|9 Months Ended|
Sep. 30, 2015
|Income Tax Disclosure [Abstract]|
Our effective tax rate decreased to 34.0% in the third quarter of 2015 compared with 35.0% in the same period of 2014, primarily due to $23 million of net discrete tax benefits related to adjustments of prior years' deferred tax balances, the U.S. tax liability accrual associated with a planned distribution of cash from a Canadian subsidiary to its U.S. parent and increases in our reserves for uncertain tax positions. In addition, there were favorable changes in the proportion of our taxable income in certain U.S. and non-U.S. jurisdictions and an increase in U.S. Federal and state tax credits relative to total pre-tax income.
On a year-to-date basis, our effective tax rate decreased to 34.6% in 2015 from 35.1% in 2014, primarily due to the $1.066 billion pre-tax charge associated with certain health and welfare benefit plan changes (see note 6), which generated a tax benefit at a rate higher than the effective tax rate in 2014, favorable changes in the proportion of our taxable income in certain U.S. and non-U.S. jurisdictions, an increase in U.S. Federal and state tax credits relative to total pre-tax income and the $23 million of net discrete tax benefits described above.
During the reconciliation of our deferred tax balances after the filing of our annual federal and state tax returns, we identified adjustments to be made in the prior years’ deferred tax balances. These deferred tax balances were adjusted in the quarter ended September 30, 2015, which resulted in a reduction of income tax expense of approximately $66 million. This adjustment was not material to the consolidated balance sheets or statements of consolidated income.
In relation to our acquisition of Coyote Logistics (see note 8), we plan to distribute approximately $500 million of cash held by a Canadian subsidiary to its U.S. parent during the fourth quarter of 2015. As a result of the intended distribution, we recorded income tax expense of approximately $21 million during the third quarter of 2015. For undistributed earnings remaining in our foreign subsidiaries after the distribution that have not been previously taxed, we have the ability and intent to indefinitely reinvest those earnings and accordingly, deferred taxes have not been provided.
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2014, we have recognized liabilities for uncertain tax positions. We reevaluate these uncertain tax positions on a quarterly basis. 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. However, an estimate of the range of reasonably possible outcomes cannot be made. 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.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef