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INCOME TAXES
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES
16. INCOME TAXES
The components of (loss) before (benefit from) income taxes are:
(in thousands)202020192018
Domestic$(59,281)$(51,396)$(27,494)
Foreign(65,608)(83,450)15,951 
$(124,889)$(134,846)$(11,543)
The components of (benefit from) income taxes are:
(in thousands)202020192018
Current:
Federal$(11,251)$1,050 $(1,862)
State399 405 287 
Foreign7,113 3,449 10,313 
Total current (benefit from) provision for(3,739)4,904 8,738 
Deferred:
Federal(34,573)(25,356)(18,939)
State(8,119)(5,143)(3,702)
Foreign(17,085)(18,818)(8,257)
Total deferred (benefit)(59,777)(49,317)(30,898)
$(63,516)$(44,413)$(22,160)
A reconciliation of the U.S federal statutory tax rate and the Company’s effective tax rate, is as follows:
(in thousands)202020192018
U.S. federal income taxes at statutory rates$(26,227)$(28,318)$(2,424)
Valuation allowance(5,881)727 510 
State income taxes, net of federal benefit and tax credits(6,994)(4,450)(3,329)
Permanent differences1,773 2,606 1,302 
GILTI, FDII, and BEAT (1)
— — 399 
Federal research and experimentation credits(5,716)(4,295)(6,991)
Tax effects of foreign activities3,050 3,056 (399)
Tax-exempt income— (91)(137)
Provision to return adjustments3,416 (5,460)253 
Non-deductible compensation1,806 1,716 1,025 
Expiration of statutes and changes in estimates55 2,420 (516)
Excess tax benefits related to share-based compensation(25,797)(14,291)(13,541)
Cares Act(10,576)— — 
Impact of change in tax law7,489 1,908 1,636 
Other86 59 52 
$(63,516)$(44,413)$(22,160)
(1) Global Intangible Low Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”), and Base Erosion and Anti-abuse Tax (“BEAT”)
Cares Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”) was enacted to address the economic impact of the COVID-19 pandemic in the United States. Among other things, the Cares Act allows a five-year carryback period for tax losses generated in 2019 through 2021.
The Company carried back net operating losses generated in 2019, resulting in an income tax benefit of $5.7 million. The $5.7 million income tax benefit represents the Federal rate differential between 35% and 21%. In addition, the Company applied the carryback provisions of the Cares Act to its net operating losses generated in 2020, which resulted in the reclassification of $4.8 million net operating losses from a deferred income tax asset to refundable income taxes. The Company does not expect the other income tax provisions of the Cares Act to have a material impact on its financial statements.
Deferred income taxes
Significant components of net deferred tax assets and liabilities are:
December 31,
(in thousands)20202019
Deferred tax assets:
Net operating loss carryforwards$88,129 $70,960 
Accruals and reserves26,309 24,902 
Interest expense carryforward3,464 — 
Depreciation4,795 2,493 
Tax credit carryforwards31,556 15,307 
Other370 199 
Total deferred tax assets154,623 113,861 
Valuation allowances(23,409)(28,007)
Total net deferred tax assets131,214 85,854 
Deferred tax liabilities:
Capped call transactions(20,858)— 
Convertible senior notes(6,473)— 
Software revenue(11,477)(23,859)
Intangibles(4,338)(6,103)
Total deferred tax liabilities(43,146)(29,962)
$88,068 $55,892 
The Company regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realizing the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. This determination requires significant judgment, including assumptions about future taxable income based on historical and projected information. In 2020, the change in valuation allowances was primarily due to the expiration of $5.9 million in acquisition-related net operating losses. There were no material changes in valuation allowances in 2019.
As of December 31, 2020, the Company’s net operating losses and credit carryforwards are:
(in thousands)
FederalState
Net operating losses (1)
$124,115 $9,149 
Net operating losses due to acquisitions (1)
$76,826 $1,466 
Credit carryforwards (2)
$24,372 $1,895 
Credit carryforwards due to acquisitions$640 $60 
(1) Excludes federal and state net operating losses of $29.5 million and $0.8 million, respectively, from prior acquisitions that the Company expects will expire unutilized.
(2) Excludes federal and state tax credits of $0.1 million and $9.0 million, respectively, that the Company expects will expire unutilized.
Carryforward losses and credits expire between 2021 and 2038, except for the 2020 federal net operating loss of $47.3 million and $1.2 million of state credits, which both have unlimited carryforward periods.
The Company’s India subsidiary is primarily located in Special Economic Zones (“SEZs”) and is entitled to a tax holiday in India. The tax holiday reduces or eliminates income tax in India. The tax holiday in the Hyderabad SEZ is scheduled to expire in 2024. The tax holiday in the Bangalore SEZ is scheduled to expire in 2022. For 2020, 2019, and 2018, the income tax holiday reduced the Company’s provision for income taxes by $1.7 million, $1.9 million, and $1.3 million, respectively.
Uncertain tax benefits
A rollforward of the Company’s gross unrecognized tax benefits is:
(in thousands)
202020192018
Balance as of January 1,
$23,271 $18,157 $19,150 
Additions for tax positions related to the current year653 510 978 
Additions for tax positions of prior years962 4,917 174 
Reductions for tax positions of prior years(1,085)(313)(2,145)
Balance as of December 31,
$23,801 $23,271 $18,157 
As of December 31, 2020, the Company had $23.8 million of total unrecognized tax benefits, which would decrease the Company’s effective tax rate if recognized.
As of December 31, 2020 and December 31, 2019, the Company’s income tax receivable was $44.1 million and $25.9 million, respectively.
Tax examinations
The Company files federal and state income tax returns in the U.S. and in various foreign jurisdictions. In the ordinary course of business, the Company and its subsidiaries are examined by various tax authorities, including the Internal Revenue Service in the U.S. As of December 31, 2020, the Company’s U.S. federal tax returns for the years 2014 through 2017 were under examination by the Internal Revenue Service. In addition, certain foreign jurisdictions are auditing the Company’s income tax returns for periods ranging from 2010 through 2018. The Company does not expect the results of these audits to have a material effect on the Company’s financial condition, results of operations, or cash flows. With few exceptions, the statute of limitations remains open in all jurisdictions for the tax years 2014 to the present.