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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for income tax consisted of the following (in thousands):
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |
Federal | $ | 20,943 |  |  | $ | 23,306 |  |  | $ | 17,233 |
State | 5,223 |  |  | 4,774 |  |  | (617) |
Foreign | 36,387 |  |  | 15,988 |  |  | 3,094 |
Total current | 62,553 |  |  | 44,068 |  |  | 19,710 |
Deferred: |  |  |  |  |
Federal | (6,173) |  |  | (1,903) |  |  | 16,083 |
State | 694 |  |  | (5,620) |  |  | 2,965 |
Foreign | 11,319 |  |  | (55,921) |  |  | 6,002 |
Total deferred | 5,840 |  |  | (63,444) |  |  | 25,050 |
Total provision | $ | 68,393 |  |  | $ | (19,376) |  |  | $ | 44,760 |
A reconciliation of the statutory federal income tax rate with J2 Global’s effective income tax rate is as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Statutory tax rate | 21 | % |  | 21 | % |  | 21 | %
State income taxes, net | 1.5 |  |  | 0.9 |  |  | 1.2 |
Foreign rate differential | (0.1) |  |  | (3.8) |  |  | (7.7) |
Foreign income inclusion | 0.8 |  |  | 1.4 |  |  | 1.5 |
Foreign tax credit | (1.3) |  |  | (0.9) |  |  | (1.4) |
Reserve for uncertain tax positions | 3.5 |  |  | (0.4) |  |  | 4.1 |
Valuation allowance | 3.7 |  |  | 0.2 |  |  | 0.2 |
Intra-entity tax benefit | — |  |  | (26.9) |  |  | — |
Impact on deferred taxes of enacted tax law and rate changes | 1.1 |  |  | (1.3) |  |  | 0.1 |
Contingent liabilities | — |  |  | 0.6 |  |  | 2.4 |
Unrecognized loss on intercompany sale | — |  |  | — |  |  | 1.9 |
Other | (0.5) |  |  | (0.5) |  |  | 1.9 |
Effective tax rates | 29.7 | % |  | (9.7) | % |  | 25.2 | %
The effective tax rate for the year ended December 31, 2020 differs from the federal statutory rate primarily due recording a valuation allowance on deferred tax assets related to realized and unrealized capital losses. In addition, the Company recorded a net increase in the reserve for uncertain tax positions during 2020. The effective tax rate for 2019 differs from the federal statutory rate primarily due to a tax benefit recognized as a result of an intra-entity asset transfer. In December 2019, the Company completed an intra-entity asset transfer between two of its foreign subsidiaries as part of the reorganization of its international operating structure. The transfer caused the recognition of a net tax benefit for $53.7 million and a corresponding deferred tax asset. Additionally, the jurisdictional mix of income and disallowance of certain losses and expenses caused further differences from the federal statutory rate. The effective tax rate for 2018 differs from the federal statutory rate primarily due to impacts of the jurisdictional mix of income and disallowance of certain losses and expenses. Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows (in thousands):
| Years Ended December 31,
| 2020 |  | 2019
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 21,183 |  |  | $ | 43,352 |
Tax credit carryforwards | 9,022 |  |  | 4,152 |
Accrued expenses | 19,572 |  |  | 9,946 |
Allowance for bad debt | 4,366 |  |  | 2,547 |
Share-based compensation expense | 5,923 |  |  | 4,669 |
Impairment of investments | 6,762 |  |  | 1,675 |
Deferred revenue | 1,334 |  |  | — |
State taxes | 5,124 |  |  | 3,206 |
Other | 12,045 |  |  | 9,958 |
| 85,331 |  |  | 79,505 |
Less: valuation allowance | (8,307) |  |  | (608) |
Total deferred tax assets | $ | 77,024 |  |  | $ | 78,897 |
Deferred tax liabilities: |  |  |
Basis difference in property and equipment | $ | (18,995) |  |  | $ | (15,767) |
Basis difference in intangible assets | (93,162) |  |  | (42,880) |
Prepaid insurance | (2,905) |  |  | (1,847) |
Convertible debt | (65,192) |  |  | (65,217) |
Other | (2,925) |  |  | (663) |
Total deferred tax liabilities | (183,179) |  |  | (126,374) |
Net deferred tax liabilities | $ | (106,155) |  |  | $ | (47,477) |
The Company had approximately $77.0 million and $78.9 million in deferred tax assets as of December 31, 2020 and 2019, respectively, related primarily to net operating loss carryforwards, basis difference in intangible assets including differences related to intra-entity transfers, tax credit carryforwards and accrued expenses treated differently between its financial statements and its tax returns. Based on the weight of available evidence, the Company assesses whether it is more likely than not that some portion or all of a deferred tax asset will not be realized. If necessary, J2 Global records a valuation allowance sufficient to reduce the deferred tax asset to the amount that is more likely that not to be realized. The deferred tax assets should be realized through future operating results and the reversal of temporary differences. The Company had a valuation allowance on deferred tax assets of $8.3 million and $0.6 million as of December 31, 2020 and 2019, respectively. The valuation allowance increased $7.7 million as a result of impairment and sales of investments that would result in a capital loss in the year of sale. The deduction for the capital losses would be limited to other capital gains recognized during the year. As of December 31, 2020, the Company had federal net operating loss carryforwards (“NOLs”) of $60.2 million, after considering substantial restrictions on the utilization of these NOLs due to “ownership changes”, as defined in the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). J2 Global currently estimates that all of the above-mentioned federal NOLs will be available for use before their expiration. $59.7 million of NOLs for losses incurred prior to January 1, 2018 expire through the year 2037. The NOLs for losses incurred after January 1, 2018 of $0.5 million have an indefinite carryforward period. Additionally, the Company has foreign NOLs of $5.8 million as of December 31, 2020 in various foreign jurisdictions which generally have an indefinite carryforward period. As of December 31, 2020 and 2019, the Company had no foreign tax credit carryforward. In addition, as of December 31, 2020 and 2019, the Company had state research and development tax credits of $9.1 million and $3.2 million, respectively, which can be carried forward indefinitely. The Company has not provided deferred taxes on approximately $454.5 million of undistributed earnings from foreign subsidiaries as of December 31, 2020. The Company has not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional taxes. Because of the various avenues in which to repatriate the earnings, the determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings if eventually remitted is not practicable. Certain tax payments are prepaid during the year and included within prepaid expenses and other current assets on the Consolidated Balance Sheet. The Company’s prepaid tax payments were $3.0 million and $3.7 million at December 31, 2020 and 2019, respectively. Income before income taxes included income from domestic operations of $47.3 million, $81.6 million and $19.9 million for the years ended December 31, 2020, 2019 and 2018, respectively, and income from foreign operations of $183.1 million, $118.0 million and $157.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Uncertain Income Tax Positions Tax positions are evaluated in a two-step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company classifies gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of cash within one year as non-current liabilities in the Consolidated Balance Sheets. As of December 31, 2020, the total amount of unrecognized tax benefits was $49.1 million, of which $46.0 million, if recognized, would affect the Company’s effective tax rate. As of December 31, 2019, the total amount of unrecognized tax benefits was $46.7 million, of which $43.9 million, if recognized, would affect the Company’s effective tax rate. As of December 31, 2018, the total amount of unrecognized tax benefits was $51.3 million, of which $46.8 million, if recognized would affect the Company’s effective tax rate. The aggregate changes in the balance of unrecognized tax benefits, which excludes interest and penalties, for 2020, 2019 and 2018, is as follows (in thousands):
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Beginning balance | $ | 46,703 |  |  | $ | 51,271 |  |  | $ | 45,012 |
Increases related to tax positions during a prior year | 3,952 |  |  | 5,285 |  |  | 2,508 |
Decreases related to tax positions taken during a prior year | (245) |  |  | (7,441) |  |  | — |
Increases related to tax positions taken in the current year | 4,299 |  |  | 4,069 |  |  | 3,751 |
Settlements | (5,627) |  |  | (5,831) |  |  | — |
Decreases related to expiration of statute of limitations | — |  |  | (650) |  |  | — |
Ending balance | $ | 49,082 |  |  | $ | 46,703 |  |  | $ | 51,271 |
The Company includes interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2020, 2019 and 2018, the total amount of interest and penalties accrued was $8.1 million, $5.8 million and $8.4 million, respectively, which is classified as a liability for uncertain tax positions on the Consolidated Balance Sheets. In connection with tax matters, the Company recognized interest and penalty expense (benefit) in 2020, 2019 and 2018 of $2.3 million, $(1.8) million and $1.2 million, respectively. Uncertain income tax positions are reasonably possible to significantly change during the next 12 months as a result of completion of income tax audits and expiration of statutes of limitations. At this point it is not possible to provide an estimate of the amount, if any, of significant changes in reserves for uncertain income tax positions as a result of the completion of income tax audits that are reasonably possible to occur in the next 12 months. In addition, the Company cannot currently estimate the amount of, if any, uncertain income tax positions which will be released in the next 12 months as a result of expiration of statutes of limitations due to ongoing audits. As a result of ongoing federal, state and foreign income tax audits (discussed below), it is reasonably possible that the Company’s entire reserve for uncertain income tax positions for the periods under audit will be released. It is also reasonably possible that the Company’s reserves will be inadequate to cover the entire amount of any such income tax liability. Income Tax Audits: The Company is in various stages of audit by the U.S. Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years. As of December 31, 2020, the audits are ongoing. The Company is under audit by the California Franchise Tax Board (“FTB”) for its tax years 2012 and 2013. The FTB, however, has agreed to suspend its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years. In August 2018, the FTB notified the Company that it will commence an audit of tax years 2015 and 2016. As of December 31, 2020, the audits are ongoing. In June 2019, the New York State Department of Taxation and Finance (“NYS”) notified the Company that it will commence an audit for tax year 2015. In April 2020, the NYS notified the Company that it will also commence an audit for tax years 2016 and 2017. As of December 31, 2020, the audits are ongoing. It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material. If the recorded uncertain tax positions are adequate to cover the associated tax liabilities, the Company would be required to record any excess as reduction in tax expense in the relevant period, which could be material. However, it is not currently possible to estimate the amount, if any, of such change.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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