7. Income Taxes

Effective Income Tax Rate

Our provision for income taxes may not have the customary relationship of taxes to income. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate was as follows:

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2018		2017		2018		2017
U.S. corporate income tax rate	21	%	35	%	21	%	35	%
Impact of the Tax Cuts and Jobs Act	(2)		—		(3)		—
Dividends received deduction	(3)		(4)		(3)		(7)
Tax credits	(2)		(2)		(3)		(2)
Impact of equity method presentation	—		(1)		(1)		(2)
Local country permanent tax adjustments	3		(1)		1		(1)
State income taxes	2		4		1		2
Other	—		(1)		1		(1)

Effective income tax rate	19	%	30	%	14	%	24	%

The U.S. tax reform enacted on December 22, 2017, made broad and complex changes to the U.S. Internal Revenue Code applicable to us. The U.S. statutory tax rate was reduced from 35% to 21% effective January 1, 2018. Other provisions of the U.S. tax reform effective January 1, 2018, include, but are not limited to: 1) provisions reducing the dividends received deduction; 2) essentially eliminating U.S. federal income taxes on dividends from foreign subsidiaries; 3) retaining an element of current inclusion of certain earnings of controlled foreign corporations; 4) eliminating the corporate alternative minimum tax (“AMT”); and 5) changing how existing AMT credits will be realized.

The effects of tax legislation on deferred taxes are recognized in the period of enactment. The primary impact on our fourth quarter 2017 financial results was associated with the effect of reducing the U.S. statutory tax rate from 35% to 21% on our deferred tax balances as of December 31, 2017, and a one-time deemed repatriation tax on certain unremitted earnings of foreign subsidiaries. The effects of the U.S. tax reform were reflected in the December 2017 financial statements as determined or as reasonably estimated provisional amounts based on available information subject to interpretation in accordance with the SEC’s Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 provides guidance on accounting for the effects of the U.S. tax reform where our determinations are incomplete but we are able to determine a reasonable estimate. A final determination is required to be made within a measurement period not to extend beyond one year from the enactment date of the U.S. tax reform. The provisional amounts were primarily associated with estimation of the one-time deemed repatriation tax considering complexity, as well as limited and changing technical tax guidance. Further, the provisional amounts also apply in regard to other potential technical interpretations of accounting and taxing authorities related to elements of the U.S. tax reform subject to change. Proposed regulations were issued on August 1, 2018, regarding the 2017 provision for the one-time deemed repatriation tax. The regulations clarified the calculation of the repatriation tax, resulting in a $5.4 million increase to our provisional estimate of income tax expense during both the three and nine months ended September 30, 2018.

Unrecognized Tax Benefits

Our changes in unrecognized tax benefits were as follows:

	For the nine months ended		For the year ended
	September 30, 2018		December 31, 2017
	(in millions)
Balance at beginning of period	$	194.1	$	207.8
Additions based on tax positions related to the current year	0.8		7.2
Additions for tax positions of prior years	47.2		20.2
Reductions for tax positions related to the current year	(10.3)		(3.3)
Reductions for tax positions of prior years	—		(1.1)
Settlements	(162.8)		(36.7)

Balance at end of period (1)	$	69.0	$	194.1

(1)

Of this amount, $4.8 million, if recognized, would reduce the 2018 effective income tax rate. We recognize interest and penalties related to uncertain tax positions in operating expenses within the consolidated statements of operations.

As of September 30, 2018 and December 31, 2017, we had recognized $1.2 million and $125.5 million of accumulated pre-tax interest and penalties related to unrecognized tax benefits, respectively. During the nine months ended September 30, 2018, settlement agreements applicable to tax years 1995 to 2003 were executed with the Department of Justice, as previously approved by the Joint Committee of Taxation in August 2017. We do not expect the final determination of these unrecognized tax benefits to have a material impact on our net income.