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Income Taxes
 9 Months Ended
Sep. 30, 2023
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
Note 10: Income Taxes
On September 8, 2023, the Internal Revenue Service (IRS) issued Notice 2023-63 providing interim guidance regarding the capitalization and amortization of research and experimental expenditures for U.S. tax purposes that became effective in 2022; prior to 2022 research and experimental expenditures were generally deductible in the period incurred. The IRS notice also provides that the Department of the Treasury and the IRS intend to issue proposed regulations consistent with the guidance set forth in the notice and that taxpayers may rely on the guidance in the notice prior to the issuance of the proposed regulations.
The Company’s initial analysis indicates the guidance provided in the notice will result in fewer costs being subject to capitalization, and as such, costs previously required to be capitalized will now be deductible in the year incurred. Accordingly, the financial statements for the quarter and nine months ended September 30, 2023 include the estimated impacts of the interim guidance provided in the notice for both the 2022 and 2023 tax years. The Company will continue to review the applicability of the notice to our businesses and will review the proposed regulations when issued and adjust the estimates as necessary.
Our effective tax rate for the quarter and nine months ended September 30, 2023 was 29.4% and 9.2%, respectively, as compared to 16.8% and 13.8% for the quarter and nine months ended September 30, 2022, respectively. The change in our effective tax rate for the quarter and nine months ended September 30, 2023 primarily relates to a $2.9 billion charge related to the Powder Metal Matter. We recorded a deferred income tax benefit related to this charge of $663 million. The remaining change is primarily driven by a higher forecasted annualized effective tax rate for 2023 principally due to a lower forecasted Foreign Derived Intangible Income (FDII) benefit.
We conduct business globally and, as a result, RTX or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2013.
The Examination Division of the Internal Revenue Service (IRS) is concluding the examination phase of RTX (formerly United Technologies Corporation) tax years 2017 and 2018, pre-acquisition Rockwell Collins tax years 2016, 2017, and 2018, and pre-merger Raytheon Company tax years 2017, 2018, and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015, and 2016 filed prior to the Raytheon merger. The examination phase of these audits is expected to close in 2023. The Company expects to dispute certain IRS proposed adjustments for each exam at the Appeals Division of the IRS.
The Company believes that it is reasonably possible that the closure of the audit examination phase for the RTX 2017 and 2018 and Rockwell Collins 2016, 2017, and 2018 tax years, as well as the expected expiration of U.S. federal income tax statute of limitations for RTX’s 2019 tax year in the fourth quarter of 2023, will result in a net income benefit in the range of $275
million to $365 million. This range includes the effects of adjusting interest accruals and certain tax related indemnity receivables related to the separation and distributions of Carrier Global Corporation (Carrier) and Otis Worldwide Corporation (Otis). The tax components of this range are included in the revaluation range discussed below. In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. It is reasonably possible that a net reduction within the range of $350 million to $475 million of unrecognized tax benefits may occur within the next 12 months as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes.