INCOME TAXES

12 Months Ended

Dec. 31, 2020

The components of pretax income (loss) from continuing operations for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):


	Year Ended December 31,
	2020		2019		2018
United States	$	(55,699)	$	6,758	$	23,349
International	(238,367)		(20,289)		(22,318)
Income (loss) before provision (benefit) for income taxes	$	(294,066)	$	(13,531)	$	1,031

The provision (benefit) for income taxes for the years ended December 31, 2020, 2019 and 2018 was allocated between continuing operations and discontinued operations as follows (in thousands):


	Year Ended December 31,
	2020		2019		2018
Continuing Operations	$	(7,504)	$	761	$	(957)
Discontinued Operations	—		—		—
Total	$	(7,504)	$	761	$	(957)

The provision (benefit) for income taxes from continuing operations for the years ended December 31, 2020, 2019 and 2018 consisted of the following components (in thousands):


	Year Ended December 31,
	2020		2019		2018
Current taxes:
U.S. federal	$	(180)	$	(5,901)	$	768
State	1,719		929		57
International	(1,942)		7,218		3,218
Total current taxes	(403)		2,246		4,043
Deferred taxes:
U.S. federal	32		32		(319)
State	114		(9)		—
International	(7,247)		(1,508)		(4,681)
Total deferred taxes	(7,101)		(1,485)		(5,000)
Provision (benefit) for income taxes	$	(7,504)	$	761	$	(957)

The items accounting for differences between the income tax provision (benefit) from continuing operations computed at the U.S. federal statutory rate and the provision (benefit) for income taxes for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):


	Year Ended December 31,
	2020		2019		2018 (2)
U.S. federal income tax provision (benefit) at statutory rate	$	(61,805)	$	(2,842)	$	216
Foreign income and losses taxed at different rates (1)	8,608		5,529		2,113
State income taxes, net of federal benefits, and state tax credits	6,487		5,297		720
Change in valuation allowances	(4,474)		(10,074)		(7,727)
Effect of income tax rate changes on deferred items	618		(3,443)		1,544
Tax effects of intercompany transactions	—		—		607
Adjustments related to uncertain tax positions	(15,518)		(12,418)		18
Non-deductible stock-based compensation expense	3,803		6,355		3,239
Tax (windfalls)/shortfalls on stock-based compensation awards	3,876		2,042		(335)
Federal research and development credits, net of adjustments	6,043		3,447		(8,331)
Forgiveness of intercompany liabilities	(2,863)		67		(1,340)
Ordinary stock loss	—		—		(11,815)
Net operating loss expiration	19,962		12,537		—
Goodwill impairment	23,202		—		—
Non-deductible or non-taxable items	4,557		(5,736)		20,134
Provision (benefit) for income taxes	$	(7,504)	$	761	$	(957)

(1)Tax rates in foreign jurisdictions were generally lower than the U.S. federal statutory rate through December 31, 2020. This results in an adverse impact to the provision (benefit) for income taxes in this rate reconciliation for the years ended December 31, 2020, 2019 and 2018 prior to the impact of valuation allowances, due to the net pretax losses from continuing operations in certain foreign jurisdictions with lower tax rates.

(2)During the year ended December 31, 2019, we updated our net operating losses to remove deferred tax assets that could never be utilized due to IRC Section 382 limitations. The amount of State income taxes, net of federal benefits, and state tax credits, Change in valuation allowances and Non-deductible or non-taxable items for the year ended December 31, 2018 have been updated from $2.0 million, $3.8 million and $7.3 million previously reported to reflect that change.

The deferred income tax assets and liabilities consisted of the following components as of December 31, 2020 and 2019 (in thousands):


	December 31,
	2020		2019
Deferred tax assets:
Accrued expenses and other liabilities	$	54,699	$	35,565
Operating lease obligation	16,279		22,557
Stock-based compensation	5,129		7,657
Net operating loss and tax credit carryforwards	142,835		157,202
Intangible assets, net	22,974		21,002
Investments	24,885		23,012
Unrealized foreign currency exchange losses	1,244		3,765
Other	985		1,017
Total deferred tax assets	269,030		271,777
Less: Valuation allowances	(212,143)		(206,394)
Deferred tax assets, net of valuation allowance	56,887		65,383
Deferred tax liabilities:
Prepaid expenses and other assets	(12,288)		(16,343)
Property, equipment and software, net	(8,211)		(11,994)
Right-of-use asset	(11,433)		(20,172)
Convertible senior notes	(1,163)		(1,883)
Deferred revenue	(15,369)		(14,064)
Total deferred tax liabilities	(48,464)		(64,456)
Net deferred tax asset (liability)	$	8,423	$	927

We have incurred significant losses in recent periods and had an accumulated deficit of $1,320.9 million as of December 31, 2020. As a result, we maintained valuation allowances against our domestic deferred tax assets and substantially all of our foreign deferred tax assets as of December 31, 2020 and 2019 to reduce their carrying values to amounts that are realizable either through future reversals of existing taxable temporary differences or through taxable income in carryback years for the applicable jurisdictions.

We had $24.1 million of federal net operating loss carryforwards as of December 31, 2020 which will begin expiring in 2027. We had $77.5 million of state net operating loss carryforwards as of December 31, 2020, which began expiring in the current period. As of December 31, 2020, we had $465.2 million of foreign net operating loss carryforwards, a significant portion of which carry forward for an indefinite period.

We are subject to taxation in the United States, state jurisdictions and foreign jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not criterion, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The following table summarizes activity related to our gross unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2020, 2019 and 2018 (in thousands):


	Year Ended December 31,
	2020		2019		2018
Beginning Balance	$	64,361	$	87,637	$	87,359
Increases related to prior year tax positions	8,389		3,754		1,500
Decreases related to prior year tax positions	(22,541)		(28,767)		(21)
Increases related to current year tax positions	1,994		6,086		7,533
Decreases based on settlements with taxing authorities	—		—		—
Decreases due to lapse of statute limitations	(5,640)		(3,875)		(9,447)
Foreign currency translation	2,397		(474)		713
Ending Balance	$	48,960	$	64,361	$	87,637

The total amount of unrecognized tax benefits as of December 31, 2020, 2019 and 2018 that, if recognized, would affect the effective tax rate are $19.9 million, $25.1 million and $33.3 million.

We recognized $1.0 million, $1.4 million and $1.6 million of interest and penalties within Provision (benefit) for income taxes on our consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018. Total accrued interest and penalties as of December 31, 2020 and 2019 were $4.9 million and $4.9 million, and are included within Other non-current liabilities in our consolidated balance sheets.

We are currently under audit by several foreign jurisdictions. It is likely that the examination phase of some of those audits will conclude in the next 12 months. There are many factors, including factors outside of our control, which influence the progress and completion of those audits. We recognized income tax benefits of $8.9 million, $12.3 million and $7.9 million for the years ended December 31, 2020, 2019 and 2018, as a result of new information that impacted our estimates of the amounts that are more-likely-than not of being realized upon settlement of the related tax positions and due to expirations of the applicable statutes of limitations. We are subject to claims for tax assessments by foreign jurisdictions, including a proposed assessment for $126.4 million, inclusive of estimated incremental interest from the original assessment. We believe that the assessment, which primarily relates to transfer pricing on transactions occurring in 2011, is without merit and we intend to vigorously defend ourselves in that matter. In addition to any potential increases in our liabilities for uncertain tax positions from the ultimate resolution of that assessment, we believe that it is reasonably possible that reductions of up to $3.4 million in unrecognized tax benefits may occur within the 12 months following December 31, 2020 upon closing of income tax audits or the expiration of applicable statutes of limitations.

In general, it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Additionally, while we did not incur the deemed repatriation tax, an actual repatriation from our non-U.S. subsidiaries could be subject to foreign and U.S. state income taxes. Aside from limited exceptions for which the related deferred tax liabilities recognized as of December 31, 2020 and 2019 are immaterial, we do not intend to distribute earnings of foreign subsidiaries for which we have an excess of the financial reporting basis over the tax basis of our investments and therefore have not recorded any deferred taxes related to such amounts. The actual tax cost resulting from a distribution would depend on income tax laws and circumstances at the time of distribution. Determination of the amount of unrecognized deferred tax liability related to the excess of the financial reporting basis over the tax basis of our foreign subsidiaries is not practical due to the complexities associated with the calculation.

Groupon uses a cost-sharing arrangement under which controlled members agree to share the costs and risks of developing intangible properties in accordance with their reasonably anticipated share of benefits from the intangibles. In 2019, the Ninth Circuit Court of Appeals entered a decision in Altera Corp. v. Commissioner requiring related parties in an intercompany cost-sharing arrangement to share expenses related to stock-based compensation. Altera then petitioned the United States Supreme Court to review the Ninth Circuit's decision. In June 2020, the Supreme Court denied this petition, and accordingly, the Ninth Circuit's Altera decision stands. The Altera decision did not have a material impact on our provision for income taxes for the years ended December 31, 2020 and 2019

- 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.

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