Income Taxes:

The income tax rate of 35.0% for the nine months ended September 30, 2013 increased 0.2 percentage points from 34.8% for the nine months ended September 30, 2012, due primarily to the following:


•	an interest benefit, recorded during the second quarter of 2012, resulting primarily from lower than estimated interest on tax underpayments related to the execution of a closing agreement with the IRS that conclusively resolved the federal income tax treatment for all prior and future tax years of certain leveraged lease transactions entered into by PMCC (the “Closing Agreement”); and


•	the reversal in 2012 of tax reserves and associated interest due primarily to the closure in August 2012 of the IRS audit of Altria Group, Inc. and its consolidated subsidiaries’ 2004 - 2006 tax years (“IRS 2004 - 2006 Audit”);

partially offset by:


•	the resolution of various Kraft Foods Inc. (now known as Mondelēz International, Inc. (“Mondelēz”)) and Philip Morris International Inc. (“PMI”) tax matters in the third quarters of 2013 and 2012, as discussed further below;


•	the reduction in certain consolidated tax benefits in 2012 resulting from the third quarter of 2012 debt tender offer (see Note 9. Debt); and


•	the reversal in 2013 of tax accruals no longer required.

As discussed in its 2012 Form 10-K, Altria Group, Inc. recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes on its condensed consolidated statements of earnings.

As a result of the Closing Agreement, during the second quarter of 2012, Altria Group, Inc. paid $456 million in federal income taxes and related estimated interest on tax underpayments. The tax component of these payments represents an acceleration of income taxes that Altria Group, Inc. would have otherwise paid over the lease terms of these transactions.

The income tax rate of 34.1% for the three months ended September 30, 2013 decreased 2.9 percentage points from 37.0% for the three months ended September 30, 2012, due primarily to the following:


•	the resolution of various Mondelēz and PMI tax matters in the third quarters of 2013 and 2012, as discussed further below;


•	the reduction in certain consolidated tax benefits in 2012 resulting from the third quarter of 2012 debt tender offer; and


•	the reversal in 2013 of tax accruals no longer required;

partially offset by:


•	the reversal in 2012 of tax reserves and associated interest due primarily to the closure in August 2012 of the IRS 2004 - 2006 Audit.

Under tax sharing agreements entered into in connection with the 2007 and 2008 spin-offs between Altria Group, Inc. and its former subsidiaries Mondelēz and PMI, respectively, Mondelēz and PMI are responsible for their respective pre-spin-off tax obligations. Altria Group, Inc., however, remains severally liable for Mondelēz’s and PMI’s pre-spin-off federal tax obligations pursuant to regulations governing federal consolidated income tax returns, and continues to include the pre-spin-off federal income tax reserves of Mondelēz and PMI in its liability for uncertain tax positions. Altria Group, Inc. also includes corresponding receivables/payables from Mondelēz and PMI in its assets and liabilities. A third quarter 2013 tax benefit of $25 million for Mondelēz tax matters, relating to the IRS audit of Altria Group, Inc. and its consolidated subsidiaries’ 2007 - 2009 tax years, was offset by the recording of a corresponding payable to Mondelēz, which was recorded as a decrease to operating income on Altria Group, Inc.’s condensed consolidated statements of earnings for the nine and three months ended September 30, 2013. A third quarter 2012 tax provision of $48 million for Mondelēz and PMI tax matters, resulting from the closure of the IRS 2004 - 2006 Audit, was offset by an increase to the corresponding receivables from Mondelēz and PMI, which was recorded as an increase to operating income on Altria Group, Inc.’s condensed consolidated statements of earnings for the nine and three months ended September 30, 2012. Due to these offsets, the Mondelēz and PMI tax matters had no impact on Altria Group, Inc.’s net earnings for the nine and three months ended September 30, 2013 and 2012.

Altria Group, Inc. is subject to income taxation in many jurisdictions. Uncertain tax positions reflect the difference between tax positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions with the relevant tax authorities may take many years to complete, and such timing is not entirely within the control of Altria Group, Inc. It is reasonably possible that within the next 12 months certain examinations will be resolved, which could result in a decrease in unrecognized tax benefits of approximately $130 million, a portion of which would relate to the unrecognized tax benefits from Mondelēz and PMI, for which Altria Group, Inc. is indemnified by Mondelēz and PMI under respective tax sharing agreements.