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Income Taxes
 12 Months Ended
May 31, 2022
Income Taxes
6. Income Taxes
Income before income taxes by source consists of the following amounts:

 
  
Year ended May 31
 
(in thousands)
  
2022
 
  
2021
 
  
2020
 
U.S.
   
$

 38,554      $ 55,753      $ 62,329  
Foreign
      21,653        19,515        9,976  
    
 
 
     
 
 
     
 
 
  
     $ 60,207      $ 75,268      $ 72,305  
    
 
 
     
 
 
     
 
 
  
The provision for income taxes consists of the following:

 
  
Year ended May 31
 
(in thousands)
  
2022
 
  
2021
 
  
2020
 
Current
  
      
  
      
  
      
Domestic
  
      
  
      
  
      
Federal
   
$

 8,579      $ 6,981      $ 6,886  
Change in tax-related uncertainties
      3        (75 )       269  
State
      2,406        2,147        1,262  
Foreign
      5,140        4,875        2,475  
Total Current
      16,128        13,928        10,892  
Deferred
                           
Domestic
                           
Federal
      (3,721 )      479        1,964  
State
      (356 )      44        195  
Foreign
      (151 )      (65 )       (221 ) 
Total Deferred
      (4,228 )       458        1,938  
    
 
 
     
 
 
     
 
 
  
Provision for Income Taxes
    $ 11,900      $ 14,386      $ 12,830  
    
 
 
     
 
 
     
 
 
  
 
The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense is as follows:

 
  
Year ended May 31
 
(in thousands)
  
2022
 
  
2021
 
  
2020
 
Tax at U.S. statutory rate
   
$
 12,643      $ 15,806      $ 15,184  
Permanent differences
      67        292        360  
Global intangible low-taxed income (GILTI)
      1,501        2,064        438  
Foreign derived intangible income deduction (FDII)
      (1,308 )
 
      (1,210 )       (1,120 ) 
Foreign rate differential
      215        669        (182 ) 
Subpart F income
      397        628        634  
Tax benefits on stock-based compensation
      (462 )      (2,651 )       (1,998 ) 
Provision for state income taxes, net of federal benefit
      1,517        1,601        1,412  
Tax Credits
      (2,527 )      (3,298 )       (1,417 ) 
Impact of tax rate changes
      583        —          —    
Other
      (726 )      485        (481 ) 
    
 
 
     
 
 
     
 
 
  
Income Tax Expense
    $ 11,900      $ 14,386      $ 12,830  
    
 
 
     
 
 
     
 
 
  
Foreign tax credits, primarily offsetting taxes associated with Subpart F and GILTI income, were $1,747,000, $2,753,000 and $945,000 in fiscal years 2022, 2021 and 2020, respectively. The Company’s research and development credits were $780,000, $545,000 and $472,000 in fiscal years 2022, 2021 and 2020, respectively.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred income tax liabilities and assets are as follows:
 
 
  
Year ended May 31
 
(
i
n thousands)
  
2022
 
  
2021
 
Deferred income tax liabilities
  
      
  
      
Indefinite and long-lived assets
   
$
 (22,709 )    $ (25,072 ) 
Right of use asset
      (344
)
 		      (213 ) 
Prepaid expenses
      (884 )      (721 ) 
    
 
 
     
 
 
  
       (23,937 )      (26,006 ) 
Deferred income tax assets
                  
Stock options
      2,085        1,106  
Inventories and accounts receivable
      2,044        2,081  
Tax loss carryforwards
      561        662  
Lease
liability
      382        211  
Accrued expenses and other
      2,422        570  
Valuation allowance
      (568 )      (541 ) 
    
 
 
     
 
 
  
       6,926        4,089  
    
 
 
     
 
 
  
Net deferred income tax liabilities
    $ (17,011 )    $ (21,917 ) 
    
 
 
     
 
 
  
The Company has the following net operating loss carryforwards:

(
i
n thousands)
  
As of
May 31, 2022
 
  
Expiry
U.S.
    $ 281      2037
Foreign
      2,831      2024 to 2032
    
 
 
       
     $ 3,112       
    
 
 
       
Valuation allowances against certain deferred tax assets are established based on management’s determination of a more likely than not standard that the tax benefits will not be realized.
We are subject to income taxes in the U.S. (federal and state) and in numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate. The
Company’s
policy is to recognize both accrued interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties included in the unrecognized tax benefits reserve was $69,321 at May 31, 2022 and $64,518 at May 31, 2021. Of the total unrecognized tax benefits at May 31, 2022 and May 31, 2021, $808,186 and $805,316 respectively, comprise unrecognized tax positions that would, if recognized, affect our effective tax rate.
The reconciliation of our unrecognized tax benefits is as follows:

 
  
Year ended May 31
 
(in thousands)
  
2022
 
  
2021
 
  
2020
 
Beginning balance
   
$

  764      $ 762      $  541  
Increase/(decrease) related to prior periods
      (75 )      (182 )       48  
Increase related to current period
      147        184        173  
Lapses of applicable statute of limitations
      (95 )       —          —    
    
 
 
     
 
 
     
 
 
  
Ending balance
    $ 741      $ 764      $ 762  
    
 
 
     
 
 
     
 
 
  
The Company is no longer subject to examination by the Internal Revenue Service for fiscal year 201
8
and preceding years.