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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Domestic income before taxes was $16,039,000 in 2023, $48,546,000 in 2022, and $121,729,000 in 2021. Foreign income before taxes was $119,309,000 in 2023, $202,149,000 in 2022, and $197,171,000 in 2021.
Income tax expense consisted of the following (in thousands):
 Year Ended December 31,
 202320222021
Current:
Federal$29,084 $48,355 $27,870 
State3,544 5,689 5,372 
Foreign9,207 10,243 8,406 
41,835 64,287 41,648 
Deferred:
Federal(24,731)(40,772)(19,266)
State(5,877)(8,354)(769)
Foreign10,887 20,009 17,406 
(19,721)(29,117)(2,629)
$22,114 $35,170 $39,019 
A reconciliation of the U.S. federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:
 Year Ended December 31,
 202320222021
Income tax expense at U.S. federal statutory corporate tax rate21 %21 %21 %
State income taxes, net of federal benefit1 2 1 
Foreign tax rate differential(6)(7)(5)
Tax credits(3)(1)(2)
Taxation on multinational operations(3)— — 
Tax reserves3 1 — 
Limitation on deduction for executive compensation2 1 — 
Discrete tax expense related to employee stock-based compensation1 — (3)
Discrete tax expense related to tax return filings2 2 (1)
Discrete tax expense related to rate revaluation on state tax assets2 (2)— 
Discrete tax benefit related to GILTI adjustments
(2)(3)— 
Discrete tax benefit for release of valuation allowance(4)(1)— 
Discrete tax benefit for audit settlements— (1)— 
Other2 2 1 
Income tax expense16 %14 %12 %
Tax Reserves
The changes in gross amounts of unrecognized tax benefits, excluding interest and penalties, were as follows (in thousands):
Balance of reserve for income taxes as of December 31, 2020$13,952 
Reductions as a result of tax positions taken in prior periods(280)
Additions as a result of tax positions taken in prior periods100 
Additions as a result of tax positions taken in the current period525 
Reductions as a result of the expiration of the applicable statutes of limitations(485)
Balance of reserve for income taxes as of December 31, 202113,812 
Reductions as a result of tax positions taken in prior periods(119)
Additions as a result of tax positions taken in prior periods2,850 
Additions as a result of tax positions taken in the current period505 
Reductions relating to settlements with taxing authorities(2,329)
Reductions as a result of the expiration of the applicable statutes of limitations(1,072)
Balance of reserve for income taxes as of December 31, 202213,647 
Reductions as a result of tax positions taken in prior periods(242)
Additions as a result of tax positions taken in prior periods12,556 
Additions as a result of tax positions taken in the current period1,877 
Reductions relating to settlements with taxing authorities(1,230)
Reductions as a result of the expiration of the applicable statutes of limitations(894)
Balance of reserve for income taxes as of December 31, 2023$25,714 
The Company’s reserve for income taxes, including gross interest and penalties, was $29,053,000 as of December 31, 2023, of which $26,685,000 was classified as a non-current liability and $2,368,000 was classified as an offset to deferred tax assets. The Company's reserve for income taxes, including interest and penalties, was $15,866,000 as of December 31, 2022, which was classified as a non-current liability. The amount of gross interest and penalties included in these balances was $3,339,000 and $2,219,000 as of December 31, 2023 and 2022, respectively. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. As a result of the
expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $650,000 to $1,000,000 over the next twelve months.
The Company has defined its major tax jurisdictions as the United States, Ireland, China, Japan, and Korea and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland, 25% in China, 34.6% in Japan, and 21% in Korea, compared to the U.S. federal statutory corporate tax rate of 21%. These differences resulted in a favorable impact to the effective tax rate of 6 percentage points for 2023, 7 percentage points for 2022, and 5 percentage points for 2021. Management has determined that earnings from its legal entity in China will be indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested. In 2023, the Company qualified for a tax holiday in China, which is renewed every three years. The tax effect of this benefit, derived from the tax holiday, on basic and diluted earnings per share for 2023 was not material.
Within the United States, the tax years 2019 through 2022 remain open to examination by the Internal Revenue Service ("IRS") and various state taxing authorities. The tax years 2017 through 2022 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company is under audit by the Commonwealth of Massachusetts for the returns filed for tax years 2020 and 2021. In addition, the Company is under audit in Ireland for the returns filed for tax years 2019 through 2020. Management believes the Company is adequately reserved for these audits. The final determination of tax audits could result in favorable or unfavorable changes in our estimates. Any reserves associated with this audit period will not be released until the issue is settled or the audit is concluded.
Interest and penalties included in income tax expense were $1,032,000 in 2023, $229,000 in 2022, and $281,000 in 2021.
Cash paid for income taxes totaled $56,618,000 in 2023, $57,016,000 in 2022, and $49,435,000 in 2021.
Deferred Tax Assets and Liabilities
The tax effects of temporary differences and attributes that give rise to deferred income tax assets and liabilities as of December 31, 2023 and December 31, 2022 were as follows (in thousands):
December 31,
 20232022
Deferred tax assets:
Intangible asset in connection with change in tax structure$375,360 $386,221 
Stock-based compensation expense20,916 21,962 
Tax credit carryforwards7,848 8,284 
Inventory and revenue related10,897 8,117 
Bonuses, commissions, and other compensation6,243 5,116 
Depreciation1,840 4,881 
Foreign net operating losses339 53 
Capitalization of R&D expenses28,521 16,889 
Other5,514 15,102 
Total deferred tax assets457,478 466,625 
Valuation allowance(943)(7,661)
$456,535 $458,964 
Deferred tax liabilities:
Amortization$(28,685)$(2,762)
GILTI tax basis differences in connection with change in tax structure(274,327)(298,922)
$(303,012)$(301,684)
Net deferred taxes$153,523 $157,280 
Change in Tax Structure and Global Intangible Low-Taxed Income Tax
In 2019, the Company made changes to its international tax structure due to legislation by the European Union regarding low tax structures that resulted in an intercompany sale of intellectual property. As a result, the Company recorded an associated deferred tax asset of $437,500,000 in Ireland based on the fair value of the intellectual property that is being realized over fifteen years as future tax deductions. From a United States perspective, the sale was disregarded, and any future deductions claimed in Ireland are added back to taxable income as part of Global Intangible Low-Taxed Income ("GILTI") minimum tax. The Company recorded an associated deferred tax liability of $350,000,000, representing the GILTI minimum tax related to the fair value of the intellectual property.
Other Deferred Tax Assets and Liabilities
As of December 31, 2022, the Company recorded a deferred tax asset resulting from the capitalization of research and development expenditures. Beginning in 2022, the Tax Cuts and Jobs Act eliminates the option to deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years, as applicable, pursuant to Section 174 of the Internal Revenue Code.
As of December 31, 2023, the Company had foreign net operating loss carryforwards of $1,720,000, state tax credit carryforwards of $8,740,000 that will begin to expire for the 2031 tax return, and foreign tax credit carryforwards of $943,000.
As of December 31, 2023, the Company had a valuation allowance for foreign tax credits of $943,000 that was not considered to be realized. Should these credits be utilized in a future period, the reserve associated with these credits would be reversed in the period when it is determined that the credits can be utilized to offset future income tax liabilities.
As of December 31, 2023, the Company released the valuation allowance for state research and development tax credits of $5,427,000, as these credits are expected to be utilized to offset future state income tax liabilities.
While the deferred tax assets, net of valuation allowance, are not assured of realization, management has evaluated the realizability of these deferred tax assets and has determined that it is more likely than not that these assets will be realized. In reaching this conclusion, we have evaluated certain relevant criteria including the Company’s historical profitability, current projections of future profitability, and the lives of tax credits, net operating losses, and other carryforwards. Should the Company fail to generate sufficient pre-tax profits in future periods, we may be required to establish valuation allowances against these deferred tax assets, resulting in a charge to current operations in the period of determination.