Income Taxes

9 Months Ended

Jan. 03, 2020

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



	Three Months Ended						Nine Months Ended
(In millions, except percentages)	January 3, 2020			December 28, 2018			January 3, 2020			December 28, 2018
Income (loss) from continuing operations before income taxes	$	410		$	(9	)	$	562		$	(127	)
Income tax expense	$	57		$	10		$	133		$	20
Effective tax rate	14		%	(111		)%	24		%	(16		)%

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 nine months ended January 3, 2020 differs from the federal statutory income tax rate primarily due to a discrete tax charge of $53 million recorded to account for the sale of DigiCert equity investment, 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 nine months ended January 3, 2020, there was an additional tax expense of $62 million recorded to account for uncertain tax positions related to the Ninth Circuit Court of Appeals recent holding in Altera Corp. v. Commissioner.

Our effective tax rate for income (loss) from continuing operations for the three and nine months ended December 28, 2018 differs from the federal statutory income tax rate primarily due to the tax expense recorded to account for one-time adjustments related to 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 U.S. Court of Appeals for 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 nine months ended January 3, 2020. On July 22, 2019, the taxpayer requested a rehearing before the full Ninth Circuit, but such request was denied on November 12, 2019. Nevertheless, the taxpayer may still file an appeal with the United States Supreme Court. Consequently, the final outcome of the case is uncertain. If the Altera Ninth Circuit Panel Opinion 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 nine months ended January 3, 2020 were as follows:



(In millions)
Balance as of March 29, 2019	$	446
Settlements with tax authorities	(1		)
Lapse of statute of limitations	(14		)
Increase related to prior period tax positions	84
Increase related to current year tax positions	54
Balance as of January 3, 2020	$	569

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.