HUNTINGTON INGALLS INDUSTRIES, INC.

8. INCOME TAXES

The Company's earnings are primarily domestic, and its effective income tax rates on earnings from operations for the three months ended September 30, 2026 and 2025, were 21.1% and 28.9%, respectively. For the nine months ended September 30, 2026 and 2025, the Company's effective income tax rates on earnings from operations were 19.9% and 23.0%, respectively. The lower effective tax rate for the three months ended September 30, 2026, was primarily attributable to a reduction in the estimated research and development tax credits recorded in the prior period. The lower effective tax rate for the nine months ended September 30, 2026, was primarily attributable to a reduction in the estimated research and development tax credits recorded in the prior period and income tax benefits associated with stock award settlement activity recorded in the current period.

For the three months ended September 30, 2026, the Company’s effective tax rate did not differ materially from the federal statutory corporate income tax rate of 21%. For the nine months ended September 30, 2026, the Company’s effective tax rate differed from the federal statutory corporate income tax rate of 21% primarily due to income tax benefits associated with stock award settlement activity.

The Company's unrecognized tax benefits increased by $2 million and $6 million during the three and nine months ended September 30, 2026, respectively. As of September 30, 2026, the estimated amounts of the Company's unrecognized tax benefits, excluding interest and penalties, were liabilities of $111 million. Assuming a sustainment of these tax positions, a reversal of $84 million of the accrued amounts would favorably affect the Company's effective federal income tax rate in future periods.

The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense. For the three and nine months ended September 30, 2026, interest and penalties resulting from the unrecognized tax benefits noted above increased income tax expense by $1 million and $4 million, respectively.

Non-current state income taxes include deferred state income taxes, which reflect the change in deferred state tax assets and liabilities and the tax expense or benefit associated with changes in state unrecognized tax benefits in the relevant period. These amounts are recorded within operating income. Current period state income tax expense is charged to contract costs and included in cost of sales and service revenues in segment operating income.

Internal Revenue Service ("IRS") Audits - The Company reached an agreement in principle with the IRS on the research and development tax credits for the 2016-2021 tax years in 2025. This resolution was submitted to the Joint Committee on Taxation ("JCT") for approval in March 2026. In October 2026, the Company received approval from the JCT on the agreement reached with the IRS. The agreement is expected to result in a refund of approximately $134 million, excluding interest. The impact will be recognized in the Company’s consolidated financial statements in the fourth quarter of 2026, the quarter in which JCT approval was received. The Company expects the settlement to result in a reduction of the unrecognized tax benefit liability of approximately $69 million and a decrease to income tax expense of approximately $41 million, both excluding impacts of related interest.

In the first quarter of 2026, the IRS initiated an audit of the research and development tax credits claimed on the Company's filed returns for the 2022-2023 tax years. The Company believes that its unrecognized tax benefit liability is adequate and will cover any adjustments resulting from the IRS audit of the 2022-2023 research and development tax credits.