Income Taxes

Effective Tax Rate

The table below provides a reconciliation of income tax expense computed at the federal statutory income tax rate to the income tax provision:



	Edison International						SCE
	Three months ended March 31,
(in millions)	2014			2013			2014			2013
Income from continuing operations before income taxes	$	205		$	384		$	222		$	395
Provision for income tax at federal statutory rate of 35%	71			134			78			138
Increase (decrease) in income tax from:
State tax, net of federal benefit	1			3			1			14
Property-related	(51		)	(41		)	(51		)	(42		)
Change related to uncertain tax positions	7			7			7			7
San Onofre settlement	(40		)	—			(40		)	—
Other	(7		)	(5		)	(7		)	(5		)
Total income tax expense (benefit) from continuing operations	$	(19	)	$	98		$	(12	)	$	112
Effective tax rate	(9.3		)%	25.5		%	(5.4		)%	28.4		%

The CPUC requires flow-through ratemaking treatment for the current tax benefit arising from certain property-related and other temporary differences which reverse over time. The accounting treatment for these temporary differences results in recording regulatory assets and liabilities for amounts that would otherwise be recorded to deferred income tax expense.

Property-related items include recognition of income tax benefits from repair deductions for income tax purposes. During the first quarter of 2014, SCE recorded flow through tax benefits related to repair deductions and other tax items under the San Onofre Settlement. The tax benefits were offset by estimated refunds to customers included as part of the pre-tax charge of $231 million.

Tax Disputes

The IRS examination phase of tax years 2003 through 2006 was completed in the fourth quarter of 2010, which included proposed adjustments for the following two items:


•	A proposed adjustment increasing the taxable gain on the 2004 sale of EME's international assets, which if sustained, would result in a federal tax payment of approximately $208 million, including interest and penalties through March 31, 2014.


•	A proposed adjustment to disallow a component of SCE's repair allowance deduction, which if sustained, would result in a federal tax payment of approximately $101 million, including interest through March 31, 2014.

Edison International disagrees with the proposed adjustments and filed a protest with the IRS in the first quarter of 2011. Edison International anticipates that the IRS will issue a deficiency notice for the tax, interest and possibly penalties at the conclusion of the IRS appeals process. After the receipt of such deficiency notice, Edison International will have 90 days to file a petition in United States Tax Court. If a petition is not timely filed, Edison International anticipates after the expiration of the 90-day period, the IRS will assess the underpayment of tax, interest and penalties, if any, and demand payment.

Tax Years 2007 – 2009

The IRS examination phase of tax years 2007 through 2009 was completed during the first quarter of 2013. Edison International received a Revenue Agent Report from the IRS on February 28, 2013 which included a proposed adjustment to disallow a component of SCE's repair allowance deduction (similar to the 2003 – 2006 tax years). The proposed adjustment to disallow a component of SCE's repair allowance deduction, if sustained, would result in a federal tax payment of approximately $75 million, including interest through March 31, 2014. Edison International disagrees with the proposed adjustment and filed a protest with the IRS in April 2013.