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INCOME TAXES
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6 Months Ended |
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Jun. 30, 2014
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| Income Tax Disclosure [Abstract] | |
| INCOME TAXES |
INCOME TAXES
Our effective tax rate decreased to 33.5% in the second quarter of 2014 compared with 35.0% in the same period of 2013, primarily due to the $1.066 billion pre-tax charge associated with certain health and welfare benefit plan changes (discussed further in note 6), which generated a tax benefit at a rate higher than the effective tax rate. This was partially offset by a decrease in U.S. Federal and state tax credits relative to total pre-tax income.
On a year-to-date basis, our effective tax rate increased to 35.2% in 2014 from 32.8% in 2013, as a portion of the gain from liquidating a foreign subsidiary in 2013 was non-taxable (discussed further in note 15).
In June 2011, we received an IRS Revenue Agent Report ("RAR") covering income taxes for tax years 2005 through 2007. The income tax RAR proposed adjustments related to the value of acquired software and intangibles, research credit expenditures, and the amount of deductible costs associated with our British Pound Sterling Notes exchange offer completed in May 2007. Receipt of the RAR represents only the conclusion of the examination process. We disagreed with some of the proposed adjustments related to these matters. Therefore, we filed protests and, in the third quarter of 2011, the IRS responded to our protests and forwarded the case to IRS Appeals.
In July 2013, we began resolution discussions with IRS Appeals on the income tax matters. In April 2014, we reached a final resolution with IRS Appeals on all income tax matters for the 2005 through 2007 tax years and received a net refund of tax and interest totaling $145 million during the second quarter of 2014. The resolution of these matters and subsequent refund of tax and interest had an immaterial impact on net income.
In February 2014 we began resolution discussions with IRS Appeals related to an RAR received for tax years 2008 and 2009. We expect the resolution discussions to be concluded within the next twelve months.
At this time, we do not believe the ultimate resolution of these income tax matters will have a material effect on our financial condition, results of operations, or liquidity.
A number of years may elapse before an uncertain tax position is audited and ultimately settled. It is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax positions. It is reasonably possible that the amount of unrecognized tax benefits could significantly increase or decrease within the next twelve months. Items that may cause changes to unrecognized tax benefits include the timing of interest deductions and the allocation of income and expense between tax jurisdictions. These changes could result from the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the statute of limitations or other unforeseen circumstances. At this time, we are unable to make an estimate of the reasonably possible changes to unrecognized tax benefits.
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