INCOME TAXES

9 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company and its subsidiaries are subject to taxation in the U.S. and in various foreign and state jurisdictions. The Company's tax benefit is determined using an estimate of its annual effective tax rate and adjusted for discrete items that are taken into account in the relevant period. The effective tax rates for the three months ended December 31, 2019 and 2018 were (20.1)% and (15.9)%, respectively. The effective tax rates for the nine months ended December 31, 2019 and 2018 were (17.4)% and (20.1)%, respectively.

For the nine months ended December 31, 2019, the Company recognized a discrete $11.6 million net tax benefit related to an intra-entity transfer of an intangible asset that will have a deferred future benefit, which increased our nine month effective tax rate by 6.4%.

On June 7, 2019, a Ninth Circuit panel reversed the United States Tax Court’s holding in Altera Corp. v. Commissioner and upheld the portion of the Treasury regulations issued under IRC Section 482 requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. As a result, the Company recorded a $8.6 million discrete tax charge resulting from the cost sharing of prior stock-based compensation, partially offset by a reduction to the 2017 Tax Cuts and Jobs Act toll charge accrued in prior periods, which reduced our nine month effective tax rate by 4.8%.

As of December 31, 2019, the Company had approximately $29.5 million in net deferred tax assets ("DTAs"). A significant portion of the Company's DTAs relate to interest expense in the US that is subject to a limitation on deductibility based on income. At this time, based on evidence currently available, the Company considers it more likely than not that it will have sufficient taxable income in the future that will allow the Company to realize the DTAs; however, failure to generate sufficient taxable income could result in some or all DTAs not being utilized in the future. If the Company is unable to generate sufficient future taxable income, a substantial valuation allowance to reduce the Company's DTAs may be required.

The Company's provision for income taxes also included excess tax benefits associated with employee equity plans of $0.1 million and $0.3 million, which reduced our effective tax rate by 0.1 percentage points and 0.7 percentage points, for the three months ended December 31, 2019, and 2018, respectively. The Company's provision for income taxes also included excess tax benefits associated with employee equity plans of ($2.8 million) and $3.3 million, which reduced the Company's effective tax rate by 1.6 percentage points and increased it by 2.3 percentage points, for the nine months ended December 31, 2019, and 2018, respectively.

The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. Significant judgment is required in evaluating our uncertain tax positions and determining the Company's provision for income taxes. During the quarter the Company concluded its Fiscal Year 2016 federal income tax examination by the Internal Revenue Service, the impact was immaterial. As of December 31, 2019, the Company had a total gross unrecognized tax benefits of $36.3 million compared with $25.5 million as of December 31, 2018. The increase is predominantly due to a $9.2 million increase in the first quarter from the cost sharing of prior stock-based compensation. If recognized, the gross unrecognized tax benefits would reduce the effective tax rate in the period of recognition.