Income Taxes

9 Months Ended

Dec. 28, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded tax provisions of $3.8 million and $13.8 million for the third quarter and the first nine months of fiscal 2020, respectively, representing effective tax rates of 2.3% and 2.1%, respectively. The Company recorded tax provisions of $17.2 million and $63.5 million for the third quarter and the first nine months of fiscal 2019, respectively, representing effective tax rates of 6.7% and 9.0%, respectively.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in all periods presented was primarily due to the beneficial impact of income earned in lower tax rate jurisdictions and excess tax benefits with respect to stock-based compensation, which was partially offset by U.S. tax on global intangible low-taxed income.

The Company’s total gross unrecognized tax benefits as of December 28, 2019, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, decreased by a net $79.4 million in the third quarter of fiscal 2020 to $87.7 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $49.2 million as of December 28, 2019. Of the net change in uncertain tax benefits during the quarter, there was an $85.5 million decrease related to an additional deduction claimed on federal and state amended tax returns (refund claim) for fiscal 2014 for redemption premium paid in that year in connection with the early redemption of the Company’s 3.125% Junior Convertible debenture due March 15, 2037. During the third quarter of fiscal 2020, the Company received written notification from the Internal Revenue Service that the Joint Committee on Taxation had completed its review of the Company's refund claim and had taken no exception. The tax benefit of the refund claim, net of state tax adjustments, of $81.9 million was recognized as an increase to additional paid-in capital in the third quarter of fiscal 2020. It is reasonably possible that other changes to the Company's unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.

The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the condensed consolidated statements of income. The Company recorded net benefits of $5.2 million and $4.9 million for

interest and penalties, which were included in the Company's provision for income taxes for the third quarter and first nine months of fiscal 2020, respectively. The amounts of interest and penalties included in the Company's provision for income taxes were not material for the third quarter and first nine months of fiscal 2019.

The statutes of limitations have closed for U.S. federal income tax purposes for years through fiscal 2014, for U.S. state income tax purposes for years through fiscal 2010, and for Ireland income tax purposes for years through fiscal 2014.

On July 27, 2015, the United States Tax Court (Tax Court) issued its opinion in Altera Corp. v. Commissioner, and, in a 15-0 decision, concluded that related parties in a cost sharing arrangement are not required to share expenses related to stock-based compensation. The Commissioner appealed the Tax Court decision to the Ninth Circuit Court of Appeals (Ninth Circuit). The Ninth Circuit overturned the Tax Court’s decision in an opinion issued on July 24, 2018, but subsequently withdrew it. After rehearing the arguments on October 16, 2018, the Ninth Circuit issued a subsequent opinion on June 7, 2019. In a 2-1 decision, the Ninth Circuit overturned the Tax Court’s decision. On July 22, 2019, Altera filed a petition for an en banc rehearing with the Ninth Circuit. On November 12, 2019, the Ninth Circuit issued an order denying Altera's petition. The decision is not yet final, however, because Altera has until February 10, 2020 to file a petition for certiorari with the U.S. Supreme Court. Nevertheless, we believe the law to be unsettled and continue to record tax benefits as we exclude stock-based compensation costs from our cost sharing arrangement. The cumulative potential impact of a final adverse decision to the consolidated statement of income is expected to be $55 million to $60 million by the end of fiscal 2020 for taxes and interest. We will continue to monitor developments in the Altera case and the potential effect on our consolidated financial statements.