INCOME TAXES

Pretax income were as follows:



	For the Year Ended
	June 29, 2019		June 30, 2018		June 24, 2017
	(in thousands)
Domestic pre-tax income	$	103,016	$	149,056	$	154,628
Foreign pre-tax income	651,405		675,829		524,961
Total	$	754,421	$	824,885	$	679,589

The provision (benefit) for income taxes consisted of the following:



	For the Year Ended
	June 29, 2019			June 30, 2018		June 24, 2017
	(in thousands)
Federal
Current	$	(114,494	)	$	318,288	$	107,303
Deferred	12,874			25,769		(8,171		)
State
Current	9,842			117		(361		)
Deferred	2,196			1,325		(436		)
Foreign
Current	17,562			11,450		8,930
Deferred	(1,045		)	618		711
Total provision (benefit) for income taxes	$	(73,065	)	$	357,567	$	107,976

A reconciliation of the Company's Federal statutory tax rate to the Company's effective tax rate is as follows:



	For the Year Ended
	June 29, 2019		June 30, 2018		June 24, 2017
Federal statutory rate	21.0	%	28.1	%	35.0	%
State tax, net of federal benefit	1.4		0.2		(0.2	)
General business credits	(0.9	)	(0.8	)	(1.3	)
Effect of foreign operations	(15.8	)	(16.7	)	(20.2	)
Stock-based compensation	0.7		0.4		0.1
Interest accrual for uncertain tax positions	1.1		2.1		2.1
Transition Tax	9.0		28.7		—
Global intangible low taxed income	7.4		—		—
Deferred tax remeasurement	—		1.6		—
Settlement of uncertain tax positions	(33.4	)	—		—
Other	(0.2	)	(0.3	)	0.4
Effective tax rate	(9.7	)%	43.3	%	15.9	%

On December 22, 2017 legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Act”), was enacted. The Act reduced the federal statutory tax rate from 35.0% to 21.0%, effective January 1, 2018, which results in federal statutory tax rates for the Company of 21.0%, 28.1% (average of a 35.0% rate for the first half of fiscal year 2018 and a 21.0% rate for the second half of fiscal year 2018) and 35.0% for fiscal years 2019, 2018 and 2017, respectively. In fiscal year 2018 the Company recorded a $13.7 million charge to remeasure deferred taxes as of the enactment date of the Act to reflect the federal statutory rate reduction.

The Act included a one-time tax on accumulated unremitted earnings of our foreign subsidiaries (“Transition Tax”). SEC Staff Accounting Bulletin No. 118 allowed the use of provisional amounts (reasonable estimates) if accounting for the income tax effects of the Act was not completed. Provisional amounts must be adjusted within a one-year measurement period from the enactment date of the Act. In the second quarter of fiscal year 2018, the Company recorded a $236.9 million provisional Transition Tax charge. During the measurement period the Company gathered information and analyzed available guidance and in the second quarter of fiscal year 2019 recorded a $22.1 million Transition Tax charge, which increased the Company’s fiscal year 2019 tax rate by 2.9%. As of the end of the second quarter of fiscal year 2019 accounting for the income tax effects of the Act was completed.

The Act included Global Intangible Low-Taxed Income (“GILTI”) provisions, which first impact the Company in fiscal year 2019. The GILTI provisions effectively subject income earned by the Company’s foreign subsidiaries to current U.S. tax at a rate of 10.5%, less foreign tax credits. The Company has elected to treat tax generated by the GILTI provisions as a period expense.

In fiscal year 2019, the Company reversed $221.5 million of uncertain tax position reserves and $30.1 million of related interest reserves, net of federal and state benefits, primarily due to the fiscal fourth quarter settlement of an audit of the Company’s fiscal year 2009 through fiscal year 2011 federal corporate income tax returns, which also settled intercompany buy-in license payment issues for fiscal years 2012 through 2019. $140.7 million of fiscal year 2009 through fiscal year 2018 advance tax payments made in June 2018 were applied to additional federal tax liabilities generated by the settlement. The reversal of uncertain tax position reserves for intercompany transfer pricing issues increased accumulated unremitted foreign earnings, which resulted in an additional Transition Tax charge of $47.7 million in the fiscal fourth quarter.

On June 18, 2019, the U.S. Treasury and the Internal Revenue Service released temporary regulations under Internal Revenue Code (“IRC”) Section 245A (“Section 245A”), as enacted by the Act, and IRC Section 954(c)(6) (the “Temporary Regulations”), which apply retroactively to intercompany dividends occurring after December 31, 2017. The Temporary Regulations limit the applicability of the foreign personal holding company income (“FPHCI”) look-through exception for certain intercompany dividends received by a controlled foreign corporation. Before application of the retroactive intercompany Temporary Regulations, the Company benefited in fiscal years 2018 and 2019 from the FPHCI look-through exception. The Company has analyzed the relevant Temporary Regulations and concluded that they were not validly issued. Therefore, the Company has not accounted for the effects of the retroactive Temporary Regulations in its results of operations for fiscal year 2019. The Company believes it has strong arguments in favor of its position and that it has met the more likely than not recognition threshold that its position will be sustained. The Company intends to vigorously defend its position, however, due to the uncertainty involved in challenging the validity of regulations as well as a potential litigation process, there can be no assurances that the relevant Temporary Regulations will be invalidated, modified or that a court of law will rule in favor of the Company. An unfavorable resolution of this issue could have a material adverse impact on the Company's results of operations and financial condition.

As of June 29, 2019, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately $368.0 million that are intended to be indefinitely reinvested outside the U.S. No deferred tax liability has been recognized for the repatriation of these earnings. At June 29, 2019 the unrecognized deferred tax liability on these earnings was $26.4 million.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's deferred tax assets and liabilities were as follows:



	June 29, 2019			June 30, 2018
	(in thousands)
Deferred tax assets:
Accrued compensation	$	7,990		$	8,361
Stock-based compensation	9,788			10,071
Net operating loss carryovers	40,067			40,989
Tax credit carryovers	93,269			90,968
Other reserves and accruals not currently deductible for tax purposes	21,584			29,903
Other	11,500			8,562
Total deferred tax assets	184,198			188,854

Deferred tax liabilities:
Fixed assets and intangible assets cost recovery, net	(52,567		)	(52,704		)
Unremitted earnings of foreign subsidiaries	(7,428		)	(1,532		)
Other	(3,712		)	(2,553		)
Total deferred tax liabilities	(63,707		)	(56,789		)

Net deferred tax assets before valuation allowance	120,491			132,065
Valuation allowance	(131,798		)	(128,128		)
Net deferred tax assets (liabilities)	$	(11,307	)	$	3,937

The valuation allowance as of June 29, 2019 and June 30, 2018 primarily relates to certain state and foreign net operating loss carryforwards and certain state tax credit carryforwards. The valuation allowance increased by $3.7 million in fiscal year 2019.

As of June 29, 2019, the Company has $16.7 million of federal net operating loss carryforwards expiring at various dates between fiscal years 2022 and 2033, $37.0 million of state net operating loss carryforwards expiring at various dates through fiscal year 2033, $132.2 million of foreign net operating loss carryforwards with no expiration date, $111.4 million of state tax credit carryforwards with no expiration date, and $6.6 million of state tax credit carryforwards expiring at various dates through fiscal year 2034.

The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non-current liability to the extent that payment is not anticipated within one year; or (iii) a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets such as operating loss or tax credit carryforwards or to the extent that operating loss or tax credit carryforwards would be able to offset the additional tax liability generated by unrecognized tax benefits.

A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as follows:



	For the Year Ended
	June 29, 2019			June 30, 2018			June 24, 2017
	(in thousands)
Balance as of beginning of year	$	591,458		$	539,569		$	482,745
Tax positions related to current year:
Addition	6,974			48,646			57,791
Tax positions related to prior year:
Addition	20,851			3,806			1,059
Reduction	(236,705		)	—			(1,410		)
Settlements	(161,847		)	—			—
Lapses in statutes of limitations	(334		)	(563		)	(616		)
Balance as of end of year	$	220,397		$	591,458		$	539,569

Prior year tax position activity in fiscal year 2019 includes the reversal of $221.5 million of tax reserves, primarily due to the settlement of an audit of the Company’s fiscal year 2009 through fiscal year 2011 federal corporate income tax returns, which also settled intercompany buy-in license payment issues for fiscal years 2012 through fiscal year 2019. Fiscal year 2019 settlements include $140.7 million of fiscal year 2009 through fiscal year 2018 advance tax payments made in June 2018 that were applied to additional federal tax liabilities generated by the federal tax audit settlement.

The total amount of gross unrecognized tax benefits as of June 29, 2019 that, if recognized, would affect the effective tax rate is $168.1 million. $52.3 million of unrecognized tax benefits would be offset by an increase in the valuation allowance for deferred tax assets and thus would not affect the effective tax rate.

The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.

The Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount, before the federal and state benefit, of interest and penalties recognized in income tax expense during the fiscal years ended June 29, 2019, June 30, 2018, and June 24, 2017 was $(30.2) million, $27.8 million and $22.4 million, respectively, and the total amount of interest and penalties accrued as of June 29, 2019, June 30, 2018, and June 24, 2017 was $31.7 million, $61.9 million, and $71.4 million, respectively.

The Company’s federal corporate income tax returns are audited on a recurring basis by the Internal Revenue Service (“IRS”). In fiscal year 2017, the IRS commenced an audit of the Company’s federal corporate income tax returns for fiscal years 2012 through 2014, which is ongoing. The Company expects that in fiscal year 2020 the IRS will commence an audit of the Company's federal corporate income tax returns for fiscal years 2015 through 2017.

A summary of the fiscal tax years that remain subject to examination, as of June 29, 2019, for the Company's major tax jurisdictions are as follows:



United States - Federal	2012	-	Forward
Ireland	2015	-	Forward