Income Taxes

The provision for income taxes results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. Federal income tax rate and the Company’s effective income tax rate on income from continuing operations:



	Three Months Ended March 31,
	2013		2012
Statutory rate	35.0	%	35.0	%
State taxes	2.0		1.9
Changes in tax reserves	—		(4.6	)
Other, net	(0.7	)	0.6
Effective rate	36.3	%	32.9	%

The IRS field work for our 2006-2008 audit cycle has concluded and all issues, except for transfer pricing, have been agreed upon and tentatively settled. The transfer pricing issue has been appealed and we are working with both the U.S. and Mexican taxing authorities to coordinate taxation. Since we do not control the timing of when our issues will be settled, we cannot determine when the 2006-2008 cycle will close and all issues formally settled and thus when the statute of limitations for years after 2005 will close. In addition, we are currently under IRS audit for the 2009- 2011 tax years.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The 2003 tax year of one of our Mexican subsidiaries is still under review and its statute of limitations remains open through June 2014. Another Mexican subsidiary’s statute of limitations for the 2005 tax year remains open through July 2013. The remaining entities are open for their 2006 tax years and forward.

Our two Swiss subsidiaries, one of which is a holding company and the other of which is dormant, have been audited by the taxing authorities through 2008 and 2009. The statute of limitations in Switzerland is generally five years from the end of the tax year, but can be extended up to 15 years in certain cases if the audit has commenced during the original five year period. We also currently have sales offices in Europe and Canada that are subject to various statutes of limitations with regard to their tax status. Generally, states’ statutes of limitations in the U.S. are open from 2003 forward due to the use of tax loss carryforwards in certain jurisdictions.

The change in unrecognized tax benefits for the three months ended March 31, 2013 and 2012 was as follows:



	Three Months Ended March 31,
	2013		2012
	(in millions)
Beginning balance	$	48.7	$	52.5
Additions for tax positions related to the current year	1.1		1.0
Reductions for tax positions of prior years	—		(1.1		)
Settlements	—		(3.0		)
Expiration of statute of limitations	—		(0.1		)
Ending balance	$	49.8	$	49.3

Additions for tax positions related to the current year in the amounts of $1.1 million and $1.0 million recorded in the three months ended March 31, 2013 and 2012, respectively, were amounts provided for tax positions that will be taken for Federal and state income tax purposes when we file those tax returns.

The reduction in tax positions of prior years of $1.1 million for the three months ended March 31, 2012, was primarily related to new guidance issued in March 2012 by the IRS regarding the capitalization of fixed assets as well as state taxes.

Settlements during three months ended March 31, 2012 primarily related to the settlement of our 2004-2005 IRS audit as well as the related impact on state tax returns.

The expiration of statute of limitations relates to state taxes where the statute has closed.

The total amount of unrecognized tax benefits including interest and penalties at March 31, 2013 and 2012, that would affect the Company’s overall effective tax rate if recognized was $12.1 million and $17.5 million, respectively. There is a reasonable possibility that unrecognized Federal and state tax benefits will decrease by $1.0 million by March 31, 2014 due to settlements and lapses in statutes of limitations for assessing tax. During the first quarter of 2013, we entered into an agreement with the IRS to extend the statute of limitations to assess tax on our December 31, 2006-2008 tax years. Thus, items that were previously expected to settle during the year ended December 31, 2013 are now expected to settle during the year ended December 31, 2014.

Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of March 31, 2013 and December 31, 2012 was $10.5 million and $10.3 million, respectively. Income tax expense for the three months ended March 31, 2013, included an increase in income tax expense of $0.2 million in interest expense and penalties related to uncertain tax positions. Income tax expense for the three months ended March 31, 2012, included a decrease in income tax expense of $0.9 million in interest expense and penalties related to uncertain tax positions.