INCOME TAXES

12 Months Ended

Dec. 31, 2015

NOTE 14 INCOME TAXES

Components of the Company’s provision for income taxes are as follows:

			Year Ended December 31,
			2015		2014		2013
Current:
	Federal		$	278.2	$	252.8	$	226.2
	State and Local			40.1		70.2		57.6
	Non-U.S.			93.6		102.1		96.8
		Total current		411.9		425.1		380.6
Deferred:
	Federal			14.7		0.9		(13.1)
	State and Local			7.6		4.9		(5.6)
	Non-U.S.			(4.2)		24.1		(8.5)
		Total deferred		18.1		29.9		(27.2)
Total provision for income taxes			$	430.0	$	455.0	$	353.4

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate on income before provision for income taxes is as follows:

	Year Ended December 31,
	2015		2014		2013
U.S. statutory tax rate		35.0%		35.0%		35.0%
State and local taxes, net of federal tax benefit		3.0		3.6		2.9
Benefit of foreign operations		(5.8)		(7.4)		(6.4)
Legacy tax items		(0.2)		(0.2)		(0.6)
Other		(0.8)		0.1		(0.7)
Effective tax rate		31.2%		31.1%		30.2%
Income tax paid	$	397.4	$	369.4	$	335.7

The source of income before provision for income taxes is as follows:

	Year Ended December 31,
	2015		2014		2013
United States	$	913.9	$	912.6	$	$836.10
International		465.7		548.4		333.2
Income before provision for income taxes	$	1,379.6	$	1,461.0	$	$1,169.30

The components of deferred tax assets and liabilities are as follows:

				December 31,
				2015		2014
Deferred tax assets:
	Current:
		Account receivable allowances		$	6.6		7.7
		Accrued compensation and benefits			12.5		14.6
		Deferred revenue			8.0		6.7
		Legal and professional fees			10.7		10.4
		Restructuring			1.2		2.3
		Other			3.0		3.5
			Total current		42.0		45.2
	Non-current:
		Accumulated depreciation and amortization			0.9		0.9
		Stock-based compensation			56.1		62.3
		Benefit plans			101.6		108.7
		Deferred rent and construction allowance			28.5		30.5
		Deferred revenue			35.8		34.2
		Foreign net operating loss ⁽¹⁾			3.7		7.5
		Uncertain tax positions			38.2		38.3
		Self-insured related reserves			22.7		14.9
		Other			4.4		5.6
			Total non-current		291.9		302.9
Total deferred tax assets					333.9		348.1
Deferred tax liabilities:
	Current:
		Compensation and benefits			(3.0)		(3.0)
		Unrealized gain on net investment hedges - OCI			(24.2)		(14.0)
		Other			(1.5)		(1.1)
			Total Current		(28.7)		(18.1)
	Non-current:
		Accumulated depreciation and amortization of intangible assets and capitalized software			(203.0)		(204.3)
		Foreign earnings to be repatriated			(2.9)		(3.4)
		Self-insured related income			(22.7)		(16.9)
		Other liabilities			(5.8)		(0.1)
			Total non-current		(234.4)		(224.7)
Total deferred tax liabilities					(263.1)		(242.8)
Net deferred tax asset					70.8		105.3
Valuation allowance					(4.3)		(6.9)
Total net deferred tax assets				$	66.5	$	98.4
⁽¹⁾ Amounts are primarily set to expire beginning in 2018, if unused.

As of December 31, 2015, the Company had $2,367.9 million of undistributed earnings of foreign subsidiaries that it intends to indefinitely reinvest in foreign operations. The Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.

The Company had valuation allowances of $4.3 million and $6.9 million at December 31, 2015 and 2014, respectively, related to foreign net operating losses for which realization is uncertain.

As of December 31, 2015 the Company had $203.4 million of UTPs of which $148.8 million represents the amount that, if recognized, would impact the effective tax rate in future periods.

A reconciliation of the beginning and ending amount of UTPs is as follows:

	Year Ended December 31,
	2015		2014		2013
Balance as of January 1	$	220.3	$	195.6	$	156.6
Additions for tax positions related to the current year		24.1		52.5		67.8
Additions for tax positions of prior years		14.0		8.7		6.1
Reductions for tax positions of prior years		(41.6)		(31.4)		(10.1)
Settlements with taxing authorities		(7.8)		(1.8)		(21.4)
Lapse of statute of limitations		(5.6)		(3.3)		(3.4)
Balance as of December 31	$	203.4	$	220.3	$	195.6

The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating expenses. During the years ended December 31, 2015 and 2014, the Company incurred a net interest expense of $7.2 million and $5.5 million respectively, related to UTPs. As of December 31, 2015 and 2014, the amount of accrued interest recorded in the Company’s consolidated balance sheet related to UTP’s was $27.9 million and $20.8 million, respectively.

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 settled U.S. tax audit years 2008 through 2010 in the fourth quarter of 2015. The Company’s U.S. federal income tax returns for the years 2011 and 2012 are under examination and its 2013 and 2014 returns remain open to examination. The Company’s New York State income tax returns for 2011 to 2014 are under examination. The Company’s New York City tax return for 2013 is currently under examination and its 2014 tax return remains open to examination. The Company settled the U.K. tax audit for tax years 2007 through 2011 during the first quarter of 2014. The Company’s U.K. tax return for 2012 is under examination. Tax filings in the U.K. remain open to examination for 2013 and 2014.

For current ongoing audits related to open tax years, the Company estimates that it is possible that the balance of UTPs could decrease in the next twelve months as a result of the effective 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 might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time.