Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block] INCOME TAXES
Significant components of the provision for income tax expense (benefit) are as follows:
Year Ended December 31,
2019 2018 2017
(in thousands)
Current:
  Federal $ —    $ (55)   $ (702)  
  Foreign 61,834    40,239    50,970   
  State 5,523    6,828    4,117   
Total current 67,357    47,012    54,385   
Deferred:
  Federal 5,314    2,246    (56,442)  
  Foreign (6,345)   (8,697)   (15,841)  
  State 566    204    744   
Total deferred (465)   (6,247)   (71,539)  
Income tax expense (benefit) $ 66,892    $ 40,765    $ (17,154)  

The domestic income (loss) before income taxes was $36.1 million, $43.5 million and $(132.6) million for 2019, 2018 and 2017, respectively. Foreign income before income taxes was $149.0 million, $87.6 million and $123.2 million for 2019, 2018 and 2017, respectively.
Significant components of our deferred tax liabilities and assets are as follows:
December 31,
2019 2018
(in thousands)
Deferred tax liabilities:
          Leases $ 192,870    $ —   
          Intangible assets 161,843    118,275   
          Prepaid expenses 5,876    2,534   
          Other 19,186    5,865   
Total deferred tax liabilities 379,775    126,674   
Deferred tax assets:
          Intangible assets 40,926    25,981   
          Accrued expenses 60,479    40,989   
          Net operating loss carryforwards 488,081    388,459   
          Foreign tax and other credit carryforwards 47,215    38,919   
          Equity compensation 22,503    24,211   
           Leases 211,206    —   
          Other 12,751    15,703   
Total gross deferred tax assets 883,161    534,262   
          Valuation allowance 667,242    530,642   
          Total deferred tax assets 215,919    3,620   
          Net deferred tax liabilities $ (163,856)   $ (123,054)  
Each reporting period, we evaluate the realizability of all of our deferred tax assets in each tax jurisdiction. As of December 31, 2019, we continued to maintain a full valuation allowance against our net deferred tax assets in certain jurisdictions due to cumulative pre-tax losses. As a result of the valuation allowances, no tax benefits have been recognized for losses incurred in those tax jurisdictions in 2019, 2018 and 2017. The leases deferred tax liabilities and leases deferred tax assets were recorded in 2019 pursuant to the new lease accounting standard. See Note 1—The Company and Summary of Significant Accounting Policies for a discussion of the new lease standard.
During 2019 and 2018, we recorded net deferred tax liabilities of $43.3 million and $4.0 million, respectively, due principally to differences in financial reporting and tax bases in assets acquired in business combinations. This is the primary reason for the increase in intangible assets deferred tax liability
As of December 31, 2019, we have United States federal, state and foreign deferred tax assets related to net operating loss carryforwards of $99.9 million, $61.6 million and $326.6 million, respectively. The increase in net operating loss carryforwards is primarily attributed to loss carryforwards as reported in our most recently filed tax returns. The majority of the increase in net operating loss carryforwards are in jurisdictions for which we maintain a full valuation allowance against net deferred tax assets. Based on current statutory carryforward periods, the operating loss carryforwards will expire on various dates beginning in 2025. Our federal net operating loss may be subject to statutory limitations on the amount that can be used in any given year.
The reconciliation of income tax computed at the United States federal statutory rates to income tax expense (benefit) is:
Year Ended December 31,
2019 2018 2017
(in thousands)
Income tax expense (benefit) at United States statutory rates (21%, 21% and 35%, respectively)
 $ 38,872    $ 27,532    $ (3,283)  
State income taxes, net of federal tax benefits 3,137    4,860    1,544   
Differences between foreign and United States statutory rates
 6,384    2,650    (10,887)  
United States tax reform rate change —    —    (55,685)  
Non-United States income inclusions and exclusions (3,222)   (3,425)   3,826   
United States income inclusions and exclusions (2,582)   (13,790)   11,347   
Nondeductible items 10,118    26,376    11,380   
Tax contingencies (1,340)   389    1,955   
Tax expense from acquired goodwill 6,107    4,353    4,489   
Change in valuation allowance 8,536    (8,845)   18,067   
Other, net 882    665    93   
$ 66,892    $ 40,765    $ (17,154)  
Income tax expense is principally attributable to our earnings in foreign tax jurisdictions along with state income taxes.
Amounts included in differences between foreign and United States statutory rates are impacted by changes in the mix of international earnings subject to various tax rates which can differ greatly in their proximity to the United States statutory rate. The differences between statutory rates is also impacted by our Luxembourg affiliates and tax rulings which include the application of a reduced Luxembourg effective rate to the net income before tax resulting from our financing activities in Luxembourg.
The United States tax reform change amount in 2017 pertains to the impact of the provisions associated with the Tax Cuts and Jobs Act (“TCJA”).
Amounts included in United States income inclusions and exclusions for 2019 and 2018 include the favorable impact of tax deductions for vesting of restricted stock awards and exercises of stock options partially offset by unfavorable inclusions for global intangible low-taxed income (“GILTI”) under the provisions associated with the TCJA.

Nondeductible items in 2019 and 2018 include the impact of increased nondeductible expenses pursuant to the provisions of the TCJA including nondeductible executive compensation. Nondeductible items in 2018 and 2017 include our goodwill impairment for Artist Services (non-managment) which was not deductible for income tax purposes.
The change in valuation allowance for each period presented resulted primarily from changes in the income within jurisdictions with full valuation allowances, including the United States.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
Year Ended December 31,
2019 2018 2017
(in thousands)
Balance at January 1 $ 34,071    $ 30,630    $ 15,117   
Additions:
          Increase for current year positions 2,215    1,531    807   
          Increase for prior year positions 1,898    2,995    15,498   
          Interest and penalties for prior years 458    106    2,745   
Reductions:
          Decrease for prior year positions (3,272)   —    —   
          Expiration of applicable statute of limitations —    (730)   (1,233)  
          Settlements for prior year positions (13,852)   (9)   (2,033)  
Foreign exchange 205    (452)   (271)  
Balance at December 31 $ 21,723    $ 34,071    $ 30,630   
In February 2019, the Company reached a settlement agreement with the Canadian taxing authority regarding existing uncertain tax positions. The gross liability for unrecognized tax benefits primarily decreased in 2019 due to this settlement.
If we were to prevail on all uncertain tax positions, the net effect would be a decrease to our income tax provision of approximately $1.8 million. The remaining $19.9 million is offset by deferred tax assets that represent tax benefits that would be received in the event that we did not prevail on all uncertain tax positions. As of December 31, 2019, it is not expected that the total amounts of unrecognized tax benefits will increase or decrease materially within the next year.
We regularly assesses the likelihood of additional assessments in each taxing jurisdiction resulting from current and subsequent years’ examinations. Liabilities for income taxes are established for future income tax assessments when it is probable there will be future assessments and the amount can be reasonably estimated. Once established, liabilities for uncertain tax positions are adjusted only when there is more information available or when an event occurs necessitating a change to the liabilities. As of December 31, 2019, we believe that the resolution of income tax matters for open years will not have a material effect on our consolidated financial statements although the resolution of income tax matters could impact our effective tax rate for a particular future period.
The tax years 2009 through 2019 remain open to examination by the primary tax jurisdictions to which we are subject.