Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

The Company recorded income tax expense of $20.2 million, or 107.4% of pre-tax income, for the three months ended March 31, 2022, compared to $33.2 million, or 25.0% of pre-tax income, for the three months ended March 31, 2021. Results for the three months ended March 31, 2022 were unfavorably impacted by $15.4 million of net discrete charges, including a charge of $18.1 million related to taxes on income generated in prior periods as the Company revised its interpretation of certain foreign anti-hybrid tax legislation based upon recent comments from the corresponding taxing authorities and a benefit of $3.8 million for the release of a foreign tax credit valuation allowance in response to the issuance by the U.S. Treasury Department of final foreign tax credit regulations. Results for the three months ended March 31, 2021 were unfavorably impacted by $1.4 million of net discrete charges, including a $0.8 million charge related to state audit settlements.

The Company’s liability for gross unrecognized tax benefits, excluding related interest and penalties, was $82.2 million and $41.5 million as of March 31, 2022 and December 31, 2021, respectively. Included in the Company’s March 31, 2022 liability for gross unrecognized tax benefits is an $18.7 million reserve related to certain foreign anti-hybrid legislation and a $22.3 million U.S. federal reserve for a temporary deferred position. As of March 31, 2022, net unrecognized tax benefits, excluding interest and penalties, of $43.2 million would affect the Company’s net income if recognized.

The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in the “Provision for income taxes” in the Condensed Consolidated Statements of Income. During the three months ended March 31, 2022 and 2021, the Company recognized expense of $0.6 million and $0.5 million, respectively, related to interest and penalties. At March 31, 2022, the Company had accruals for the payment of interest and penalties of $4.0 million. During the next twelve months, it is reasonably possible that federal, state and foreign tax audit resolutions could reduce net unrecognized tax benefits by approximately $2.3 million because the Company’s tax positions are sustained on audit, the Company agrees to their disallowance or the statutes of limitations close.