Income Taxes

6 Months Ended

Oct. 04, 2019

The following table summarizes our effective tax rate for the periods presented:



	Three Months Ended						Six Months Ended
(In millions, except percentages)	October 4, 2019			September 28, 2018			October 4, 2019			September 28, 2018
Income (loss) from continuing operations before income taxes	$	55		$	(32	)	$	140		$	(128	)
Income tax expense	$	20		$	30		$	70		$	6
Effective tax rate	36		%	(94		)%	50		%	(5		)%

Our effective tax rate for continuing operations for fiscal 2020 was based on the statutory tax rate of 21%. Our effective tax rate for continuing operations for the three and six months ended October 4, 2019 differs from the federal statutory income tax rate primarily due to various permanent differences, and state taxes, partially offset by the benefits of lower-taxed international earnings and the research and development tax credit. In addition, for the six months ended October 4, 2019, there was additional tax expense recorded to account for uncertain tax positions related to the recent holding of the Ninth Circuit Court of Appeals (Ninth Circuit) in Altera Corp. v. Commissioner (the Altera holding).

Our effective tax rate for income (loss) from continuing operations for the three and six months ended September 28, 2018 differs from the federal statutory income tax rate primarily due to tax expense recorded to account for one-time adjustments for guidance issued on the Tax Cuts and Jobs Act (H.R.1) (Tax Reform) and other changes in response to the Tax Reform, various

permanent differences, and state taxes, partially offset by the benefits of lower-taxed international earnings and the research and development tax credit.

On July 27, 2015, the United States Tax Court (Tax Court) issued its opinion in Altera Corp. v. Commissioner and concluded that related parties in a cost sharing arrangement are not required to share expenses related to stock-based compensation. The Commissioner of the Internal Revenue Service appealed the Tax Court decision to the Ninth Circuit. In June 2019, the Ninth Circuit reversed the July 2015 decision of the U.S. Tax Court. As a result of this decision, we recorded a cumulative income tax expense of $62 million in six months ended October 4, 2019. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit and may subsequently appeal from the Ninth Circuit to the Supreme Court. As a result, the final outcome of the case is uncertain. If the Altera holding is reversed, we would anticipate recording an income tax benefit at that time.

The aggregate changes in the balance of gross unrecognized tax benefits for the six months ended October 4, 2019 were as follows:



(In millions)
Balance as of March 29, 2019	$	446
Lapse of statute of limitations	(14		)
Increase related to prior period tax positions	63
Increase related to current year tax positions	31
Balance as of October 4, 2019	$	526

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.