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Income Taxes
9 Months Ended
Dec. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
During the third quarters of 2016 and 2015, income tax expense related to continuing operations was $204 million and $198 million and included a net discrete tax benefit of $16 million and a net discrete tax expense of $4 million. During the first nine months of 2016 and 2015, income tax expense related to continuing operations was $704 million and $606 million and included net discrete tax benefits of $45 million and $14 million. Our reported income tax rates for the third quarters of 2016 and 2015 were 24.1% and 27.5% and for the first nine months of 2016 and 2015 were 27.3% and 29.7%. The fluctuations in our reported income tax rates are primarily due to changes within our business mix, including varying proportions of income attributable to foreign countries that have lower income tax rates and discrete items.
During the third quarter of 2016, we recognized a $19 million discrete tax benefit due to a reduction in our deferred tax liabilities as a result of enacted tax law changes in certain foreign jurisdictions. During the second quarter of 2016, we evaluated the U.S. Tax Court’s decision in Altera Corp. v. Commissioner related to the treatment of stock-based compensation expense in an intercompany cost-sharing agreement and recognized a discrete tax benefit of $25 million based on our historical tax filing position.
As of December 31, 2015, we had $564 million of unrecognized tax benefits, of which $392 million would reduce income tax expense and the effective tax rate, if recognized. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $123 million. However, this amount may change as we continue to have ongoing negotiations with various taxing authorities throughout the year.
We report interest and penalties on tax deficiencies as income tax expense. We recognized income tax expense of $3 million and $5 million during the third quarters of 2016 and 2015 and income tax expense of $9 million and $12 million during the first nine months of 2016 and 2015, before any tax benefit, related to interest and penalties in our condensed consolidated statements of operations. At December 31, 2015, before any tax benefits, our accrued interest and penalties on unrecognized tax benefits amounted to $78 million.
We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. The IRS is currently examining our U.S. corporation income tax returns for years 2007 through 2009 and may issue a Revenue Agent Report before the end of our fiscal year 2016.
We previously received reassessments from the Canada Revenue Agency (“CRA”) related to a transfer pricing matter impacting years 2003 through 2010. During the third quarter of 2014, the Tax Court of Canada dismissed our appeal of the 2003 reassessment and we filed a Notice of Appeal to the Federal Court of Appeal. During the first quarter of 2016, we reached an agreement to settle the transfer pricing matter for years 2003 through 2010 and recorded a discrete income tax benefit of $12 million for a previously unrecognized tax benefit. The CRA is currently examining our Canadian income tax returns for years 2011 through 2013.