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## 16. INCOME TAXES (continued) 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

## COHERENT, INC. AND SUBSIDIARIES 

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We have various tax attribute carryforwards which include the following: 

• Foreign federal and local gross net operating loss carryforwards are $61.6 million, of which $47.0 million have no expiration date and $14.6 million have various expiration dates beginning in fiscal 2020. Among the total of $61.6 million foreign net operating loss carryforwards, a valuation allowance of $31.7 million has been provided for certain jurisdictions since the recovery of the carryforwards is uncertain. U.S. federal and certain state gross net operating loss carryforwards are $14.0 million and $30.7 million, respectively, which were acquired from our acquisitions. A full valuation allowance against certain other state net operating losses of $30.7 million has been recorded. California gross net operating loss carryforwards are $2.8 million and are scheduled to expire beginning in fiscal 2032. 

• U.S. federal R&D credit carryforwards of $35.4 million are scheduled to expire beginning in fiscal 2025. California R&D credit carryforwards of $32.2 million have no expiration date. A total of $27.1 million valuation allowance, before U.S. federal benefit, has been recorded against California R&D credit carryforwards of $32.2 million since the recovery of the carryforwards is uncertain. Other states R&D credit carryforwards of $3.9 million are scheduled to expire beginning in fiscal 2020. A valuation allowance totaling $2.7 million, before U.S. federal benefit, has been recorded against certain state R&D credit carryforwards of $3.9 million since the recovery of the carryforwards is uncertain. 

• U.S. federal foreign tax credit carryforwards of $51.9 million are scheduled to expire beginning in fiscal 2022. 

We are subject to taxation and file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S. and Germany. For U.S. federal and German income tax purposes, all years prior to fiscal 2016 and 2010, respectively, are closed to examination. In our other major foreign jurisdictions and our major state jurisdictions, the years prior to fiscal 2013 and 2015, respectively, are closed. Earlier years in our various jurisdictions may remain open for adjustment to the extent that we have tax attribute carryforwards from those years. 

In November 2018, Coherent Korea Ltd. received a tax audit notice for fiscal 2016. The audit began in December 2018. The South Korean tax authorities also performed an audit focused on intercompany transfer pricing arrangements for fiscal 2014, 2015 and 2017. In May 2019, the South Korean tax authorities issued transfer pricing assessments for taxes, royalties and sales commissions. We are in the process of appealing and contesting these assessments through the Competent Authority process between South Korea, Germany and the United States. Accordingly, there is no change to our tax reserves at the time of filing of this annual report. We are continuing to monitor and evaluate this situation. 

In Germany, various Coherent and legacy Rofin entities are under audit for the years 2010 through 2016. The timing and the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Management believes that it has adequately provided for any adjustments that may result from tax examinations. We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. Although the timing of resolution, settlement and closure of audits is not certain, we do not believe it is reasonably possible that our unrecognized tax benefits will materially change in the next 12 months. 

A reconciliation of the change in gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands): 

