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Income Taxes
9 Months Ended
Sep. 30, 2017
Income Taxes  
Income Taxes

 

10.   Income Taxes

 

Our effective income tax rate (ETR) for the nine months ended September 30, 2017 and September 30, 2016 was 37 percent and 32 percent, respectively. Our 2017 ETR increased compared to 2016 primarily due to the following expenses incurred during the nine months ended September 30, 2017: (1) the nondeductible portion of a $210.0 million loss contingency accrual; and (2) the impairment charges related to two of our investments held at cost that are not currently deductible for tax purposes.

 

During the second quarter of 2017, we recorded a $210.0 million accrual relating to an ongoing investigation by the U.S. Department of Justice. During the second quarter, we did not recognize any tax benefit relating to this accrual, because at the time we did not have sufficient information to indicate it would be tax deductible. During the third quarter of 2017, we received additional information supporting recognition of a tax benefit of $57.0 million related to a portion of this accrual. Refer to Note 12—Litigation.

 

During the nine months ended September 30, 2017, we recorded $49.6 million of impairment charges related to two of our investments held at cost. The impairment charges are not currently deductible for tax purposes, so we recorded a deferred tax asset of $18.3 million. We evaluated potential future sources of income of the appropriate character to determine whether the deferred tax asset was realizable and have not found sufficient sources of capital gains to offset the deferred tax asset. Therefore, the deferred tax asset must be fully reserved with a valuation allowance. The impact of this valuation allowance on our ETR as of September 30, 2017 is 3 percent and the anticipated impact on our ETR for 2017 is 2 percent.

 

We are subject to federal and state taxation in the United States as well as various foreign jurisdictions. We are no longer subject to income tax examinations by the Internal Revenue Service and substantially all other major jurisdictions for tax years prior to 2011.

 

As of both September 30, 2017 and September 30, 2016, our uncertain tax positions were $0.5 million. Unrecognized tax benefits as of both September 30, 2017 and September 30, 2016, included $0.3 million of tax benefits that, if recognized, would impact our ETR. We record interest and penalties related to uncertain tax positions as a component of income tax expense. As of both September 30, 2017 and September 30, 2016, we have not accrued any interest expense related to uncertain tax positions. We are unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

 

As a result of the adoption of ASU 2016-09 in the first quarter of 2017, we established an accounting policy election to account for forfeitures of share-based awards when they occur. Upon adoption, we recognized a cumulative-effect adjustment for the removal of the forfeiture estimate with respect to awards that were continuing to vest as of January 1, 2017. The adjustment resulted in a $3.2 million tax benefit to reduce retained earnings.

 

Additionally, we now recognize excess tax benefits as income tax benefits on our consolidated statements of operations. For the nine months ended  September 30, 2017, we recognized excess tax benefits of $4.4 million, partially offsetting income tax expenses on our consolidated statements of operations. Previously, we recognized such amounts in additional paid-in capital on our consolidated balance sheets. Refer to Note 2—Basis of Presentation—Recently Issued Accounting Standards.