11. Income Taxes

The domestic and foreign components of pre-tax loss were as follows:

The components of our income tax (benefit) expense were as follows:

The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:

The significant components of net deferred tax balances were as follows:

Income tax expense was $0.4 million for the year ended December 31, 2019, compared to a tax expense of $2.5 million for the year ended December 31, 2018.

The Tax Act made significant changes to the Code, including a corporate income tax rate decrease to 21% effective for tax years beginning after December 31, 2017. The Tax Act also introduced the global intangible low-taxed income (“GILTI”) provisions, which generally impose a tax on the net income of foreign corporate subsidiaries in excess of a deemed return on their tangible assets. We recognize the tax on GILTI as an expense in the period the tax is incurred. We have not provided deferred taxes related to temporary differences that on their reversal will affect the amount of income subject to GILTI in the period the tax is incurred.

Upon the adoption of ASU 2016-12 on January 1, 2019, we recognized a $90.9 million deferred tax asset and a $69.0 million deferred tax liability for operating lease liabilities and operating lease right-of-use assets, respectively, with offsetting $14.4 million and $7.5 million reductions to the deferred tax assets for accrued expenses and property and equipment, respectively. Taken together on a net basis, there is no change to our total net deferred tax assets before valuation allowance as a result of these changes.

The issuance of the Convertible Notes in August 2019 resulted in a temporary difference between the carrying amount and tax basis of the Convertible Notes due to the allocation of debt proceeds and debt issuance costs between the liability and equity components. This basis difference resulted in the recognition of a $92.1 million net deferred tax liability and an offsetting change to our valuation allowance, both of which were recorded to additional paid-in-capital on our consolidated balance sheets.

As of December 31, 2019, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries. We intend to continue to reinvest our foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts.

As of December 31, 2019, we had accumulated U.S. federal and state net operating loss carryforwards of $4.0 billion and $2.3 billion, respectively. Of the $4.0 billion of federal net operating loss carryforwards, $1.5 billion was generated before January 1, 2018 and is subject to a 20-year carryforward period. The remaining $2.5 billion can be carried forward indefinitely but is subject to an 80% taxable income limitation. The pre-Tax Act losses and state net operating loss carryforwards will begin to expire in 2031 and 2026, respectively. As of December 31, 2019, we had $1.3 billion of U.K. net operating loss carryforwards that can be carried forward indefinitely. As of December 31, 2019, we had accumulated U.S. federal and state research tax credits of $225.2 million and $135.8 million, respectively. The U.S. federal research tax credits will begin to expire in 2032. The U.S. state research tax credits do not expire.

We recognize valuation allowances on deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. We had valuation allowances against net deferred tax assets of $1.8 billion and $1.5 billion as of December 31, 2019 and 2018, respectively. In 2019, the increase in valuation allowance attributable to the net increase in our deferred tax assets resulting from the loss from operations was partially offset by the release of valuation allowance in additional paid-in-capital related to the Convertible Note issuance.

Uncertain Tax Positions

The following table summarizes the activity related to our gross unrecognized tax benefits during the years ended December 31, 2019 and 2018:

The total amount of gross unrecognized tax benefits, including related interest and penalties, was $286.8 million and $252.1 million as of December 31, 2019 and 2018, respectively.

Substantially all of the unrecognized tax benefit was recorded as a reduction in our gross deferred tax assets, offset by a corresponding reduction in our valuation allowance. We have net unrecognized tax benefits of $1.5 million and $2.7 million that is included in other liabilities on our consolidated balance sheet as of December 31, 2019 and 2018, respectively. Assuming there continues to be a valuation allowance against deferred tax assets in future periods when gross unrecognized tax benefits are realized, this would result in a tax benefit of $2.7 million within our provision of income taxes at such time.

Our policy is to recognize interest and penalties associated with tax matters as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our consolidated balance sheet. During the year ended December 31, 2019, interest expense recorded related to uncertain tax positions was not material.

In June 2019, the United States Court of Appeals for the Ninth Circuit overturned the 2015 Tax Court decision in Altera Corp. v. Commissioner, upholding the portion of the Treasury regulations issued under Section 482 of the Code requiring related-party participants in a cost sharing arrangement to share stock-based compensation costs. In July 2019, the taxpayer filed a petition for an en banc rehearing before the Ninth Circuit, which was denied in November 2019. The taxpayer has 90 days from that date to petition the U.S. Supreme Court for review of the decision. Depending on the final resolution of this matter, there is a reasonable possibility that there will be a significant impact on our gross unrecognized tax benefits. As a result of the valuation allowance held against our deferred tax assets, we do not believe the final resolution will result in a material impact on our income tax expense, net deferred taxes, net unrecognized tax benefits, or consolidated financials.

The income taxes we pay are subject to review by taxing jurisdictions globally. Our estimate of the potential outcome of any uncertain tax position is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. We believe that our estimate has adequately provided for these matters. However, our future results may include adjustments to estimates in the period the audits are resolved, which may impact our effective tax rate.

Tax years ending on or after December 31, 2012 are subject to examination in the U.S., and tax years ending on or after December 31, 2017 are subject to examination in the U.K.