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Income Taxes | 3 Months Ended
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Jun. 25, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items, and any applicable income tax credits. The following table presents the provision for income taxes (in thousands) and the effective tax rates:
| Three Months Ended |  |
| June 25, |  | June 26, |  |  |  |
| 2022 |  | 2021 |  |  |  |
Income before income taxes | $ | 55,087 |  |  | $ | 19,622 |  |  |  |  |
Provision for income taxes | $ | 15,380 |  |  | $ | 2,413 |  |  |  |  |
Effective tax rate | 27.9 | % |  | 12.3 | % |  |  |  |
Our income tax expense was $15.4 million and $2.4 million for the first quarters of fiscal years 2023 and 2022, respectively, resulting in effective tax rates of 27.9% and 12.3%, respectively. Our effective tax rate for the first quarter of fiscal year 2023 increased significantly year over year and was higher than the federal statutory rate primarily due to a provision in the Tax Cuts and Jobs Act of 2017 whereby research and development expenditures incurred in tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on the location in which the research activities are conducted. The resulting capitalization of research and experimental costs impacted the calculation of the Company's global intangible low-taxed income ("GILTI"), which is treated as a period cost, beginning in the first quarter of fiscal year 2023. Our effective tax rate for the first quarter of fiscal year 2022 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate. The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At June 25, 2022, the Company had unrecognized tax benefits of $32.9 million, all of which would impact the effective tax rate if recognized. The Company’s total unrecognized tax benefits are classified as “Non-current income taxes" in the consolidated condensed balance sheets. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of June 25, 2022, the balance of accrued interest and penalties, net of tax, was $5.4 million. On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. et al. v. Commissioner which concluded that the regulations relating to the treatment of stock-based compensation expense in intercompany cost-sharing arrangements were invalid. In 2016 the U.S. Internal Revenue Service appealed the decision to the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On July 24, 2018, the Ninth Circuit issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit reversed the decision of the U.S. Tax Court and upheld the cost-sharing regulations. On February 10, 2020, Altera Corp. filed a Petition for a Writ of Certiorari with the Supreme Court of the United States, which was denied by the Supreme Court on June 22, 2020. Although the issue is now resolved in the Ninth Circuit, the Ninth Circuit's opinion is not binding in other circuits. The potential impact of this issue on the Company, which is not located within the jurisdiction of the Ninth Circuit, is unclear at this time. We will continue to monitor developments related to this issue and the potential impact of those developments on the Company's current and prior fiscal years. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2017 through 2022 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2017 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. The Company's fiscal year 2017, 2018, and 2019 federal income tax returns are under examination by the U.S. Internal Revenue Service ("IRS"). The IRS has proposed adjustments that would increase U.S. taxable income related to transfer pricing matters with respect to our U.S. and U.K. affiliated companies, and in the first quarter of fiscal year 2023 issued a Revenue Agent’s Report asserting additional tax of approximately $170.5 million, excluding interest, and imposing penalties of approximately $63.7 million. We do not agree with the IRS's positions and we intend to vigorously dispute the proposed adjustments. We intend to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. We expect it could take a number of years to reach resolution on these matters. Although the final resolution of these matters is uncertain, the Company believes adequate amounts have been reserved for any adjustments to the provision for income taxes that may ultimately result. However, if the IRS prevails in these matters, the amount of assessed tax, interest, and penalties, if any, could be material and may have an adverse impact on our financial position, results of operations, and cash flows in future periods. The Company is not under an income tax audit in any other major taxing jurisdiction.

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