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Income Taxes
6 Months Ended
Mar. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
At the end of each interim period, we estimate a base effective tax rate that we expect for the full fiscal year based on our most recent forecast of pre-tax income, permanent book and tax differences and global tax planning strategies. We use this base rate to provide for income taxes on a year-to-date basis, excluding the effect of significant unusual items and items that are reported net of their related tax effects. We record the tax effect of significant unusual items and items that are reported net of their tax effects in the period in which they occur.
The effective tax rate was 22.6 percent and 22.1 percent in the three and six months ended March 31, 2016, respectively, compared to 25.5 percent in the three and six months ended March 31, 2015. The effective tax rate was lower than the U.S. statutory rate of 35 percent in each period primarily because we benefited from lower non-U.S. tax rates. In the three months ended March 31, 2016 we also realized a benefit from a discrete tax item. In the six months ended March 31, 2016 our effective tax rate was favorably impacted by this discrete tax item and the retroactive and permanent extension of the U.S. federal research and development tax credit during the first quarter of 2016.
The amount of gross unrecognized tax benefits was $48.7 million and $43.9 million at March 31, 2016 and September 30, 2015, respectively, of which the entire amount would reduce our effective tax rate if recognized.
Accrued interest and penalties related to unrecognized tax benefits were $4.8 million and $5.1 million at March 31, 2016 and September 30, 2015, respectively. We recognize interest and penalties related to unrecognized tax benefits in the income tax provision.
If the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, would be $31.7 million as of March 31, 2016.
There was no material change in the amount of unrecognized tax benefits in the six months ended March 31, 2016. We believe it is reasonably possible that the amount of gross unrecognized tax benefits could be reduced by up to $31.4 million in the next 12 months as a result of the resolution of tax matters in various global jurisdictions and the lapses of statutes of limitations. If all of the unrecognized tax benefits were recognized, the net reduction to our income tax provision, including the recognition of interest and penalties and offsetting tax assets, could be up to $15.2 million.
We conduct business globally and are routinely audited by the various tax jurisdictions in which we operate. We are no longer subject to U.S. federal income tax examinations for years before 2012 and are no longer subject to state, local and foreign income tax examinations for years before 2003.