NOTE 7: INCOME TAXES

We file a consolidated federal income tax return in the U.S. with the IRS and file tax returns in various state, local, and foreign jurisdictions. Tax returns are typically examined and either settled upon completion of the examination or through the appeals process. The Company's U.S. federal income tax return for 2016 is currently under examination. Our U.S. federal income tax return for 2015 remains open for examination. Our U.S. federal income tax returns for 2014 and all prior periods are closed. With respect to state and local jurisdictions and countries outside of the U.S., we are typically subject to examination for three to six years after the income tax returns have been filed. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest, and penalties have been provided for in the accompanying consolidated financial statements for any adjustments that might be incurred due to federal, state, local or foreign audits.

On December 22, 2017, the U.S. government enacted the legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Legislation), which made broad and complex changes to the U.S. tax code that impacted our financial statements, the most significant being a reduction in the U.S. federal corporate income tax rate from 35% to 21% and the imposition of a one-time transition tax on certain earnings of foreign subsidiaries. In addition, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 (SAB 118), which provided guidance on accounting for the tax effects of the Tax Legislation. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Legislation’s enactment date for companies to complete their analysis and apply the provisions of the Tax Legislation to their financial statements. As of the third quarter of fiscal 2019, we have completed our accounting for all aspects of the Tax Legislation and our financial statements reflect the final effects of the Tax Legislation in computing our deferred taxes, the one-time transition tax, the tax on global intangible low taxed income (GILTI), unrecognized tax benefits, and the indirect impacts of the Tax Legislation on state and local taxes. The adjustments during the quarter were immaterial to the provisional amounts previously recorded. We have elected to account for GILTI as a period cost at the time it is incurred.

Consistent with prior years, our pretax loss for the nine months ended January 31, 2019 is expected to be offset by income in the fourth quarter due to the established pattern of seasonality in our primary business operations. As such, management has determined that it is at least more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year. The amount of tax benefit recorded for the nine months ended January 31, 2019 reflects management’s estimate of the annual effective tax rate applied to the year-to-date loss from continuing operations adjusted for the tax impact of items discrete to the quarter.

Our effective tax rate from continuing operations, including the effects of discrete income tax items, was 25.4% and 7.7% for the nine months ended January 31, 2019 and 2018, respectively. Rate reconciliations between the statutory U.S. federal corporate income rates and the effective tax rates for continuing operations are below:



Nine months ended January 31,	2019		2018
U.S. statutory tax rate	21.0	%	21.0	%
Change in tax rate resulting from:
State income taxes, net of federal income tax benefit	2.1	%	2.2	%
Earnings taxed in foreign jurisdictions	(3.2	)%	(2.3	)%
Permanent differences	0.3	%	0.3	%
Uncertain tax positions	4.3	%	6.0	%
Remeasurement of deferred tax assets and liabilities	(0.1	)%	2.4	%
Tax benefit due to effective date of statutory rate change	—		(16.4	)%
One-time transition tax	—		(2.4	)%
Other	1.0	%	(3.1	)%
Effective tax rate	25.4	%	7.7	%

The increase in the effective tax rate compared to the prior year is due to the impact of lowering the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018, had in fiscal year 2018. The impact of the rate decrease was exaggerated in fiscal year 2018 due to the seasonality of our business and our differing year ends for corporate income tax filing and financial reporting purposes, which is included as “tax benefit due to effective date of statutory rate change” in the table above. Our tax returns for the U.S. are filed on a calendar year-end basis. Therefore, pretax losses for the eight months ended December 31, 2017 resulted in income tax benefits based on the statutory rate of 35%, while the pretax income we generated in the four months ending April 30, 2018 was taxed at the statutory rate of 21%.

We had gross unrecognized tax benefits of $178.1 million, $163.1 million and $186.1 million as of January 31, 2019 and 2018 and April 30, 2018, respectively. The gross unrecognized tax benefits decreased $8.0 million and increased $13.1 million during the nine months ended January 31, 2019 and 2018, respectively. We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $46.7 million within the next twelve months. The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities. For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

The increase in noncurrent deferred tax assets and income taxes receivable of $107.3 million from April 30, 2018 is primarily due to the adoption of ASU 2016-16. See note 1 for additional information.