Income Taxes

The components of loss before provision for (benefit from) income taxes were as follows (in thousands):



	Year Ended January 31,
	2019			2018			2017
	2019			2018			*As Adjusted
Domestic	$	(263,505	)	$	(85,167	)	$	(190,043	)
Foreign	(160,247		)	(229,619		)	(195,470		)
Total	$	(423,752	)	$	(314,786	)	$	(385,513	)


*	For further information, see Note 1.

The provision for (benefit from) income taxes consisted of the following (in thousands):



	Year Ended January 31,
	2019			2018			2017
Current:
Federal	$	—		$	—		$	213
State	270			177			17
Foreign	6,596			4,251			3,573
Total	6,866			4,428			3,803

Deferred:
Federal	(760		)	(535		)	(466		)
State	(2,446		)	(100		)	(52		)
Foreign	(9,154		)	2,643			(4,099		)
Total	(12,360		)	2,008			(4,617		)
Provision for (benefit from) income taxes	$	(5,494	)	$	6,436		$	(814	)

The items accounting for the difference between income taxes computed at the federal statutory income tax rate and the provision for (benefit from) income taxes consisted of the following:



	Year Ended January 31,
	2019		2018		2017
	2019		2018		*As Adjusted
Federal statutory rate	21.0	%	33.8	%	35.0	%
Effect of:
Foreign income at other than U.S. rates	(8.9	)%	(26.5	)%	(18.5	)%
Intercompany transactions	3.7	%	10.2	%	4.2	%
Research tax credits	12.6	%	9.1	%	6.4	%
State taxes, net of federal benefit	(0.1	)%	—	%	—	%
U.S. corporate tax rate reduction	—	%	(81.3	)%	—	%
Changes in valuation allowance	(39.7	)%	33.0	%	(20.4	)%
Stock compensation	12.7	%	20.0	%	(6.1	)%
Other	—	%	(0.4	)%	(0.4	)%
	1.3	%	(2.1	)%	0.2	%


*	For further information, see Note 1.

On December 22, 2017, the Tax Act was enacted into law and reduced the corporate income tax rate to 21% effective January 1, 2018. We adjusted our federal statutory rate to 21% for fiscal 2019 and to a blended rate of 33.8% for fiscal 2018. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which allows companies to record provisional amounts for the Tax Act during a measurement period not to extend beyond one year from the enactment date. As of January 31, 2019, we have completed our analysis and recorded no adjustments.

As a result of our history of net operating losses, the current provision for income taxes primarily relates to state income taxes and the current foreign provision from our profitable foreign entities. The benefit from domestic deferred federal and state income tax primarily relates to the release of the valuation allowance for certain intangibles from fiscal 2019 business acquisitions, where the balance for financial reporting exceeded the tax basis. The foreign deferred income tax benefit primarily relates to the application of intra-period tax allocation rules for the gains from other comprehensive income and the excess tax benefit in certain foreign jurisdictions from share-based compensation.

Significant components of our deferred tax assets and liabilities were as follows (in thousands):



	January 31,
	2019			2018
Deferred tax assets:
Unearned revenue	$	21,557		$	27,934
Other reserves and accruals	23,384			14,945
Federal net operating loss carryforwards	602,310			422,235
State and foreign net operating loss carryforwards	202,607			81,757
Property and equipment	7,168			—
Share-based compensation	51,233			39,294
Research and development credits	164,555			110,694
Intangibles	519,402			—
Other	2,208			5,622
	1,594,424			702,481
Valuation allowance	(1,515,945		)	(625,030		)
Deferred tax assets, net of valuation allowance	78,479			77,451
Deferred tax liabilities:
Intangibles	—			(1,453		)
Intercompany transactions	(29,885		)	(40,338		)
Other prepaid assets	(448		)	(742		)
Deferred commissions	(45,277		)	(29,231		)
Property and equipment	—			(3,803		)
	(75,610		)	(75,567		)
Net deferred tax assets	$	2,869		$	1,884

We regularly assess the need for a valuation allowance against our deferred tax assets by considering both positive and negative evidence related to whether it is more likely than not that our deferred tax assets will be realized. In evaluating the need for a valuation allowance, we consider the cumulative losses in recent years as a significant piece of negative evidence that is generally difficult to overcome. As of January 31, 2019, we continue to maintain a full valuation allowance against our U.S. federal, state, and certain foreign jurisdiction deferred tax assets.

As of January 31, 2019, we recorded a valuation allowance of $1.5 billion for the portion of the deferred tax assets that we do not expect to be realized. The valuation allowance on our net deferred tax assets increased by $891 million and $333 million during fiscal 2019 and 2018, respectively. The increase in the valuation allowance during fiscal 2019 is mainly due to an increase in our deferred tax assets on tax deductible intangibles as the result of the adoption of ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740) and our net operating losses during the fiscal year. The increase in the valuation allowance during fiscal 2018 was mainly due to an increase in our deferred tax assets on our net operating losses as a result of the recognition of excess tax benefits from share-based compensation resulting from the adoption of ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This was partially offset by a decrease in our federal deferred tax assets resulting from the re-measurement of the corporate tax rate from 35% to 21%.

As of January 31, 2019, we had approximately $2.8 billion of federal, $1.8 billion of state, and $703 million of foreign net operating loss carryforwards available to offset future taxable income. If not utilized, the pre-fiscal 2018 federal and the state net operating loss carryforwards expire in varying amounts between fiscal 2020 and 2039. The federal net operating losses generated in and after fiscal 2018 and the foreign net operating losses do not expire and may be carried forward indefinitely.

We also had approximately $128 million of federal and $123 million of California research and development tax credit carryforwards as of January 31, 2019. The federal credits expire in varying amounts between fiscal 2023 and 2039. The California research credits do not expire and may be carried forward indefinitely.

Our ability to utilize the net operating loss and tax credit carryforwards in the future may be subject to substantial restrictions in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended, and similar state tax law.

A reconciliation of the gross unrecognized tax benefit is as follows (in thousands):



	Year Ended January 31,
	2019		2018			2017
Unrecognized tax benefits at the beginning of the period	$	107,849	$	116,801		$	98,460
Additions for tax positions taken in prior years	10,586		1,500			3,981
Reductions for tax positions taken in prior years	—		(8,121		)	—
Decrease for tax positions taken in prior years due to federal rate reduction	—		(10,062		)	—
Additions for tax positions related to the current year	12,336		7,731			14,475
Reductions related to a lapse of applicable statute of limitations	—		—			(115		)
Unrecognized tax benefits at the end of the period	$	130,771	$	107,849		$	116,801

Our policy is to include interest and penalties related to unrecognized tax benefits within our provision for income taxes. We did not accrue any interest expense or penalties during fiscal 2019, 2018, or 2017.

Of the total amount of unrecognized tax benefits of $131 million, $2 million, if recognized, would impact the effective tax rate, as of January 31, 2019.

We file federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to our net operating loss carryforwards, our income tax returns generally remain subject to examination by federal and most state and foreign tax authorities.

On December 1, 2015, the United States Tax Court issued its final decision with respect to Altera Corporation’s litigation with the Internal Revenue Service (“IRS”). The litigation relates to the treatment of share-based compensation expense in an inter-company cost-sharing arrangement with the taxpayer’s foreign subsidiary for fiscal 2004 through 2007. In its final decision, the Court accepted Altera’s position of excluding share-based compensation in its cost sharing arrangement and concluded that the related IRS Regulations were invalid. Subsequent to the decision, the IRS filed its appeal on February 23, 2016. Although the IRS has appealed the decision, based on the facts and circumstances of the Tax Court Case, we believe that it is more likely than not that the decision will be upheld. We have therefore recorded the effects of the decision and determined that there was no material impact to our effective tax rate and income tax expense due to our current full valuation allowance position. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.