v3.25.2
Income Taxes (Notes)
 6 Months Ended
Jun. 30, 2025
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]
13. INCOME TAXES

We adjust our effective tax rate each quarter based on our estimated annual effective tax rate. We also record the tax impact of certain discrete, unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates on deferred tax balances, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

Our income tax expense and effective income tax rates for the three and six months ended June 30, 2025 and June 30, 2024 are as follows:

 Three Months EndedSix Months Ended
June 30,June 30,
2025202420252024
 (in millions)
   
Income tax expense$28.1 $17.2 $42.1 $33.1 
Effective income tax rate41.7 %48.6 %47.6 %46.1 %

During the three and six months ended June 30, 2025 and June 30, 2024, in computing our estimated annual effective tax rate, we recorded a valuation allowance against the deferred tax asset on the current year estimated disallowed interest expense in the U.S. Our effective income tax rates for the three and six months ended June 30, 2025 vary from our effective income tax rates for the three and six months ended June 30, 2024 primarily as a result of the mix of earnings on a jurisdictional basis.

For the three and six months ended June 30, 2025, our effective income tax rates vary from the U.S. federal statutory rate primarily due to the unfavorable impact of disallowed interest expense deductions in the U.S., as well as the mix of earnings on a jurisdictional basis, and the impact of certain non-U.S. tax rates and non-U.S. withholding taxes. In addition, the impact of tax expense from valuation allowances in certain non-U.S. jurisdictions also impacted our effective tax rate, as compared to the U.S. federal statutory rate, for the three and six months ended June 30, 2025. These tax expenses were partially offset by the favorable impact of tax credits.

For the three and six months ended June 30, 2024, our effective income tax rates varied from the U.S. federal statutory rate primarily due to the unfavorable impact related to the disallowed interest expense deductions in the U.S. and tax expense related to global intangible low-taxed income, partially offset by the impact of certain favorable non-U.S. tax rates and the impact of tax credits.

In accordance with the guidance in ASC 740 - Income Taxes, we review the likelihood that we will realize the benefit of deferred tax assets and estimate whether recoverability of our deferred tax assets is "more likely than not" based on the available evidence. Due to the uncertainty associated with the potential impact of geopolitical conflicts or events, as well as macroeconomic factors, including sustained or increased inflation, renegotiated trade agreements, and tariffs or import restrictions, we may experience lower than projected earnings in certain jurisdictions in future periods and, as a result, it is reasonably possible that changes in valuation allowances could be recognized in future periods and such changes could be material to our financial statements.
Other Income Tax Matters

Pending Tax Litigation

During their examination of our 2015 U.S. federal income tax return, the Internal Revenue Service (IRS) asserted that income earned by a Luxembourg subsidiary from its Mexican branch operations should be categorized as foreign base company sales income (FBCSI) under Section 954(d) of the Internal Revenue Code and recognized currently as taxable income on our 2015 U.S. federal income tax return. As a result of this assertion, the IRS issued a Notice of Proposed Adjustment (NOPA). AAM disagreed with the NOPA, believes that the proposed adjustment is without merit and contested the matter through the IRS's administrative appeals process. No resolution was reached in the appeals process and, in September 2022, the IRS issued a Notice of Deficiency. The IRS subsequently issued a Notice of Tax Due in December 2022 and AAM paid the assessed tax and interest of $10.1 million in January 2023. We filed a claim for refund for the amount of tax and interest paid related to this matter for the 2015 tax year and, in December 2023, we filed suit in the U.S. Court of Federal Claims.

We believe, after consultation with tax and legal counsel, that it is more likely than not that our structure did not give rise to FBCSI, and it's likely that we will be successful in ultimately defending our position. As such, we have not recorded any impact of the IRS’s proposed adjustment in our condensed consolidated financial statements as of, and for the six months ended, June 30, 2025 and June 30, 2024, with the exception of the income tax receivable of $10.1 million that was paid by AAM to the IRS in 2023. As of June 30, 2025, in the event AAM is not successful in defending its position, the potential additional income tax expense, including estimated interest charges, related to tax years 2015 through 2024, is estimated to be in the range of approximately $315 million to $365 million.

The IRS has subsequently issued to AAM additional NOPAs for this matter for each of the tax years 2016 through 2020. The issuance of these NOPAs does not impact the aforementioned estimated range of potential income tax expense and interest charges and does not alter AAM’s belief that it is more likely than not that our structure did not give rise to FBCSI and that it’s likely that we will be successful in ultimately defending our position.

Negative or unexpected outcomes of tax examinations and audits, and any related litigation, could have a material adverse impact on our results of operations, financial condition and cash flows. We will continue to monitor the progress and conclusions of all ongoing audits and other communications with tax authorities and will adjust our estimated liability as necessary. As of June 30, 2025 and December 31, 2024, we have recorded a liability for unrecognized income tax benefits and related interest and penalties of $39.0 million and $34.2 million, respectively.

Recently Enacted Tax Legislation

On July 4, 2025, H.R. 1 (the One Big Beautiful Bill or the Act) was enacted into law introducing a broad range of U.S. federal tax reform provisions, which included, among other items, extending and modifying certain key Tax Cuts & Jobs Act provisions and expanding certain Inflation Reduction Act incentives while accelerating the phase-out of other incentives. We expect that the most impactful provision of the Act for AAM is a permanent modification to the interest expense limitation rules under Internal Revenue Code (IRC) Section 163(j), including an amendment to the Adjusted Taxable Income (ATI) calculation required under IRC Section 163(j)(8)(A).

Based on the provisions of the Act, ATI will now be computed without regard to any deduction allowable for depreciation and amortization (based on EBITDA as the interest limitation base), which could materially reduce future limitations on the deductibility of our business interest expense and may result in the realization of additional deferred tax assets related to previously disallowed interest expense carryforwards. The One Big Beautiful Bill was enacted on July 4, 2025 and therefore did not impact our financial statements as of, and for the period ended, June 30, 2025. We are evaluating the full impact of the Act and we expect to reflect the impact in our financial statements for the period ending September 30, 2025, the period of enactment.