Income Taxes

The following table summarizes our effective tax rate for income from continuing operations for the periods presented:



	Three Months Ended						Nine Months Ended
	January 1, 2016			January 2, 2015			January 1, 2016			January 2, 2015
	(Dollars in millions)
Income before income taxes	$	129		$	19		$	276		$	159
Provision for income taxes	$	15		$	44		$	84		$	105
Effective tax rate	12		%	232		%	30		%	66		%

Our effective tax rate for income from continuing operations for the three and nine months ended January 1, 2016 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings, domestic manufacturing incentives and the R&D credit, partially offset by state income taxes. Our effective tax rate for income from continuing operations for the three and nine months ended January 2, 2015 differs from the federal statutory income tax rate primarily due to the impact of unallocated corporate charges triggering foreign losses benefited by lower international tax rates as well as an overall reduction in pre-tax income.

For the three and nine months ended January 1, 2016, we recorded an income tax expense on discontinued operations of $53 million and $73 million, respectively. For the three and nine months ended January 2, 2015, we recorded an income tax expense on discontinued operations of $46 million and $143 million, respectively. See Note 3, Discontinued Operations, for further details regarding the discontinued operations.

The tax provision for the nine months ended January 1, 2016 was also reduced by $8 million in tax benefits related to certain foreign operations.

For the three and nine months ended January 2, 2015, the tax provision was reduced by tax benefits primarily resulting from settlements with certain taxing authorities and lapses of statutes of limitations of $2 million and $12 million, respectively.

On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing agreement. A final decision has yet to be issued by the Tax Court. At this time, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. We evaluated the opinion and determined the net impact to our consolidated financial statements was not material. We will continue to monitor developments related to the case and the potential impact on our consolidated financial statements.

We are a U.S.-based multinational company subject to tax in multiple U.S. and international tax jurisdictions. A substantial portion of our international earnings were generated from subsidiaries organized in Ireland and Singapore. Our results of operations would be adversely affected to the extent that our geographical mix of income becomes more weighted toward jurisdictions with higher tax rates and would be favorably affected to the extent the relative geographic mix shifts to lower tax jurisdictions. Any change in our mix of earnings is dependent upon many factors and is therefore difficult to predict.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by $21 million, which could reduce our income tax provision and therefore benefit the resulting effective tax rate.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions.