Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Pre-tax loss reflected in the consolidated statements of operations for the years ended March 31, 2021, 2020 and 2019 is as follows (in thousands):
Year Ended March 31,
2021 2020 2019
U.S. $ (36,648) $ (6,318) $ (40,935)
Foreign 1,428  1,911  514 
Total $ (35,220) $ (4,407) $ (40,421)
Income tax provision consists of the following (in thousands):
Year Ended March 31,
2021 2020 2019
Current tax expense
   Federal $ (76) $ (115) $ (217)
   State 339  106  31 
   Foreign 747  1,271  1,103 
      Total current tax expense 1,010  1,262  917 
Deferred tax expense
   Federal (577) —  — 
   State 9  33  32 
   Foreign (203) (492) 1,427 
      Total deferred tax expense (benefit) (771) (459) 1,459 
Income tax provision $ 239  $ 803  $ 2,376 

The income tax provision differs from the amount computed by applying the federal statutory rate of 21% to loss before income taxes as follows (in thousands):
For the year ended March 31,
2021 2020 2019
Expiration of attributes $ 9,862  $ 11,679  $ 12,268 
Valuation allowance 5,444  (2,639) 10,913 
Permanent items 1,295  914  359 
Equity compensation 345  280  905 
Tax reform —  —  (207)
Credit monetization —  —  — 
Foreign taxes (129) 1,612  (2,133)
State income taxes (969) (20) (997)
Research and development credits (1,829) (1,566) (879)
Uncertain tax positions (6,695) (8,654) (9,278)
Expense at the federal statutory rate (7396) (925) (8488)
Other 311  122  (87)
Income tax provision $ 239  $ 803  $ 2,376 
Significant components of deferred tax assets and liabilities are as follows (in thousands):
As of March 31,
2021 2020
Deferred tax assets
Loss carryforwards $ 76,153  $ 85,638 
Deferred revenue 21,839  17,043 
Tax credits 16,574  17,416 
Disallowed interest 12,132  8,958 
Other accruals and reserves not currently deductible for tax purposes 8,192  16,339 
Capitalized research and development 7,811  — 
Lease obligations 1,747  3,413 
Inventory 1,374  924 
Accrued warranty expense 569  650 
Acquired intangibles 454  2,660 
Gross deferred tax assets 146,845  153,041 
Valuation allowance (143,263) (137,814)
   Total deferred tax assets, net of valuation allowance $ 3,582  $ 15,227 
Deferred tax liabilities
Depreciation $ (1,440) $ (1,440)
Lease assets (1,670) (3,413)
Other (1,013) (967)
   Total deferred tax liabilities $ (4,123) $ (5,820)
           Net deferred tax assets (liabilities) $ (541) $ 9,407 

The valuation allowance increased by $5,449 during the year ended March 31, 2021, decreased by $2,545 during the year ended March 31, 2020, and increased by $10,311 during the year ended March 31, 2019.

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):
For the year ended March 31,
2021 2020 2019
Beginning Balance $ 107,282  $ 116,032  $ 150,559 
Increase in balances related to tax positions in current period 2,560  2,275  1,718 
Increase in balances related to tax positions in prior period —  144  — 
Increase in balances related to acquisitions 511  —  — 
Decrease in balances related to tax positions in prior period (522) (4) (25,095)
Decrease in balances due to lapse in statute of limitations (8,712) (11,165) (11,150)
Ending balance $ 101,119  $ 107,282  $ 116,032 

During fiscal 2021, excluding interest and penalties, there was a $6.2 million change in the Company's unrecognized tax benefits. Including interest and penalties, the total unrecognized tax benefit at March 31, 2021 was $102.2 million, of which $83.9 million, if recognized, would favorably affect the effective tax rate. At March 31, 2021, accrued interest and penalties totaled $1.2 million. The Company's practice is to recognize interest and penalties related to income tax matters in the income tax provision in the consolidated statements of operations. As of March 31, 2021, $95.5 million of unrecognized tax benefits were recorded as a contra deferred tax asset in other long-term assets in the consolidated balance sheets and $6.7 million (including interest and penalties) were included in other long-term liabilities in the consolidated balance sheets.
The Company files its tax returns as prescribed by the laws of the jurisdictions in which it operates. The Company's U.S. tax returns have been audited for years through 2002 by the Internal Revenue Service. In other major jurisdictions, the Company is generally open to examination for the most recent three to five fiscal years. During the next 12 months, it is reasonably possible that approximately $9.1 million of tax benefits, inclusive of interest and penalties, that are currently unrecognized could be recognized as a result of the expiration of applicable statutes of limitations.
As of March 31, 2021, the Company had federal net operating loss and tax credit carryforwards of approximately $293.2 million and $59.5 million, respectively. The net operating loss and tax credit carryforwards expire in varying amounts beginning in fiscal year 2022 if not previously utilized, and $12.8 million are indefinite-lived net operating loss carryforwards. These carryforwards include $11.1 million of acquired net operating losses and $8.0 million of acquired credits, the utilization of which is subject to various limitations due to prior changes in ownership.
Certain changes in stock ownership could result in a limitation on the amount of both acquired and self-generated net operating loss and tax credit carryovers that can be utilized each year. If the Company has previously undergone, or should it experience in the future, such a change in stock ownership, it could severely limit the usage of these carryover tax attributes against future income, resulting in additional tax charges.
Due to its history of net losses and the difficulty in predicting future results, Quantum believes that it cannot rely on projections of future taxable income to realize the deferred tax assets. Accordingly, it has established a full valuation allowance against its U.S. and certain foreign net deferred tax assets. Significant management judgement is required in determining the Company's deferred tax assets and liabilities and valuation allowances for purposes of assessing its ability to realize any future benefit from its net deferred tax assets. The Company intends to maintain this valuation allowance until sufficient positive evidence exists to support the reversal of the valuation allowance. The Company's income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, its valuation allowance.
The Company recorded an income tax benefit in the fiscal year ended March 31, 2021 of $0.6 million related to foreign currency-related gains recognized in other comprehensive income on U.S. taxes previously imposed on certain income of its foreign subsidiaries. Pursuant to an exception to the incremental method of intraperiod-tax allocation applicable for fiscal years beginning on or before December 15, 2020, tax benefit is recognized on a loss from continuing operations to the extent of income from other comprehensive income. A commensurate amount of tax expense is charged to other comprehensive income for this gain.