Income Taxes

3 Months Ended

Mar. 31, 2012

Income Taxes

Income Taxes

7. Income Taxes

        As of March 31, 2012, the income tax provision on 2012 forecasted income before discrete items was estimated to be 33.3% as compared to 32.5% for the same period in the prior year.

        Grace files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. In many cases, Grace's uncertain tax positions are related to income tax returns for tax years that remain subject to examination by the relevant taxing authorities. The following table summarizes these open tax years by major jurisdiction:

Tax Jurisdiction(1)	Examination in Progress	Examination Not Yet Initiated
United States—Federal	2007 - 2009	2010 - 2011
United States—State	1997 - 2009	2010 - 2011
Germany	2006 - 2008	2009 - 2011
United Kingdom	None	2006 - 2011
Italy	None	2007 - 2011
France	None	2008 - 2011
Canada	None	2005 - 2011

(1)

Includes federal, state, provincial or local jurisdictions, as applicable.

        As a large taxpayer, Grace is under continual audit by the various tax authorities on open-year tax positions. Grace believes it is reasonably possible that the amount of the liability for unrecognized tax benefits could change in the next 12 months, including material changes with respect to the following two matters:

• 1.

  In court decisions that only applied between the government and taxpayers other than Grace, certain tax benefits similar to those claimed by a non-U.S. subsidiary of Grace were denied. Notwithstanding these cases, Grace believes based on the statutes, administrative regulations and other case law existing at this time that the tax benefits claimed by its non-U.S. subsidiary should be sustained if challenged. It is reasonably possible, however, that such benefits would not be sustained. In such case, Grace estimates that the tax expense could range from $41.4 million to $73.0 million (including interest) and Grace would also expect to accelerate recognition of a deferred charge of $7.3 million.
  
  

  2.

  As a result of expected statute of limitations expirations and the resolution of examination issues and settlements with U.S. federal, state and foreign tax authorities, it is reasonably possible that the amount of unrecognized tax benefits would decrease during the next 12 months by up to $6.6 million.

        In December 2010, Grace and the Commissioner of the Department of Revenue for the Commonwealth of Massachusetts entered into a settlement agreement resolving all claims for pre-petition taxes and interest for the taxable years 1990 through 1999 for $15.0 million. The settlement was approved by the U.S. Bankruptcy Court, and Grace made the payment to the Commonwealth of Massachusetts in January 2011.

        Grace accrues potential interest and any associated penalties related to uncertain tax positions in "provision for income taxes" in the Consolidated Statements of Operations. The total amount of interest and penalties accrued on uncertain tax positions was $9.4 million ($7.2 million net of applicable tax benefits) and $8.8 million ($6.9 million net of applicable tax benefits) as of March 31, 2012 and December 31, 2011, respectively.