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 September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Statutory rate	35.0	%	35.0	%	35.0	%	35.0	%
State taxes	0.9		2.5		0.9		2.3
Domestic production activities deduction	(1.4	)	(2.7	)	(1.9	)	(1.6	)
Noncontrolling interest in partially-owned subsidiaries	(1.0	)	(1.0	)	(1.1	)	(0.9	)
Changes in valuation allowance and reserves	(0.2	)	(3.0	)	(0.1	)	(1.2	)
State adjustments	1.1		3.2		0.3		1.2
Other, net	(1.1	)	0.2		(0.3	)	0.1
Effective rate	33.3	%	34.2	%	32.8	%	34.9	%

Our effective tax rate reflects a current tax benefit available for U.S. manufacturing activities, adjustments to our state deferred tax balances as a result of acquisitions, and income attributable to the noncontrolling interests in TRIP Holdings and RIV 2013 for which no income tax expense is provided. See Note 5 Partially-Owned Leasing Subsidiaries for a further explanation of activities with respect to TRIP Holdings and RIV 2013.

Taxing authority examinations

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 in a formal mutual agreement process (“MAP”). On September 30, 2013, we received the revenue agent report for the 2009-2011 audit cycle. All issues have been concluded and agreed to except for transfer pricing issues. The transfer pricing issues have been appealed and we have requested they be addressed in the same MAP as the 2006-2008 cycle. At this time, we cannot determine when the 2006-2008 cycle or the 2009-2011 cycles will close and all issues formally settled.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The 2007 tax year of one of our Mexican subsidiaries is still under review for transfer pricing purposes only, and its statute of limitations remains open through the later of the resolution of the MAP or August 2017. During the three months ended September 30, 2014, we received notification that one of our Mexican entities is now under audit for its 2011 tax year. The remaining entities are generally open for their 2008 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, respectively. 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.

During the third quarter of 2013, and after the filing of its 2012 Federal income tax return, the Company determined that it would utilize previously reserved foreign tax credits on its 2013 Federal income tax return which were due to expire in 2014-2016. Accordingly, the related $6.4 million valuation allowance recorded in the second quarter of 2009 was reversed and recorded as an income tax benefit during the third quarter of 2013.

Also, during the three months ended September 30, 2013, the Company completed a review of its state tax filing positions based upon the current operational footprint. As a result of this review, we recorded a charge of $5.1 million in order to adjust our overall net deferred tax liability based upon our current state tax filing responsibilities. We also adjusted our state tax rate for 2013 during the three and nine months ended September 30, 2013 as a result of this review.

Unrecognized tax benefits

The change in unrecognized tax benefits for the nine months ended September 30, 2014 and 2013 was as follows:



	Nine Months Ended September 30,
	2014			2013
	(in millions)
Beginning balance	$	55.0		$	48.7
Additions for tax positions related to the current year	3.7			3.4
Additions for tax positions of prior years	0.3			1.9
Reductions for tax positions of prior years	(0.1		)	—
Settlements	—			(0.1		)
Expiration of statute of limitations	—			(0.1		)
Ending balance	$	58.9		$	53.8

Additions for tax positions related to the current year in the amounts of $3.7 million and $3.4 million recorded in the nine months ended September 30, 2014 and 2013, respectively, were amounts provided for tax positions that will be taken for Federal and state income tax purposes when we file those tax returns.

Additions for tax positions of prior years recorded for the nine months ended September 30, 2014 related to foreign tax positions. Additions for tax positions related to prior years in the amount of $1.9 million recorded in the nine months ended September 30, 2013, were for Federal tax positions taken on the prior year tax returns.

The total amount of unrecognized tax benefits including interest and penalties at September 30, 2014 and 2013, that would affect the Company’s overall effective tax rate if recognized was $14.2 million and $13.9 million, respectively.

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 September 30, 2014 and December 31, 2013 was $11.4 million and $10.8 million, respectively. Income tax expense for the three and nine months ended September 30, 2014, included an increase in income tax expense of $0.2 million and $0.6 million in interest expense and penalties, respectively, related to uncertain tax positions. Income tax expense for the three and nine months ended September 30, 2013, included an increase in income tax expense of $0.2 million and $0.7 million in interest expense and penalties, respectively, related to uncertain tax positions.