Income Taxes

The provision for income taxes results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate on income before income taxes:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Statutory rate	21.0	%	35.0	%	21.0	%	35.0	%
State taxes	2.3		1.4		1.9		1.4
Changes in state tax laws	—		0.5		1.0		0.2
Noncontrolling interest in partially-owned subsidiaries	(1.2	)	(1.4	)	(0.4	)	(0.9	)
Impairment and other foreign losses	9.2		0.4		2.6		0.5
Changes in valuation allowance and reserves	(1.0	)	0.1		0.6		0.1
Effects of Federal Tax Reform	(2.6	)	—		(0.7	)	—
Settlements with tax authorities	—		—		—		(2.1	)
Equity compensation	(0.4	)	(0.2	)	(1.8	)	0.8
Other, net	0.1		1.1		1.2		1.0
Effective rate	27.4	%	36.9	%	25.4	%	36.0	%

Our effective tax rate reflects the Company's estimate for its state income tax expense, income attributable to the noncontrolling interests in partially-owned leasing subsidiaries for which no income tax expense is provided, excess tax benefits or deficiencies related to equity compensation, and the impact of the completion of income tax audits that resulted in a net tax benefit. Additionally, a portion of the $24.8 million pre-tax impairment charge recorded in the three and nine months ended September 30, 2018 was attributable to certain of our foreign operations for which taxes are not provided. This impairment charge increased the losses in those jurisdictions with no corresponding tax benefit. The related effect on our effective tax rate has been reflected in the rate reconciliation table above. See Note 2 Acquisitions and Divestitures for further information regarding the impairment charge and Note 5 Partially-Owned Leasing Subsidiaries for a further explanation of activities with respect to our partially-owned leasing subsidiaries.

The Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from 35.0% to 21.0%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign-sourced earnings. In December 2017, we recorded a tax benefit after the initial assessment of the tax effects of the Act, and we will continue refining this amount throughout 2018. During the nine months ended September 30, 2018, we adjusted our initial assessment of the tax effects of the Act to record an additional net benefit for remeasurement of certain deferred tax balances and the transition tax. We are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of our deferred tax balance or give rise to new deferred tax amounts resulting in a final adjustment in the fourth quarter of 2018. The impact of the Act may differ from our estimate due to changes in the regulations, rulings, guidance, and interpretations issued by the Internal Revenue Service ("IRS") and the FASB as well as interpretations and assumptions made by the Company. For the items for which we were able to determine a reasonable estimate, we recognized an additional provisional net benefit of $1.0 million and $1.3 million, respectively, for the three and nine months ended September 30, 2018, which is included as a component of income tax expense. The calculation of our estimated annual effective tax rate includes the estimated impact of provisions of the Act, such as interest limitations, and foreign limitations or inclusions. These estimates could change as additional information becomes available on these provisions of the Act.

Taxing authority examinations

The 2014-2016 tax years have been reviewed by the IRS with no significant adjustments. The 2014-2017 tax years remain open.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The entities are generally open for audits for their 2010 tax years and forward.

Unrecognized tax benefits

The change in unrecognized tax benefits for the nine months ended September 30, 2018 and 2017 was as follows:



	Nine Months Ended September 30,
	2018			2017
	(in millions)
Beginning balance	$	8.2		$	28.2
Additions for tax positions of prior years	1.6			0.2
Settlements	(1.5		)	(23.3		)
Expiration of statute of limitations	(0.5		)	—
Ending balance	$	7.8		$	5.1

Additions for tax positions related to prior years of $1.6 million and $0.2 million recorded in the nine months ended September 30, 2018 and 2017, respectively, are due to a state and foreign filing position. Settlements during the nine months ended September 30, 2018 were related to state tax audits. Settlements during the nine months ended September 30, 2017 were due to the resolution of our 2006-2009 income tax years.

The total amount of unrecognized tax benefits including interest and penalties at September 30, 2018 and 2017, that would affect the Company’s overall effective tax rate if recognized was $10.1 million and $5.7 million, respectively. There is a reasonable possibility that unrecognized federal and state tax benefits will decrease by $6.2 million by September 30, 2019, due to settlements and lapses in statutes of limitations for assessing tax for tax years in which an extension was not requested by the taxing authority.

Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of September 30, 2018 and December 31, 2017 was $4.5 million and $4.1 million, respectively. Income tax expense included an increase of $0.1 million and $0.4 million in interest expense and penalties related to uncertain tax positions for the three and nine months ended September 30, 2018, respectively. Income tax expense included an increase of $0.1 million and a decrease of $5.2 million in interest expense and penalties related to uncertain tax positions for the three and nine months ended September 30, 2017, respectively.