Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

	Three Months Ended June 30						Six Months Ended June 30
$ in millions	2021			2020			2021			2020
Federal and foreign income tax expense	$	265		$	198		$	1,086		$	383
Effective income tax rate	20.4		%	16.5		%	25.2		%	17.0		%

Current Quarter

The second quarter 2021 effective tax rate (ETR) increased to 20.4 percent from 16.5 percent in the prior year period primarily due to a change made in tax revenue recognition on certain long-term contracts, which increased taxable income in years prior to the 2017 Tax Cuts and Jobs Act at a rate above the current statutory rate. Both periods include $48 million of research credits.

Year to Date

The year to date 2021 ETR increased to 25.2 percent from 17.0 percent in the prior period primarily due to federal income taxes resulting from the IT services divestiture, including $250 million of income tax expense related to $1.2 billion of nondeductible goodwill in the divested business. The company’s year to date 2021 ETR also includes additional tax expense related to the tax revenue recognition change discussed above as well as benefits of $99 million for research credits as compared to $90 million in the prior year period.

Taxes receivable are included in Prepaid expenses and other current assets in the unaudited condensed consolidated statements of financial position. We had no taxes receivable as of June 30, 2021 and $792 million as of December 31, 2020.

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 Cuts and Jobs Act. It is reasonably possible that within the next 12 months our unrecognized tax benefits related to the final revenue recognition regulations issued in December 2020 under IRC Section 451(b) and future regulatory interpretations of existing tax laws may change. At this time, we cannot reasonably estimate these changes.

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Northrop Grumman 2014-2018 federal tax returns and refund claims related to its 2007-2016 federal tax returns are

currently under Internal Revenue Service (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.