5. Income Taxes

Income before taxes is summarized as follows:



	Year Ended December 31,
(in thousands)	2018		2017		2016
United States operations	$	106,222	$	135,177	$	128,072
Foreign and U.S. territory operations		26,391		18,798		21,043
Total	$	132,613	$	153,975	$	149,115

The income tax expense (benefit) is as follows:



	Year Ended December 31,
(in thousands)	2018		2017		2016
Current expense:
Federal	$	21,055	$	12,329	$	43,850
State		8,676		6,763		13,039
Foreign and U.S. territories		5,550		3,435		6,573
Total current expense		35,281		22,527		63,462

Deferred expense (benefit):
Federal		(1,773)		(30,021)		(3,054)
State		1,278		5,560		(5,302)
Foreign and U.S. territories		46		1,365		(1,813)
Total deferred expense (benefit)		(449)		(23,096)		(10,169)
Total expense (benefit)	$	34,832	$	(569)	$	53,293

The following table is a reconciliation of the Company’s income tax provision at the statutory rates to the income tax expense (benefit) at the Company’s effective rate:




	Year Ended December 31,
	2018				2017				2016
(dollars in thousands)	Amount		Rate		Amount		Rate		Amount		Rate
Federal income tax expense at statutory tax rate	$	27,849	21.0	%	$	53,892	35.0	%	$	52,190	35.0	%
State income taxes, net of federal tax benefit		9,011	6.8			7,753	5.0			4,614	3.1
Impact of federal tax law change		211	0.2			(53,348)	(34.6)			—	—
Officers' compensation		3,078	2.3			2,622	1.7			3,807	2.6
Domestic production activities deduction		—	—			(2,668)	(1.7)			(4,018)	(2.7)
Noncontrolling interest		(3,232)	(2.4)			(2,137)	(1.4)			—	—
Federal R&D credits		(2,658)	(2.0)			(470)	(0.4)			(669)	(0.5)
Reversal of reserve for uncertain tax positions and taxes payable due to statute expirations		(1,958)	(1.5)			(4,337)	(2.8)			—	—
Other		2,531	1.9			(1,876)	(1.2)			(2,631)	(1.8)
Income tax expense (benefit)	$	34,832	26.3	%	$	(569)	(0.4)	%	$	53,293	35.7	%

On December 22, 2017, the U.S. government enacted the TCJA which made broad and complex changes to the U.S. tax code that impact the Company’s financial statements, including, but not limited to, a permanent decrease in the corporate federal statutory income tax rate from 35% to 21%, effective January 1, 2018, and a one-time transition tax from the inclusion of foreign earnings. Future distributions from foreign subsidiaries, however, are no longer subject to federal income tax.

As a result of the TCJA, the Company recognized an income tax benefit of $53.3 million in 2017, primarily due to the remeasurement of deferred tax assets and liabilities based on the reduced corporate federal statutory income tax rate of 21%.

In accordance with ASU 2018-05, the Company recorded a provisional amount for its one-time transition tax liability in 2017 which was not material. As of December 31, 2018 the Company has completed the accounting for the impacts of the TCJA and there were no material changes to the provisional amounts recorded in 2017.

The following is a summary of the significant components of the deferred tax assets and liabilities:



	As of December 31,
(in thousands)	2018		2017
Deferred tax assets:
Timing of expense recognition	$	20,832	$	22,730
Net operating losses		8,611		8,590
Other, net		18,828		15,618
Deferred tax assets		48,271		46,938
Valuation allowance		(1,150)		(381)
Net deferred tax assets		47,121		46,557
Deferred tax liabilities:
Intangible assets, due primarily to purchase accounting		(36,862)		(30,019)
Fixed assets, due primarily to purchase accounting		(75,998)		(73,833)
Construction contract accounting		(9,435)		(17,539)
Joint ventures		(9,853)		(11,343)
Other		(20,411)		(22,263)
Deferred tax liabilities		(152,559)		(154,997)

Net deferred tax liabilities	$	(105,438)	$	(108,440)

The Company had net operating loss carryforwards in various state tax jurisdictions totaling approximately $93.9 million as of December 31, 2018, with expiration dates ranging from 2020 to 2035.

The net deferred tax liabilities are presented in the Consolidated Balance Sheets as follows:



	As of December 31,
(in thousands)	2018		2017
Deferred tax assets	$	83	$	64
Deferred tax liabilities		(105,521)		(108,504)
Net deferred tax liabilities	$	(105,438)	$	(108,440)

Prior to 2017, the Company did not provide for deferred income taxes or foreign withholding tax on basis differences in its non-U.S. subsidiaries that result from undistributed earnings which the Company had the intent and the ability to reinvest in its foreign operations. Due to the enactment of the TCJA, the Company no longer intends to permanently reinvest in its foreign subsidiaries.

The Company’s policy is to record interest and penalties on unrecognized tax benefits as an element of income tax expense. The cumulative amounts related to interest and penalties are added to the total unrecognized tax liabilities on the balance sheet. The total amount of gross unrecognized tax benefits as of December 31, 2018 that, if recognized, would affect the effective tax rate is $5.0 million. During 2018, the Company recognized a net decrease of $1.5 million in liabilities. The amount of gross unrecognized tax benefits as of December 31, 2017 was $6.5 million. During 2017, the Company recognized a net decrease of $1.1 million in liabilities. The amount of gross unrecognized tax benefits as of December 31, 2016 was $7.6 million. During 2016, the Company recognized a net increase of $4.0 million in liabilities. The Company does not expect any significant release of unrecognized tax benefits within the next twelve months.

The Company accounts for its uncertain tax positions in accordance with GAAP. The following is a reconciliation of the beginning and ending amounts of these tax benefits for the three years ended December 31, 2018:



	As of December 31,
(in thousands)	2018		2017		2016
Beginning balance	$	6,495	$	7,574	$	3,612
Change in tax positions of prior years		(302)		(1,207)		3,543
Change in tax positions of current year		763		128		419
Reduction in tax positions for statute expirations		(1,958)		—		—
Ending Balance	$	4,998	$	6,495	$	7,574

The Company conducts business internationally and, as a result, one or more of its subsidiaries files income tax returns in U.S. federal, U.S. state and certain foreign jurisdictions. Accordingly, in the normal course of business, the Company is subject to examination by taxing authorities principally throughout the United States, Guam and Canada. The Company is no longer subject to examination by the taxing authority regarding any U.S. federal income tax returns for years before 2014 while the years open for examination under certain state and local jurisdictions vary.