Income Taxes

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes for the three months ended June 30, 2019 was a benefit of $12.4 million compared to an expense of $28.8 million for the three months ended June 30, 2018. The provision for income taxes for the six months ended June 30, 2019 was a benefit of $12.1 million compared to an expense of $5.5 million for the six months ended June 30, 2018.

The effective income tax rate was a benefit of 13.6% compared to an expense of 38.4% for the three months ended June 30, 2019 and 2018, respectively, and the effective income tax rate was a benefit of 10.8% compared to an expense of 17.1% for the six months ended June 30, 2019 and 2018, respectively. As discussed below, the 2019 effective income tax rates decreased primarily due to an intercompany sale of certain intellectual property.

In April 2019, we completed an intercompany sale of certain intellectual property. As a result, the Company recorded a tax benefit of approximately $38.1 million during the three and six months ended June 30, 2019, which represents the benefits of future tax deductions for amortization of the assets in the acquiring jurisdiction. Our tax planning related to our intellectual property is ongoing and may result in tax rate volatility in the future. 

We received approval from the Internal Revenue Service during the second quarter of 2019 for an accounting method change related to the taxation of certain pension plans. The impact of this accounting method change on the Company's consolidated financial statements was not material.

The Company had gross unrecognized tax benefits of $87.9 million at June 30, 2019 and $90.3 million at December 31, 2018. It is reasonably possible that gross unrecognized tax benefits will decrease by approximately $7.8 million within the next 12 months due to the anticipated closure of audits and the expiration of certain statutes of limitation.

In July 2015, the United States Tax Court (the “Tax Court”) issued an opinion relating to the treatment of stock-based compensation expense in an inter-company cost-sharing arrangement. In its opinion, the Tax Court held that affiliated companies may exclude stock-based compensation expense from their cost-sharing arrangement. The Internal Revenue Service appealed the decision and, in June 2019, the Court of Appeals for the Ninth Circuit reversed the Tax Court's ruling. Because of uncertainty related to the final resolution of this litigation, the Company has not recorded any financial statement benefit related to open statute years associated with this matter. The Company will monitor developments related to this case and the potential impact of those developments on the Company’s consolidated financial statements.

In connection with the Company’s adoption of ASU No. 2016-02 on January 1, 2019, operating leases were recorded on the accompanying Condensed Consolidated Balance Sheet as of June 30, 2019, including the recognition of operating lease liabilities and corresponding right-of-use assets. The corresponding deferred tax assets and deferred tax liabilities were also recorded. The net deferred tax impact was zero. Note 1 — Business and Basis of Presentation provides additional information regarding our leases and the adoption of ASU No. 2016-02.