Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

For the third quarter, our effective income tax rate was 27.2%, as compared to 20.9% in the prior year. The increase was primarily associated with divestiture gains and a lower stock-based compensation deduction benefit. For the first three quarters, our effective income tax rate was 23.8%, as compared to 17.3% in the prior year. The increase was primarily due to the same factors in the third quarter as well as a one-time tax benefit from a foreign deferred tax asset in the prior year.

We and our subsidiaries are subject to U.S. federal, state, and foreign income taxes. Currently, we are in different stages of multiple year examinations by various state and foreign taxing authorities. While we believe our reserves are more likely than not to be adequate to cover final resolution of all open tax matters, it is reasonably possible that future obligations related to these matters could arise.

Unrecognized tax benefits of $55.5 million and $42.3 million at the end of the third quarter of 2022 and at the end of 2021, if recognized, would favorably affect the effective income tax rate in future periods. At the end of the third quarter of 2022 and at the end of 2021, we accrued interest and penalties of $10.6 million and $9.2 million. Although the timing of the resolution and/or closure of audits is not certain, we do not believe that our gross unrecognized tax benefits would materially change in the next twelve months.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act (“IRA”) of 2022. The IRA includes a 15% corporate alternative minimum tax effective in 2024 for certain large corporations, a 1% excise tax on net share repurchases after December 31, 2022, and several tax incentives to promote clean energy. We do not expect the provisions of the IRA to have a material impact on our financial results.