INCOME TAX

The income tax provision (benefit) for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 consisted of the following:



	Year Ended December 31,						Seven Months Ended December 31,			Year Ended May 31,
	2018			2017			2016			2016

	(in thousands)
Current income tax provision (benefit):
Federal	$	(20,984	)	$	79,903		$	22,859		$	26,493
State	21,122			3,468			3,443			5,454
Foreign	79,320			67,851			42,681			56,689
	79,458			151,222			68,983			88,636
Deferred income tax provision (benefit):
Federal	(8,760		)	(266,869		)	(36,447		)	(18,205		)
State	(1,684		)	9,678			(1,842		)	(3,620		)
Foreign	8,474			4,582			4,967			3,884
	(1,970		)	(252,609		)	(33,322		)	(17,941		)
	$	77,488		$	(101,387	)	$	35,661		$	70,695

The income tax provision allocated to noncontrolling interests was $10.6 million and $8.6 million for the years ended December 31, 2018 and 2017, $4.4 million for the 2016 fiscal transition period and $7.3 million for the year ended May 31, 2016.

The following table presents income (loss) before income taxes for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016:



	Year Ended December 31,				Seven Months Ended December 31,			Year Ended May 31,
	2018		2017		2016			2016

	(in thousands)
United States	$	131,067	$	29,692	$	(55,279	)	$	59,876
Foreign	431,089		362,991		228,623			301,036
	$	562,156	$	392,683	$	173,344		$	360,912

On December 22, 2017, the United States enacted the 2017 U.S. Tax Act, which resulted in numerous changes, including a reduction in the U.S. federal tax rate from 35% to 21% effective January 1, 2018 and the transition of the U.S. federal tax system to a territorial regime. As part of this transition, the 2017 U.S. Tax Act imposed a one-time mandatory "transition" tax on foreign earnings not previously subjected to U.S. income tax.

Following the guidance in SAB 118, we made reasonable estimates of the effects of the 2017 U.S. Tax Act on our existing deferred tax balances and the one-time transition tax. For these items, which are further described below, we recognized a provisional net income tax benefit of $158.7 million, which was included as a component of income tax benefit in our consolidated statement of income for the year ended December 31, 2017.

We remeasured our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse, which is now 21% instead of 35% and recorded a provisional income tax benefit of $222.4 million for the year ended December 31, 2017. The one-time transition tax established by the 2017 U.S. Tax Act is based on our total post-1986 foreign earnings and profits, offset by allowable foreign tax credits. The transition tax rate applied to our foreign earnings is based on the amount of those earnings held in cash and cash equivalents, as well as other assets. For the year ended December 31, 2017, we recorded a provisional income tax expense of $63.7 million for the transition tax on our previously deferred foreign earnings. During 2018, we continued to analyze other provisions of the 2017 U.S. Tax Act, including the effects on our foreign tax pools and resulting foreign tax credits, and reduced our estimated transition tax liability to $40.4 million, which resulted in an income tax benefit of $23.3 million. As of December 31, 2018, we have completed our accounting for the transition effects of the 2017 U.S. Tax Act.

Approximately $18 million of our undistributed foreign earnings are considered to be indefinitely reinvested outside the United States as of December 31, 2018. Because those earnings are considered to be indefinitely reinvested, no deferred income taxes have been provided thereon. If we were to make a distribution of any portion of those earnings in the form of dividends or otherwise, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax.

Our effective tax rates for periods presented differ from the federal statutory rate for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 as follows:



	Year Ended December 31,				Seven Months Ended December 31,		Year Ended May 31,
	2018		2017		2016		2016
Federal U.S. statutory rate	21.0	%	35.0	%	35.0	%	35.0	%
State income taxes, net of federal income tax benefit	2.7		1.9		0.6		0.4
Foreign income taxes (primarily U.K.)	(0.5	)	(12.0	)	(12.6	)	(10.1	)
Foreign interest income not subject to tax	(1.7	)	(2.2	)	(2.3	)	(2.6	)
Federal U.S. transition tax	(4.1	)	16.2		—		—
Federal U.S. rate reduction	—		(55.6	)	—		—
Other SAB 118 adjustments	(0.6	)	—		—		—
Share-based compensation expense	(2.1	)	(4.2	)	—		—
Foreign-derived intangible income deduction	(1.6	)	—		—		—
Taxes on unremitted earnings	—		—		—		(3.5	)
Valuation allowance	1.4		(3.2	)	—		—
Other	(0.7	)	(1.7	)	(0.1	)	0.4
Effective tax rate	13.8	%	(25.8	)%	20.6	%	19.6	%

Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. Deferred income taxes as of December 31, 2018 and 2017 reflect the effect of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. As of December 31, 2018 and 2017, principal components of deferred tax items were as follows:



	2018			2017

	(in thousands)
Deferred income tax assets:
Basis difference - U.K. business	$	4,890		$	8,961
Domestic net operating loss carryforwards	20,096			17,228
Foreign net operating loss carryforwards	10,833			3,819
Share-based compensation expense	11,333			7,856
Accrued expenses	35,913			34,582
Other	16,906			18,502
	99,971			90,948
Less valuation allowance	(23,390		)	(16,550		)
	76,581			74,398
Deferred tax liabilities:
Acquired intangibles	522,636			410,563
Property and equipment	102,654			77,481
Other	28,188			10,087
	653,478			498,131
Net deferred income tax liability	$	(576,897	)	$	(423,733	)

The net deferred income taxes reflected on our consolidated balance sheets as of December 31, 2018 and 2017 are as follows:



	2018			2017

	(in thousands)
Noncurrent deferred income tax asset	$	8,128		$	13,146
Noncurrent deferred income tax liability	(585,025		)	(436,879		)
Net deferred income tax liability	$	(576,897	)	$	(423,733	)

A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes to our valuation allowance during the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 are summarized below (in thousands):



Balance at May 31, 2015	$	(3,823	)
Allowance for foreign income tax credit carryforward	(7,140		)
Allowance for domestic net operating loss carryforwards	(4,474		)
Allowance for domestic net unrealized capital loss	(1,526		)
Release of allowance of domestic capital loss carryforward	1,746
Other	98
Balance at May 31, 2016	(15,119		)
Allowance for domestic net operating loss carryforwards	(1,504		)
Release of allowance of domestic net unrealized capital loss	12
Balance at December 31, 2016	(16,611		)
Allowance for foreign net operating loss carryforwards	(6,469		)
Allowance for domestic net operating loss carryforwards	(3,793		)
Allowance for state credit carryforwards	(685		)
Rate change on domestic net operating loss and capital loss carryforwards	3,868
Utilization of foreign income tax credit carryforward	7,140
Balance at December 31, 2017	(16,550		)
Allowance for foreign net operating loss carryforwards	(7,979		)
Allowance for domestic net operating loss carryforwards	1,145
Allowance for state credit carryforwards	(6		)
Balance at December 31, 2018	$	(23,390	)

The increase in the valuation allowance related to foreign net operating loss carryforwards of $8.0 million for the year ended December 31, 2018. The increase in the valuation allowance of $10.3 million for the year ended December 31, 2017 relates primarily to carryforward assets recorded as part of the acquisition of ACTIVE Network. The increase in the valuation allowance related to domestic net operating loss carryforwards of $1.5 million and $4.5 million for the 2016 fiscal transition period and the year ended May 31, 2016, respectively, relates to acquired carryforwards from the merger with Heartland.

Foreign net operating loss carryforwards of $68.3 million and domestic net operating loss carryforwards of $38.6 million at December 31, 2018 will expire between December 31, 2026 and December 31, 2038 if not utilized.

We conduct business globally and file income tax returns in the domestic federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities around the world. We are no longer subjected to state income tax examinations for fiscal years ended on or before May 31, 2008, U.S. federal income tax examinations for fiscal ended on or before May 31, 2013 and U.K. federal income tax examinations for fiscal years ended on or before May 31, 2014.

A reconciliation of the beginning and ending amounts of unrecognized income tax benefits, excluding penalties and interest, for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 is as follows:



	Year Ended December 31,						Seven Months Ended December 31,			Year Ended May 31,
	2018			2017			2016			2016

	(in thousands)
Balance at the beginning of the year	$	31,218		$	17,916		$	7,803		$	2,559
Additions based on income tax positions related to the current year	—			7,537			4,626			287
Additions related to acquisition	—			13,061			6,149			6,151
Additions for income tax positions of prior years	—			411			247			753
Effect of foreign currency fluctuations on income tax positions	—			27			(3		)	2
Reductions for income tax positions of prior years	(10,021		)	(7,285		)	(906		)	(123		)
Settlements with income tax authorities	—			(449		)	—			(1,826		)
Balance at the end of the year	$	21,197		$	31,218		$	17,916		$	7,803

As of December 31, 2018, the total amount of gross unrecognized income tax benefits that, if recognized, would affect the provision for income taxes is $21.2 million.