Income Taxes

The Company’s effective tax rate (“ETR”) was approximately 33% and 31% for the three and six months ended September 30, 2018, respectively, as compared to an estimated 39% for both the three and six months ended September 30, 2017, that was presented on a carve-out basis. The decrease in the ETR for the three and six months ended September 30, 2018 compared to the same periods in the prior year, was primarily driven by the reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, partially offset by an increase in non-deductible transaction expenses.

On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes significant changes to the Internal Revenue Code with varying effective dates and reduces the maximum corporate income tax rate to 21% effective as of January 1, 2018, creates a new limitation on the deductibility of interest expense, limits the deductibility of certain executive compensation and allows for immediate capital expensing of certain qualified property, among other changes.

Under SEC staff issued Staff Accounting Bulletin No 118, the Company has made reasonable estimates and has recorded provisional amounts during the Company’s fiscal year ending March 31, 2018. The Company has not made any adjustments during the six months ended September 30, 2018 to the provisional amounts recorded. The Company expects to finalize its assessment with regard to the provisional items recorded related to the revaluation of deferred items for the reduction in federal rate and capital expensing within the allowed one-year measurement period.

The Tax Matters Agreement, entered into with DXC in connection with the Spin-Off, states each company’s rights and responsibilities with respect to payment of taxes, tax return filings and control of tax examinations. Except for Vencore HC and KeyPoint HC, the Company is generally only responsible for tax assessments, penalties and interest allocable to periods (or portions of periods) related to USPS beginning after the Spin-Off and Mergers. The Company has recorded income tax refunds receivable from the Internal Revenue Service (“IRS”) and various state taxing authorities of approximately $101 million that are payable to DXC upon receipt under the Tax Matters Agreement, which are included in Other receivables and Accrued expenses and other current liabilities at September 30, 2018.

The Company’s entities included in the Spin-Off are currently under examination or in appeals in several tax jurisdictions. The tax years that remain open under statute of limitations and currently under IRS review include:



Jurisdiction		Tax Years Subject to Examination
U.S. Federal		2005 and forward
Various U.S. States		2003 and forward

The IRS is not currently examining Vencore HC or KeyPoint HC for any open years, but entities related to these businesses are open to examination in various state and local jurisdictions.