|12 Months Ended|
May 31, 2017
|Income Taxes [Abstract]|
Note J — Income Taxes
The components of deferred tax assets and liabilities are as follows:
The deferred tax asset related to tax credit carry forward consists of alternative minimum tax credits, which may be carried forward indefinitely.
The components of the provision for income taxes are as follows:
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
During fiscal 2016, the Company engaged tax specialists to assess the qualification of its customer-facing computer software for the federal “Qualified Production Activities Deduction” under Internal Revenue Code Section 199, and the regulations thereunder. Based on this assessment, the Company concluded that certain of its software offerings qualified for this tax deduction for fiscal 2016 and prior tax years that remain open to IRS examination. The Company submitted claims to recover these tax benefits for prior tax years and claimed the fiscal 2016 tax benefits when it filed its 2016 tax return. Accordingly, the Company recognized the tax benefits, and related tax reserves, for its qualified customer-facing activities for these years in fiscal 2016.
Uncertain income tax positions: The Company is subject to U.S. federal income tax, numerous local and state tax jurisdictions within the U.S., and income taxes in Germany. The Company maintains a reserve for uncertain tax positions. As of May 31, 2017 and May 31, 2016, the total reserve for uncertain tax positions, including interest and net of federal benefits, was $39.2 million and $54.2 million, respectively, and was included in long-term liabilities on the Consolidated Balance Sheets.
A reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, not including interest or other potential offsetting effects, is as follows:
In December 2016, the Company executed a closing agreement that resolved tax matters related to the audits by New York State for the fiscal year ended May 31, 2012 (“fiscal 2012”) through the fiscal year ended May 31, 2014 (“fiscal 2014”). As a result, the reserve for uncertain tax positions was decreased by $28.9 million in December 2016. The resolution and execution of the closing agreement in December 2016 on the open tax matters for fiscal 2012 through fiscal 2014 has a minimal impact on the Company’s effective income tax rate for fiscal 2017.
The reserve as of May 31, 2017 substantially relates to the Company’s uncertain tax positions for certain federal and state income tax matters. The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $39.2 million as of May 31, 2017 adequately covers open tax years and uncertain tax positions up to and including fiscal 2017 for major taxing jurisdictions. As of May 31, 2017 and May 31, 2016, the entire $39.2 million and $54.2 million, respectively, of unrecognized tax benefits, including interest and net of federal benefit, if recognized, would impact the Company’s effective income tax rate.
The Company has concluded all U.S. federal income tax matters through the fiscal year ended May 31, 2011 (“fiscal 2011”). Fiscal years 2012 through 2014 are currently under audit by the IRS and fiscal years 2015, 2016, and 2017 are subject to potential audit. With limited exception, state income tax audits by taxing authorities are closed through fiscal 2011, primarily due to expiration of the statute of limitations.
The Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as a component of income taxes on the Consolidated Statements of Income and Comprehensive Income. The amount of accrued interest and penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties recognized for fiscal years 2017, 2016, and 2015 was immaterial to the Company’s results of operations.
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