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Income Taxes
9 Months Ended
Sep. 28, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. Federal jurisdiction, which is the Company’s primary tax jurisdiction, and various state and foreign jurisdictions. At September 28, 2018, the statutes of limitations for the Company’s U.S. Federal income tax returns for the years ended December 31, 2012, 2013, 2015 and 2016 were open.
The U.S. Internal Revenue Service (IRS) is auditing the Company’s U.S. Federal income tax returns for the years ended 2012 and 2013. The Company expects the audits to conclude within the next 12 months. The Company cannot predict the outcome of the audits at this time.
During the quarterly period ended September 28, 2018, the statutes of limitations for several of the Company's tax returns, including its 2014 U.S. Federal income tax return as well as certain foreign tax returns expired. As a result, the Company reduced its income tax provision by $14 million for the reversal of previously accrued amounts.
The U.S. Government enacted U.S. Tax Reform on December 22, 2017, which made significant changes to the U.S. tax system. Significant changes under U.S. Tax Reform included, among other things, the reduction of the U.S. corporate income tax rate from 35% to 21%, the implementation of a modified territorial tax system and the imposition of a one-time repatriation tax on deemed repatriated earnings and profits of U.S. owned foreign subsidiaries (Toll Charge). As a result, the Company recorded an estimated tax benefit (Preliminary Net Tax Benefit) of $79 million from U.S. Tax Reform in its consolidated financial statements for the year ended December 31, 2017. In accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), the Company increased the Preliminary Net Tax Benefit by $3 million during the quarterly and year-to-date periods ended September 28, 2018. The adjusted Preliminary Net Tax Benefit of $82 million includes a $100 million estimated tax benefit related to the remeasurement of deferred taxes partially offset by an estimated tax provision of $18 million related to the Toll Charge. SAB 118 allows for a measurement period of up to one year after the enactment date of U.S. Tax Reform to finalize the recording of the related tax impacts. As such, the Preliminary Net Tax Benefit ultimately recorded may differ in the future due principally to changes to the interpretations of U.S. Tax Reform and legislative action to clarify the interpretation of U.S. Tax Reform. Additionally, the Company is still evaluating the Global Intangible Low-Taxed Income (GILTI) provisions enacted under U.S. Tax Reform, and the associated election to record its effects as a period cost or as a component of deferred taxes.
The effective income tax rate for the quarterly period ended September 28, 2018 decreased to 8.0%, compared to 24.0% for the quarterly period ended September 29, 2017, due to the reversal of previously accrued amounts related to various U.S. Federal, foreign and state tax matters, tax benefits from U.S. Tax Reform and stock-based compensation expense.
The effective income tax rate for the year-to-date period ended September 28, 2018 decreased to 13.3%, compared to 22.8% for the same period last year, due to tax benefits of U.S. Tax Reform and stock-based compensation expense, partially offset by the related income tax impact of the sale of the Crestview & TCS Businesses.
At September 28, 2018, the Company anticipates that unrecognized tax benefits will decrease by approximately $32 million over the next 12 months due to the potential resolution of unrecognized tax benefits involving several jurisdictions and tax periods. The actual amount of the decrease over the next 12 months could vary significantly depending on the ultimate timing and nature of any settlements.
Current and non-current income taxes payable include accrued potential interest of $16 million ($12 million after income taxes) at September 28, 2018 and $15 million ($11 million after income taxes) at December 31, 2017, and potential penalties of $9 million at September 28, 2018 and $8 million at December 31, 2017.