Income Taxes

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



	Three Months Ended						Six Months Ended
(In millions, except percentages)	September 28, 2018			September 29, 2017			September 28, 2018			September 29, 2017
Income (loss) from continuing operations before income taxes	$	28		$	(69	)	$	(41	)	$	(203	)
Income tax expense (benefit)	$	36		$	(53	)	$	32		$	(77	)
Effective tax rate	129		%	77		%	(78		)%	38		%

For each of the three and six months ended September 28, 2018, we recorded an income tax expense on discontinued operations of $4 million. For the three and six months ended September 29, 2017, we recorded an income tax benefit on discontinued operations of $4 million and an income tax expense on discontinued operations of $37 million, respectively.

Our effective tax rate for continuing operations for the three and six months ended September 28, 2018 was based on the statutory tax rate of 21%. Our effective tax rate for continuing operations for the three and six months ended September 28, 2018 differs from the federal statutory income tax rate primarily due to the tax expense from one-time adjustments for newly issued guidance on the Act and other changes in response to tax reform, partially offset by the benefits of lower-taxed international earnings, the research and development tax credit and foreign derived intangible income deduction.

Our effective tax rate for continuing operations for the three and six months ended September 29, 2017 differs from the federal statutory income tax rate primarily due to the benefits of lower-taxed international earnings, the research and development tax credit, and excess tax benefits related to stock-based compensation, partially offset by various permanent differences.

As of September 28, 2018, we have not completed our accounting for the tax effects of the enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. These amounts may require further adjustments as a result of additional future guidance from the U.S. Department of the Treasury, changes in our assumptions, and the availability of further information and interpretations. On August 21, 2018, the U.S. Internal Revenue Service (“IRS”) issued a notice providing additional guidance on the application of new provisions under Section 162(m) regarding deductibility of stock-based compensation enacted with the Act. On September 13, 2018, the U.S. Department of the Treasury released proposed regulations under the Global Intangible Low-Taxed Income (“GILTI”) regime of the Act. We have made provisional estimates for the effect of this guidance on our fiscal year 2019 tax provision.

The Act contained a one-time transition tax that is based on our total post-1986 earnings and profits (“E&P”) that we previously deferred from U.S. income taxes. In fiscal 2018, we recorded a provisional amount for our one-time transition tax liability of our foreign subsidiaries. We have not yet completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. Future accounting guidance may also change our provisional estimates for the transition tax. On August 1, 2018, the IRS and U.S. Department of the Treasury issued proposed regulations on the one-time transition tax under Section 965 on untaxed foreign earnings of U.S. controlled foreign companies and other specified foreign corporations, which was enacted under the Act. Additional guidance on the transition tax was provided in the form of an IRS notice on October 1, 2018. We have made provisional estimates for the effect of the proposed regulations and are in the process of evaluating the impact of the notice on our estimate for transition tax liability. During the three and six months ended September 28, 2018, we recorded a tax expense of approximately $29 million and $24 million, respectively, to increase our provisional estimate for the transition tax liability in response to new legislation and guidance. This impacted the effective tax rate by 104.3% and (59.9)% for the three and six months ended September 28, 2018, respectively.

We have not completed our analysis of the deferred tax accounting for the new taxes on GILTI and, therefore, have not recorded provisional amounts. We have not determined whether our accounting policy will be to record these amounts as deferred taxes or as period costs. We do not have sufficient information to complete the analysis and are awaiting potential further guidance required to evaluate the impact of deferred tax accounting for these provisions. As of September 28, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have only considered the GILTI impact related to current-year operations in our estimated annual effective tax rate and have not provided deferred taxes for future reversal of GILTI timing items.

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 involves 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 $13 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.