Enova International, Inc.

9. Income Taxes

The components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 were as follows (in thousands):

	As of December 31,
	2017			2016
Deferred tax assets:
Loans and finance receivables, net	$	27,444		$	38,275
Compensation and benefits		4,423			7,397
Translation adjustments		2,531			6,726
Accrued rent and deferred finish out allowance		2,786			4,372
Foreign net operating loss carryforward		2,164			1,449
Other		1,441			1,960
Total deferred tax assets	$	40,789		$	60,179
Deferred tax liabilities:
Amortizable intangible assets	$	42,334		$	60,762
Property and equipment		7,760			11,443
Other		153			483
Total deferred tax liabilities	$	50,247		$	72,688
Net deferred tax liabilities before valuation allowance	$	(9,458	)	$	(12,509	)
Valuation allowance		(2,650	)		(1,807	)
Net deferred tax liabilities	$	(12,108	)	$	(14,316	)

The components of the provision for income taxes and the income to which it relates for the years ended December 31, 2017, 2016 and 2015 are shown below (in thousands):

	Year Ended December 31,
	2017			2016			2015
Income before income taxes:
Domestic	$	37,900		$	57,422		$	70,519
International		—			14			—
Income before income taxes	$	37,900		$	57,436		$	70,519
Current provision (benefit):
Federal	$	11,366		$	22,656		$	25,601
International		(3	)		94			114
State and local		2,045			2,347			2,211
Total current provision for income taxes	$	13,408		$	25,097		$	27,926
Deferred benefit:
Federal	$	(4,461	)	$	(2,152	)	$	(1,360	)
International		—			—			—
State and local		(287	)		(111	)		(39	)
Total deferred benefit for income taxes	$	(4,748	)	$	(2,263	)	$	(1,399	)
Total provision for income taxes	$	8,660		$	22,834		$	26,527

The effective tax rate on income differs from the federal statutory rate of 35% for the following reasons (dollars in thousands):

	Year Ended December 31,
	2017			2016			2015
Tax provision computed at the federal statutory income tax rate	$	13,265		$	20,103		$	24,682
Deferred tax impact of tax reform		(7,491	)		—			—
State and local income taxes, net of federal tax benefits		1,440			1,401			1,408
Share based compensation		(1,005	)		1,656			—
Foreign exchange gain		724			—			—
Other		1,727			(326	)		437
Total provision	$	8,660		$	22,834		$	26,527
Effective tax rate		22.9	%		39.8	%		37.6	%

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. The new tax legislation contains several key tax provisions including the reduction of the corporate income tax rate to 21% effective January 1, 2018 as well as a variety of other changes including the acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. The Company has recorded an estimated net tax benefit of $7.5 million from the remeasurement of deferred tax assets and liabilities at lower enacted corporate tax rates. ASC 740 requires the Company to recognize the effect of the tax law changes in the period of enactment. Adjustments to deferred tax expense could arise when deferred taxes are trued-up to the amounts reported on the tax returns through the return-to-provision process. In addition, the legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service (“IRS”), any of which could affect the estimates included in the provision. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. If any adjustment is required, it will be reflected as an additional expense or benefit in the 2018 financial statements, as allowed by SEC Staff Accounting Bulletin No. 118.

The Company has gross foreign net operating loss carryforwards from Brazilian operations of $10.7 million as of December 31, 2017, $4.3 million as of December 31, 2016, and $2.8 million as of December 31, 2015. These net operating loss carryforwards are subject to annual limitations and have an unlimited carryforward period. The Company has recorded a full valuation allowance related to the foreign net operating loss carryforwards, as well as other foreign deferred tax assets, as they are not more likely than not to be utilized.

The following table summarizes the valuation account activity for the years ended December 31, 2017, 2016 and 2015 (in thousands):

	Year Ended December 31,
	2017		2016		2015
Balance at beginning of period	$	1,807	$	1,220	$	670
Additions		843		587		550
Deductions		—		—		—
Balance at end of period	$	2,650	$	1,807	$	1,220

A reconciliation of the activity related to unrecognized tax benefits follows for the fiscal years indicated (in thousands):

	Year Ended December 31,
	2017		2016
Balance at beginning of period	$	351	$	—
Additions based on tax positions related to the current year		229		118
Additions for tax positions of prior years		147		233
Balance at end of period	$	727	$	351

The Company does not believe it is reasonably possible that, within the next twelve months, unrecognized domestic tax benefits will change by a significant amount. The Company recorded no expense for interest and penalties related to tax matters as of December 31, 2017.

The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. The IRS audits for tax years 2011 through 2014 were concluded with no adjustments to the financial statements. The 2015 and 2016 tax years are open to examination by the IRS. The years open to examination by state, local, and foreign government authorities vary by jurisdiction, but the statute of limitation is generally three years from the date the tax return is filed.