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Income Taxes | 12 Months Ended
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Dec. 01, 2017
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income before income taxes for fiscal 2017, 2016 and 2015 consisted of the following (in thousands):
|  | 2017 |  | 2016 |  | 2015
Domestic |  | $ | 1,056,156 |  |  | $ | 805,749 |  |  | $ | 589,371 |
Foreign |  | 1,081,485 |  |  | 629,389 |  |  | 284,410 |
Income before income taxes |  | $ | 2,137,641 |  |  | $ | 1,435,138 |  |  | $ | 873,781 |
The provision for income taxes for fiscal 2017, 2016 and 2015 consisted of the following (in thousands):
|  | 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |  |
United States federal |  | $ | 298,802 |  |  | $ | 94,396 |  |  | $ | 204,834 |
Foreign |  | 60,962 |  |  | 59,749 |  |  | 52,125 |
State and local |  | 33,578 |  |  | 15,222 |  |  | (14,975 | )
Total current |  | 393,342 |  |  | 169,367 |  |  | 241,984 |
Deferred: |  |  |  |  |  |  |  |  |
United States federal |  | 48,905 |  |  | 33,924 |  |  | (31,011 | )
Foreign |  | (4,242 | ) |  | (2,751 | ) |  | (9,368 | )
State and local |  | 5,682 |  |  | (9,287 | ) |  | (25,511 | )
Total deferred |  | 50,345 |  |  | 21,886 |  |  | (65,890 | )
Tax expense attributable to employee stock plans |  | — |  |  | 75,103 |  |  | 68,136 |
Provision for income taxes |  | $ | 443,687 |  |  | $ | 266,356 |  |  | $ | 244,230 |
See Note 1 to the Consolidated Financial Statements for further information on our adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Total income tax expense differs from the expected tax expense (computed by multiplying the U.S. federal statutory rate of 35% by income before income taxes) as a result of the following (in thousands):
|  | 2017 |  | 2016 |  | 2015
Computed “expected” tax expense |  | $ | 748,174 |  |  | $ | 502,298 |  |  | $ | 305,824 |
State tax expense, net of federal benefit |  | 25,131 |  |  | 10,636 |  |  | (8,316 | )
Tax credits |  | (38,000 | ) |  | (48,383 | ) |  | (25,967 | )
Differences between statutory rate and foreign effective tax rate |  | (215,490 | ) |  | (133,778 | ) |  | (90,063 | )
Stock-based compensation, net of tax deduction |  | (42,512 | ) |  | 15,101 |  |  | 9,623 |
Resolution of income tax examinations |  | (31,358 | ) |  | (68,003 | ) |  | (17,595 | )
Domestic manufacturing deduction benefit |  | (32,200 | ) |  | (26,990 | ) |  | (16,800 | )
Tax charge for licensing acquired company technology to foreign subsidiaries |  | 24,771 |  |  | 5,346 |  |  | 80,015 |
Other, net |  | 5,171 |  |  | 10,129 |  |  | 7,509 |
Provision for income taxes |  | $ | 443,687 |  |  | $ | 266,356 |  |  | $ | 244,230 |
Deferred Tax Assets and Liabilities The tax effects of the temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 1, 2017 and December 2, 2016 are presented below (in thousands):
|  | 2017 |  | 2016
Deferred tax assets: |  |  |  |
Acquired technology |  | $ | 4,846 |  |  | $ | 7,421 |
Reserves and accruals |  | 48,761 |  |  | 35,440 |
Deferred revenue |  | 23,452 |  |  | 21,039 |
Unrealized losses on investments |  | 11 |  |  | 2,391 |
Stock-based compensation |  | 74,942 |  |  | 56,353 |
Net operating loss carryforwards of acquired companies |  | 44,465 |  |  | 31,305 |
Credit carryforwards |  | 124,205 |  |  | 63,315 |
Capitalized expenses |  | 13,428 |  |  | 15,571 |
Benefits relating to tax positions |  | 33,318 |  |  | 39,492 |
Other |  | 30,289 |  |  | 26,439 |
Total gross deferred tax assets |  | 397,717 |  |  | 298,766 |
Deferred tax asset valuation allowance |  | (93,568 | ) |  | (24,265 | )
Total deferred tax assets |  | 304,149 |  |  | 274,501 |
Deferred tax liabilities: |  |  |  |
Depreciation and amortization |  | 84,064 |  |  | 78,619 |
Undistributed earnings of foreign subsidiaries |  | 382,744 |  |  | 292,844 |
Acquired intangible assets |  | 117,282 |  |  | 120,698 |
Total deferred tax liabilities |  | 584,090 |  |  | 492,161 |
Net deferred tax liabilities: |  | $ | 279,941 |  |  | $ | 217,660 |
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Included in the deferred tax assets and liabilities for fiscal 2017 and 2016 are amounts related to various acquisitions. The deferred tax assets are offset by a valuation allowance to the extent it is more likely than not that they are not expected to be realized. We provide U.S. income taxes on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested outside the United States. To the extent that the foreign earnings previously treated as permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. As of December 1, 2017, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $5.0 billion. The unrecognized deferred tax liability for these earnings is approximately $1.4 billion. As of December 1, 2017, we have net operating loss carryforwards of approximately $118.4 million for federal and $52.6 million for state. We also have state and foreign tax credit carryforwards of approximately $166.2 million and $16.2 million, respectively. The net operating loss carryforward assets and tax credits will expire in various years from fiscal 2018 through 2036. The state tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforward assets and certain credits are reduced by the valuation allowance and are subject to an annual limitation under Internal Revenue Code Section 382, the carrying amount of which are expected to be fully realized. As of December 1, 2017, a valuation allowance of $93.6 million has been established for certain deferred tax assets related to the impairment of investments and certain state and foreign assets. For fiscal 2017, the total change in the valuation allowance was $69.3 million, of which $55.3 million was related to the deferred tax attributes recorded due to our early adoption of the new accounting guidance related to stock-based compensation. Accounting for Uncertainty in Income Taxes During fiscal 2017 and 2016, our aggregate changes in our total gross amount of unrecognized tax benefits are summarized as follows (in thousands):
|  | 2017 |  | 2016
Beginning balance |  | $ | 178,413 |  |  | $ | 258,718 |
Gross increases in unrecognized tax benefits – prior year tax positions |  | 3,680 |  |  | 6,047 |
Gross decreases in unrecognized tax benefits – prior year tax positions |  | (30,166 | ) |  | (67,870 | )
Gross increases in unrecognized tax benefits – current year tax positions |  | 24,927 |  |  | 23,068 |
Settlements with taxing authorities |  | (3,876 | ) |  | (33,265 | )
Lapse of statute of limitations |  | (8,819 | ) |  | (8,456 | )
Foreign exchange gains and losses |  | 8,786 |  |  | 171 |
Ending balance |  | $ | 172,945 |  |  | $ | 178,413 |
The combined amount of accrued interest and penalties related to tax positions taken on our tax returns were approximately $23.6 million and $22.4 million for fiscal 2017 and 2016, respectively. These amounts were included in non-current income taxes payable in their respective years. We file income tax returns in the United States on a federal basis and in many U.S. state and foreign jurisdictions. We are subject to the continual examination of our income tax returns by the IRS and other domestic and foreign tax authorities. Our major tax jurisdictions are Ireland, California and the United States. For Ireland, California and the United States, the earliest fiscal years open for examination are 2008, 2010 and 2013, respectively. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from these examinations. We believe such estimates to be reasonable; however, there can be no assurance that the final determination of any of these examinations will not have an adverse effect on our operating results and financial position. The timing of the resolution of income tax examinations is highly uncertain as are the amounts and timing of tax payments that are part of any audit settlement process. These events could cause large fluctuations in the balance of current and non-current assets, liabilities and income taxes payable. We believe that within the next 12 months, it is reasonably possible that either certain audits will conclude or statutes of limitations on certain income tax examination periods will expire, or both. Given the uncertainties described above, we can only determine a range of estimated potential decreases in underlying unrecognized tax benefits ranging from $0 to approximately $40 million. Subsequent to December 1, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted and included broad tax reforms that are applicable to Adobe. Under the provisions of the Act, the U.S. corporate tax rate decreased from 35% to 21% effective January 1, 2018, our undistributed foreign earnings are subject to taxation in fiscal 2018 and are available for repatriation, and our future foreign earnings are subject to U.S. taxation. These changes will require us to remeasure our deferred tax assets and liabilities and reclassify deferred tax liabilities related to undistributed foreign earnings to long-term income taxes payable due over eight years.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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