INCOME TAXES

12 Months Ended

Dec. 31, 2019

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 provision/benefit have been computed for the Company on an as if standalone, separate return basis and payments to and refunds from IAC for the Company's share of IAC’s consolidated federal and state tax return liabilities/receivables calculated on this basis 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 and, therefore, ultimately governs the amount payable to or receivable from IAC with respect to income taxes. Any differences between taxes currently payable or receivable from IAC under the tax sharing agreement and the current tax provision computed on an as if standalone, separate return basis for GAAP are reflected as adjustments to additional paid-in capital and as financing activities within the statement of cash flows.

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



	Years Ended December 31,
	2019			2018			2017
	(In thousands)
U.S.	$	39,821		$	82,652		$	(132,000	)
Foreign	(6,175		)	(12,628		)	(21,633		)
Total	$	33,646		$	70,024		$	(153,633	)

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



	Years Ended December 31,
	2019			2018			2017
	(In thousands)
Current income tax provision (benefit):
Federal	$	(43	)	$	—		$	(443	)
State	819			(20		)	21
Foreign	806			905			(334		)
Current income tax provision (benefit)	1,582			885			(756		)

Deferred income tax benefit
Federal	(3,416		)	(5,549		)	(38,587		)
State	517			(1,100		)	(8,467		)
Foreign	(351		)	(1,719		)	(1,296		)
Deferred income tax benefit	(3,250		)	(8,368		)	(48,350		)
Income tax benefit	$	(1,668	)	$	(7,483	)	$	(49,106	)

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,
	2019			2018
	(In thousands)
Deferred tax assets:
NOL carryforwards	$	158,727		$	124,877
Stock-based compensation	33,613			35,991
Long-term lease liabilities	32,642			—
Other	26,226			14,786
Total deferred tax assets	251,208			175,654
Less valuation allowance	(71,472		)	(58,903		)
Net deferred tax assets	179,736			116,751

Deferred tax liabilities:
Intangible assets	(63,900		)	(75,722		)
Right-of-use assets	(24,836		)	—
Capitalized software, leasehold improvements and equipment	(12,377		)	(3,432		)
Capitalized costs to obtain a contract with a customer	(9,400		)	—
Other	(83		)	(568		)
Total deferred tax liabilities	(110,596		)	(79,722		)
Net deferred tax assets	$	69,140		$	37,029

The portion of the December 31, 2019 deferred tax assets that will be payable to IAC pursuant to the tax sharing agreement, upon realization, is $75.7 million.

At December 31, 2019, the Company has federal and state NOLs of $372.2 million and $365.8 million, respectively. If not utilized, the federal NOLs will expire between 2030 and 2037 and the state NOLs will expire at various times primarily between 2025 and 2039. Federal and state NOLs of $121.2 million and $55.8 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, 2019, the Company has foreign NOLs of $322.4 million available to offset future income. Of these foreign NOLs, $298.0 million can be carried forward indefinitely and $24.4 million, if not utilized, will expire at various times between 2020 and 2039. During 2019, the Company recognized tax benefits related to NOLs of $28.2 million. Included in this amount is $26.9 million of tax benefits of acquired attributes which was recorded as a reduction to goodwill.

At December 31, 2019, the Company has tax credit carryforwards of $11.7 million relating to federal and state tax credits for research activities. Of these credit carryforwards, $0.6 million can be carried forward indefinitely and $11.0 million will expire between 2024 and 2039.

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, 2019, the Company has a U.S. gross deferred tax asset of $177.7 million that the Company expects to fully utilize on a more likely than not basis. Of this amount, $61.8 million will be utilized upon the future reversal of deferred tax liabilities and the remaining net deferred tax asset of $115.9 million will be utilized based on forecasts of future taxable income.

During 2019, the Company’s valuation allowance increased by $12.6 million primarily due to an increase in foreign and state net operating losses. At December 31, 2019, the Company has a valuation allowance of $71.5 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,
	2019			2018			2017
	(In thousands)
Income tax provision (benefit) at the federal statutory rate of 21% (35% for 2017)	$	7,066		$	14,705		$	(53,771	)
State income taxes, net of effect of federal tax benefit	2,693			4,702			(3,678		)
Stock-based compensation	(12,768		)	(25,184		)	(32,702		)
Research credit	(3,308		)	(1,169		)	(784		)
Unbenefited losses	1,523			2,227			5,915
Deferred tax adjustment for enacted changes in tax law and rates	502			(1,431		)	33,002
Other, net	2,624			(1,333		)	2,912
Income tax benefit	$	(1,668	)	$	(7,483	)	$	(49,106	)

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



	December 31,
	2019		2018		2017
	(In thousands)
Balance at January 1	$	2,356	$	1,548	$	602
Additions based on tax positions related to the current year	1,325		411		235
Additions for tax positions of prior years	344		397		711
Balance at December 31	$	4,025	$	2,356	$	1,548

The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At December 31, 2019 and 2018, 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 2012 has been extended to November 30, 2020 and the statute of limitations for years 2013 through 2015 has been extended to December 31, 2020. 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, 2019 and 2018, unrecognized tax benefits are $4.1 million and $2.4 million respectively, including tax positions included in IAC’s consolidated tax return filings. If unrecognized tax benefits at December 31, 2019 are subsequently recognized, income tax provision would be reduced by $4.0 million. The comparable amount as of December 31, 2018 is $2.4 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by $1.4 million by December 31, 2020, due to potential settlements; $1.2 million of which would reduce the income tax provision.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (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 had cumulative losses from its international operations.