Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. Components of income before income taxes consist of the following:



	Year Ended December 31,
	2017		2016			2015
United States	$	1,964,759	$	1,650,959		$	1,665,087
Foreign	113,752		(321,144		)	(439,990		)
	$	2,078,511	$	1,329,815		$	1,225,097

Components of income tax expense consist of the following:



		Year Ended December 31,
		2017			2016			2015
Current:
	Federal	$	560,250		$	786,964		$	686,561
	State	(4,086		)	8,769			28,568
	Foreign	4,827			(1,362		)	4,004
	Total current tax expense	560,991			794,371			719,133
Deferred:
	Federal	317,064			(377,368		)	(119,849		)
	State	(1,258		)	13,431			(3,768		)
	Foreign	3,203			3,859			(6,475		)
	Total deferred tax expense (benefit)	319,009			(360,078		)	(130,092		)
		$	880,000		$	434,293		$	589,041

On December 22, 2017, the bill known as the "Tax Cuts and Jobs Act" (the "Act") was signed into law. The Act, which became effective with respect to most of its provisions as of January 1, 2018, significantly revises U.S. corporate income tax laws by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21%, changing the taxation of foreign earnings (including taxation of certain global intangible low-taxed income ("GILTI")), allowing immediate expensing for qualified assets, repealing the deduction for domestic manufacturing, and imposing further limitations on the deductibility of executive compensation. As a result of the Act being signed into law, the Company recognized a provisional charge of $326.2 million in the fourth quarter of 2017 related to the re-measurement of its U.S. net deferred tax assets at the lower enacted corporate tax rates. The provisional charge recorded in the fourth quarter of 2017 is an estimate, and the measurement of deferred tax assets is subject to further analysis, such as developing interpretations and clarifications of the provisions of the Act, which could result in changes to this estimate during 2018. In addition, the Company has not yet elected an accounting method regarding whether to record deferred tax assets and liabilities for expected amounts of GILTI inclusions or whether to treat such amounts as a period cost.

The Company elected to early adopt Accounting Standards Update 2016-09, Compensation -Stock Compensation, Improvements to Employee Share-Based Payment Accounting, during the second quarter of 2016. Consequently, in 2017 and 2016, the Company recorded excess tax benefits of $191.0 million and $144.8 million, respectively, within income tax expense. In 2015, the Company utilized $405.3 million of excess tax benefits in connection with stock option exercises, which were credited to additional paid-in capital as realized.

The Company also recorded an income tax provision in its Statement of Comprehensive Income of $24.9 million during the year ended December 31, 2015, primarily related to unrealized gains on available-for-sale marketable securities. Such amounts were not material for the years ended December 31, 2017 and 2016.

A reconciliation of the U.S. statutory income tax rate to the Company's effective income tax rate is as follows:



	Year Ended December 31,
	2017		2016		2015
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Impact of change in U.S. corporate tax rate (the Act)	15.7		—		—
Stock-based compensation	(9.0	)	(10.9	)	—
State and local income taxes	0.1		1.3		0.9
Taxation of non-U.S. operations	0.7		8.8		12.2
Income tax credits	(1.3	)	(1.2	)	(1.6	)
Non-deductible Branded Prescription Drug Fee	1.7		1.9		2.0
Domestic production activities deduction	(2.6	)	(2.8	)	(3.2	)
Other permanent differences	2.0		0.6		2.8
Effective income tax rate	42.3	%	32.7	%	48.1	%

In 2017, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 42.3% was primarily attributable to the negative impact of the charge related to the re-measurement of the Company's U.S. net deferred tax assets upon the enactment of the Act (see above), partly offset by the tax benefit associated with stock-based compensation. In 2016, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 32.7% was primarily attributable to the tax benefit associated with stock-based compensation, partly offset by the negative impact of losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate. In 2015, the difference between the U.S. federal statutory rate of 35% and the Company's effective tax rate of 48.1% was primarily attributable to losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate, partly offset by the positive impact of the domestic manufacturing deduction.

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. Significant components of the Company's deferred tax assets and liabilities are as follows:



	As of December 31,
	2017			2016
Deferred tax assets:
Deferred revenue	$	102,441		$	214,587
Deferred compensation	391,034			515,984
Fixed assets and intangible assets	—			21,139
Accrued expenses	38,312			37,188
Other	26,387			49,100
	558,174			837,998
Valuation allowance	(4,187		)	(3,420		)
Total deferred tax assets	553,987			834,578

Deferred tax liabilities:
Fixed assets and intangible assets	(44,629		)	—
Other	(3,067		)	(9,275		)
Total deferred tax liabilities	(47,696		)	(9,275		)
Net deferred tax assets	$	506,291		$	825,303

The Company's 2012 through 2016 federal income tax returns remain open to examination by the IRS. The Company's 2012 and 2013 federal income tax returns are currently under audit by the IRS. The Company's state income tax returns from 2013 to 2016 remain open to examination. The United States and many states generally have statutes of limitation ranging from 3 to 5 years; however, those statutes could be extended due to the Company's net operating loss and tax credit carryforward positions in a number of the Company's tax jurisdictions. In general, tax authorities have the ability to review income tax returns for loss periods in which the statute of limitation has previously expired to adjust the net operating loss carryforward or tax credits generated in those years.

The following table summarizes the gross amounts of unrecognized tax benefits. The amount of unrecognized tax benefits that, if settled, would impact the effective tax rate is $146.2 million, $107.2 million, and $102.1 million as of December 31, 2017, 2016, and 2015, respectively.



	2017			2016			2015
Balance as of January 1	$	117,166		$	116,572		$	57,615
Gross increases related to current year tax positions	49,028			45,575			59,909
Gross decreases related to prior year tax positions	(5,606		)	(42,284		)	(952		)
Gross decrease due to settlements, recapture, filed returns, and lapse of statutes of limitation	(14,430		)	(2,697		)	—
Balance as of December 31	$	146,158		$	117,166		$	116,572

In 2017, 2016 and 2015, the increases in unrecognized tax benefits related primarily to the Company's calculation of certain tax credits and other items related to the Company's international operations. In addition, in 2017 and 2016, there was a decrease in unrecognized tax benefits related to a settlement in connection with a disputed state tax matter. In 2017, 2016, and 2015, accrued interest related to unrecognized tax benefits recorded by the Company was not material. The Company does not believe that it is reasonably possible that its unrecognized tax benefits as of December 31, 2017 will decrease within the next twelve months as a result of the resolution of tax exposures.