INCOME TAXES

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Moody’s effective tax rate was 23.4% and 22.0% for the three months ended September 30, 2021 and 2020, respectively and 20.2% and 20.0% for the nine months ended September 30, 2021 and 2020. The Company’s year-to-date tax expense differs from the tax computed by applying its estimated annual effective tax rate to the year-to-date pre-tax earnings primarily due to Excess Tax Benefits from stock-based compensation of $29 million and net reductions in UTPs of $66 million related to a settlement and a lapse of a statute of limitations.

The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had an increase in its UTPs of $85 million ($84 million net of federal tax) during the third quarter of 2021 and an increase in its UTPs of $9 million ($17 million, net of federal tax) during the first nine months of 2021. The increase in both periods included UTPs assumed in the acquisition of RMS. The increase in the year-to-date period was partially offset by a tax settlement and a statute of limitation lapse in the first quarter of 2021. The Company also reversed $40 million in accrued interest in connection with these matters in the first quarter of 2021.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for 2017 and 2018 are currently under examination and 2019 through 2020 remain open to examination. The Company’s New York State tax returns for 2017 through 2018 are currently under examination and New York City tax returns for 2014 through 2017 are currently under examination.

For ongoing audits, it is possible the balance of UTPs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which could necessitate increases to the balance of UTPs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTPs.

The following table shows the amount the Company paid for income taxes:

	Nine Months Ended September 30,
	2021		2020
Income taxes paid	$	501	$	374