Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2020			2019			2020			2019
Federal and foreign income tax expense	$	198		$	167		$	383		$	338
Effective income tax rate	16.5		%	16.2		%	17.0		%	16.4		%

Current Quarter

The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period. The company’s second quarter 2020 effective tax rate includes $48 million of research credits, as compared to $51 million in the prior year period.

Year to Date

The year to date 2020 effective tax rate increased to 17.0 percent from 16.4 percent in the prior period primarily due to an increase in reserves for uncertain tax positions. The company’s year to date 2020 effective tax rate includes $90 million of research credits, as compared to $82 million in the prior year period. Both periods benefited from $13 million of excess tax benefits for employee share-based compensation.

In March 2020, the CARES Act was enacted. The CARES Act includes certain changes to U.S. tax law that impact the company, including a technical correction to the 2017 Tax Cuts and Jobs Act, which makes certain qualified improvement property eligible for bonus depreciation. The CARES Act did not have a significant impact on the company’s second quarter and year to date 2020 effective tax rate.

The company has recorded unrecognized tax benefits related to our methods of accounting associated with the timing of revenue recognition and related costs, and the 2017 Tax Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to these matters may decrease by up to $70 million. Since enactment of the 2017 Tax Act, the Internal Revenue Service (IRS) and U.S. Treasury Department have issued and are expected to further issue interpretive guidance that impacts taxpayers. We will continue to evaluate such guidance as it is issued.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2017 federal tax returns and refund claims related to its 2007-2016 federal tax returns are currently under IRS examination. In addition, legacy Orbital ATK federal tax returns for the year ended March 31, 2015, the nine-month transition period ended December 31, 2015 and calendar years 2016-2017 are currently under appeal with the IRS.