1,100		)	(8,467		)	(775		)
Foreign	(1,719		)	(1,296		)	(461		)
Deferred income tax benefit	(8,368		)	(48,350		)	(3,719		)
Income tax (benefit) provision	$	(7,483	)	$	(49,106	)	$	11,834

The current income tax provision for the year ended December 31, 2018 includes a $26.6 million tax benefit for excess tax deductions attributable to stock-based compensation. Of this amount, $14.5 million reduced taxes payable and $12.1 million, which is due to IAC pursuant to the tax sharing agreement, reduced additional paid-in capital. For the year ended December 31, 2017, the deferred tax asset for net operating losses ("NOLs") was increased by $35.8 million for excess tax deductions attributable to stock-based compensation and the related income tax benefits were recorded as components of the respective deferred income tax benefit. The current income tax payable was reduced by $7.7 million for the year ended December 31, 2016 for excess tax deductions attributable to stock-based compensation and the related income tax benefit was recorded as an increase to additional paid-in capital or, for periods prior to the Combination, invested capital.

The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are presented below. The valuation allowance relates to deferred tax assets for which it is more likely than not that the tax benefit will not be realized.



	December 31,
	2018			2017
	(In thousands)
Deferred tax assets:
NOL carryforwards	124,877			135,042
Stock-based compensation	35,991			34,408
Deferred revenue	939			10,924
Other	13,847			11,692
Total deferred tax assets	175,654			192,066
Less valuation allowance	(58,903		)	(61,563		)
Net deferred tax assets	116,751			130,503

Deferred tax liabilities:
Intangibles	(30,501		)	(44,148		)
Indefinite lived intangibles	(45,221		)	(41,079		)
Other	(4,000		)	(179		)
Total deferred tax liabilities	(79,722		)	(85,406		)
Net deferred tax assets	$	37,029		$	45,097

The portion of the December 31, 2018 deferred tax assets that will be payable to IAC pursuant to the tax sharing agreement, upon realization, is $54.7 million.

At December 31, 2018, the Company has federal and state NOLs of $282.1 million and $317.8 million, respectively. If not utilized, the federal NOLs will expire between 2027 and 2037 and the state NOLs will expire at various times primarily between 2027 and 2037. Federal and state NOLs of $80.7 million and $60.3 million, respectively, can be used against future taxable income without restriction and the remaining NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, separate return limitations, and applicable state law. At December 31, 2018, the Company has foreign NOLs of $293.9 million available to offset future income. Of these foreign NOLs, $270.7 million can be carried forward indefinitely and $23.1 million, if not utilized, will expire at various times between 2022 and 2038. During 2018, the Company recognized tax benefits related to NOLs of $4.8 million.

At December 31, 2018, the Company has tax credit carryforwards of $5.4 million relating to federal and state tax credits for research activities. Of these credit carryforwards, $0.6 million can be carried forward indefinitely and $4.8 million will expire between 2033 and 2038.

The Company regularly assesses the realizability of deferred tax assets considering all available evidence including, to the extent applicable, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, tax filing status, the duration of statutory carryforward periods, available tax planning and historical experience. At December 31, 2018, the Company has a U.S. gross deferred tax asset of $116.5 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $33.8 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $82.7 million will be utilized based on forecasts of future taxable income.

During 2018, the Company’s valuation allowance decreased by $2.7 million primarily due to the utilization of state net operating losses. At December 31, 2018, the Company has a valuation allowance of $58.9 million related to the portion of NOLs and other items for which it is more likely than not that the tax benefit will not be realized.

A reconciliation of the income tax (benefit) provision to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Income tax provision (benefit) at the federal statutory rate of 21% (35% for 2017 and 2016)	$	14,705		$	(53,771	)	$	7,862
State income taxes, net of effect of federal tax benefit	4,702			(3,678		)	1,063
Stock-based compensation	(25,184		)	(32,702		)	—
Unbenefited losses	2,227			5,915			2,592
Deferred tax adjustment for enacted changes in tax law and rates	(1,431		)	33,002			—
Research credit	(1,169		)	(784		)	(930		)
Other, net	(1,333		)	2,912			1,247
Income tax (benefit) provision	$	(7,483	)	$	(49,106	)	$	11,834

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	December 31,
	2018		2017		2016
	(In thousands)
Balance at January 1	$	1,548	$	602	$	1,863
Additions based on tax positions related to the current year	411		235		279
Additions for tax positions of prior years	397		711		—
Reductions for tax positions of prior years	—		—		(263		)
Settlements	—		—		(1,277		)
Balance at December 31	$	2,356	$	1,548	$	602

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At both December 31, 2018 and December 31, 2017, accruals for interest and penalties are not material.

The Company is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC’s federal income tax returns for the years ended December 31, 2010 through 2016, which includes the operations of the HomeAdvisor business. The statute of limitations for the years 2010 through 2015 has been extended to December 31, 2019. Returns filed in various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include unrecognized tax benefits considered sufficient to pay assessments that may result from examination of prior year tax returns. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may not accurately anticipate actual outcomes and, therefore, may require periodic adjustment. Although management currently believes changes in unrecognized tax benefits from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided will not have a material impact on liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

At December 31, 2018 and 2017, unrecognized tax benefits are $2.4 million and $1.5 million respectively, including tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at December 31, 2018 are subsequently recognized, income tax provision would be reduced by $1.9 million. The comparable amount as of December 31, 2017 is $1.5 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $1.0 million by December 31, 2019, due to potential settlements; $1.0 million of which would reduce the income tax provision.

On December 22, 2017, the U.S. enacted the Tax Act. The Tax Act implemented a number of changes that took effect on January 1, 2018, including but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21% and a new minimum tax on global intangible low-taxed income earned by foreign subsidiaries. The Company was able to make a reasonable estimate of the impacts of the Tax Act in the fourth quarter of 2017 as described below. In the third quarter of 2018, the Company finalized its calculations related to the impacts of the Tax Act with no adjustment in 2018 to the Company’s previously recorded provisional tax expense.

The Company's income tax benefit for the year ended December 31, 2017, includes a tax expense of $33.0 million related to the Tax Act, for the remeasurement of U.S. net deferred tax assets due to the reduction in the corporate income tax rate. The Company was not subject to the one-time transition tax because it has cumulative losses from its international operations.