Income Taxes

9 Months Ended

Dec. 28, 2019

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Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes (in thousands) and the effective tax rates:


	Three Months Ended									Nine Months Ended
	December 28,			December 29,			December 28,			December 29,
	2019			2018			2019			2018
Income before income taxes	$	74,508		$	32,314		$	168,917		$	84,539
Provision for income taxes	$	5,996		$	2,381		$	19,577		$	705
Effective tax rate	8.0		%	7.4		%	11.6		%	0.8		%

Our income tax expense for the third quarter of fiscal year 2020 was $6.0 million compared to $2.4 million of income tax expense for the third quarter of fiscal year 2019, resulting in effective tax rates of 8.0% and 7.4% for the third quarter of fiscal years 2020 and 2019, respectively. Our income tax expense was $19.6 million for the first nine months of fiscal year 2020 compared to income tax expense of $0.7 million for the first nine months of fiscal year 2019, resulting in effective tax rates of 11.6% and 0.8%, respectively.

Our effective tax rates for the third quarter and first nine months of fiscal year 2020 were lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate, the release of prior year unrecognized tax benefits in the third quarter due to the lapse of the statute of limitations applicable to a tax position taken on a prior year tax return, and excess tax benefits from stock-based compensation. Our effective tax rate for the first nine months of fiscal year 2020 was further reduced by the release of prior year unrecognized tax benefits due to the closure of the tax audit of the Company's U.K. subsidiaries in the second quarter of fiscal year 2020.

Our effective tax rates for the third quarter and first nine months of fiscal year 2019 were lower than the federal statutory rate primarily due to the U.S. federal research and development tax credit and the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate. Our effective tax rate for the first nine months of fiscal year 2019 was further reduced by adjustments recorded to reduce the provisional amount of the Tax Cuts and Jobs Act's transition tax in the second quarter of fiscal year 2019.

The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At December 28, 2019, the Company had unrecognized tax benefits of $36.3 million, all of which would impact the effective tax rate if recognized. We recorded gross increases of $0.3 million, $0.1 million and $0.3 million to current year unrecognized tax benefits in the first, second and third quarters of fiscal year 2020, respectively. We recorded gross decreases of $1.1 million and $3.0 million to prior year unrecognized tax benefits in the second and third quarters of fiscal year 2020, respectively. The Company’s total unrecognized tax benefits are classified as “Non-current income taxes" in the consolidated condensed balance sheets.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of December 28, 2019, the balance of accrued interest and penalties, net of tax, was $3.1 million.

On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. et al. v. Commissioner which concluded that the regulations relating to the treatment of stock-based compensation expense in intercompany cost-sharing arrangements were invalid. In 2016 the U.S. Internal Revenue Service appealed the decision to the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On July 24, 2018, the Ninth Circuit issued a decision that was subsequently withdrawn and a reconstituted panel has conferred on the appeal. On June 7, 2019, the Ninth Circuit reversed the decision of the U.S. Tax Court and upheld the cost-sharing regulations. The final resolution with respect to cost-sharing of stock-based compensation and the potential impact on the Company is unclear at this time. We will continue to monitor developments related to this decision and the potential impact of those developments on the Company's current and prior fiscal years.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2017 through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2017 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company's federal income tax returns for fiscal years 2017 and 2018 are under examination by the U.S. Internal Revenue Service. The Company believes it has accrued adequate reserves related to the matters under examination. The Company is not under an income tax audit in any other major taxing jurisdiction.