Note 15 – Income Taxes

The amounts of income from continuing operations before income taxes attributable to domestic and foreign operations were as follows:



	Year Ended March 31,
(in millions)	2014		2013		2012
Domestic	$	699	$	903	$	809
Foreign	340		390		521
Income from continuing operations before income taxes	$	1,039	$	1,293	$	1,330

Income tax expense (benefit) from continuing operations consisted of the following:



	Year Ended March 31,
(in millions)	2014			2013			2012
Current:
Federal	$	190		$	271		$	267
State	33			39			37
Foreign	(14		)	31			119
Total current	$	209		$	341		$	423
Deferred:
Federal	$	(82	)	$	(18	)	$	4
State	(12		)	3			(22		)
Foreign	25			28			2
Total deferred	$	(69	)	$	13		$	(16	)
Total:
Federal	$	108		$	253		$	271
State	21			42			15
Foreign	11			59			121
Total income tax expense from continuing operations	$	140		$	354		$	407

The income tax expense from continuing operations was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:



	Year Ended March 31,
(in millions)	2014			2013			2012
Tax expense at U.S. federal statutory tax rate	$	364		$	452		$	465
Effect of international operations	(144		)	(128		)	(89		)
U.S. federal and state tax contingencies	(123		)	(8		)	23
Domestic manufacturing deduction	(24		)	(21		)	(19		)
State taxes, net of U.S. federal tax benefit	19			23			17
Valuation allowance	23			11			(15		)
Other, net	25			25			25
Income tax expense from continuing operations	$	140		$	354		$	407

Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences from continuing operations were as follows:



	At March 31,
(in millions)	2014			2013
Deferred tax assets:
Modified accrual basis accounting for revenue	$	373		$	379
Share-based compensation	30			38
Accrued expenses	36			42
Net operating losses	131			158
Intangible assets amortizable for tax purposes	4			7
Deductible state tax and interest benefits	20			51
Other	65			55
Total deferred tax assets	$	659		$	730
Valuation allowances	(87		)	(83		)
Total deferred tax assets, net of valuation allowance	$	572		$	647
Deferred tax liabilities:
Purchased software	$	76		$	95
Depreciation	6			13
Other intangible assets	34			43
Capitalized development costs	158			209
Total deferred tax liabilities	$	274		$	360
Net deferred tax asset	$	298		$	287

In management’s judgment, it is more likely than not that the total deferred tax assets, net of valuation allowance, of approximately $572 million will be realized in the foreseeable future. Realization of the net deferred tax assets is dependent on the Company’s generation of sufficient future taxable income in the related tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards, and tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustments in future periods if estimates of future taxable income change.

U.S. federal, state and foreign net operating loss carryforwards (NOLs) totaled approximately $672 million and $764 million at March 31, 2014 and 2013, respectively. The NOLs will expire as follows: $524 million between 2014 and 2033 and $148 million may be carried forward indefinitely.

A valuation allowance has been provided for deferred tax assets that are not expected to be realized. The valuation allowance increased approximately $4 million and $7 million at March 31, 2014 and 2013, respectively. The increase in the valuation allowance at both March 31, 2014 and 2013 primarily related to amounts of NOLs and other deferred tax assets in foreign jurisdictions that in management's judgment will not be realized, offset by changes not affecting income tax expense such as accounting for acquisitions and uncertain tax positions.

In the fiscal year ended March 31, 2013, the Company reclassified approximately $150 million of deferred tax assets from non-current to current due to a change in tax accounting method reflected in the Company's federal income tax return for the fiscal year ended March 31, 2012. This accounting change did not affect income tax expense.

No provision has been made for U.S. federal income taxes on approximately $2,349 million and $2,220 million at March 31, 2014 and 2013, respectively, of unremitted earnings of the Company’s foreign subsidiaries since the Company plans to permanently reinvest all such earnings outside the United States. It is not practicable to determine the amount of tax associated with such unremitted earnings.

At March 31, 2014, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $202 million (of which none was classified as current). In addition, at March 31, 2014, the Company recorded approximately $17 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions. At March 31, 2013, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $486 million (of which none was classified as current). In addition, at March 31, 2013, the Company recorded approximately $51 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions.

A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state and foreign tax jurisdictions was as follows:



	At March 31,
(in millions)	2014			2013
Balance at beginning of year	$	382		$	523
Additions for tax positions related to the current year	20			30
Additions for tax positions from prior years	70			60
Reductions for tax positions from prior years	(233		)	(158		)
Settlement payments	(61		)	(55		)
Statute of limitations expiration	(11		)	(15		)
Translation and other	3			(3		)
Balance at end of year	$	170		$	382

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $127 million and $311 million at March 31, 2014 and 2013, respectively. The gross amount of interest and penalties accrued, reported in “Total liabilities,” was approximately $32 million, $104 million and $118 million for fiscal years 2014, 2013 and 2012, respectively. The amount of interest and penalties decreased approximately $72 million for fiscal year 2014, decreased approximately $14 million for fiscal year 2013 and increased approximately $20 million for fiscal year 2012.

A number of years may elapse before a particular uncertain tax position for which the Company has not recorded a financial statement benefit is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The Company is subject to tax audits in the following major taxing jurisdictions:


•	United States — federal tax years are open for years 2011 and forward;


•	Brazil — tax years are open for years 2008 and forward;


•	Canada — tax years are open for years 2009 and forward; and


•	Italy — tax years are open for years 2008 and forward.

In November 2013, the Company received a tax assessment of approximately Brazilian reais 211 million (which translated to approximately $93 million at March 31, 2014), including interest and penalties, from the Brazilian tax authority relating to fiscal years 2008-2013. The assessment included a report of findings in connection with the examination. The Company disagrees with the proposed adjustments in the assessment and intends to vigorously dispute these matters through applicable administrative and judicial procedures, as appropriate. While the Company believes that it will ultimately prevail, if the assessment is not resolved in favor of the Company, it would have an impact on the Company’s consolidated financial position, cash flows or results of operations. The Company does not believe it is reasonably possible that the amount of unrecognized tax benefits for this matter will significantly increase or decrease within the next 12 months.

While it is difficult to predict the final outcome or the timing of resolution of any particular tax matter, the Company believes that its financial statements reflect the probable outcome of uncertain tax positions. The Company may adjust these uncertain tax positions, as well as any related interest or penalties, in light of changing facts and circumstances, including the settlement of income tax audits and the expirations of statutes of limitation. To the extent a settlement differs from the amounts previously reserved, that difference generally would be recognized as a component of income tax expense in the period of resolution. Although the timing of the resolution of income tax examinations is highly uncertain, it is reasonably possible that settlements, payments and new information in the next 12 months related to certain federal, foreign and state tax issues may result in changes to the Company’s uncertain tax positions, including issues involving taxation of international operations and other matters. The Company believes that such reasonably possible changes within the next 12 months may reduce the balance of unrecognized tax benefits by an amount up to $30 million.