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)	2015		2014		2013
Domestic	$	737	$	683	$	877
Foreign	378		333		383
Income from continuing operations before income taxes	$	1,115	$	1,016	$	1,260

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



	Year Ended March 31,
(in millions)	2015			2014			2013
Current:
Federal	$	284		$	184		$	261
State	37			33			39
Foreign	56			(19		)	26
Total current	$	377		$	198		$	326
Deferred:
Federal	$	(74	)	$	(82	)	$	(18	)
State	(12		)	(12		)	3
Foreign	14			25			28
Total deferred	$	(72	)	$	(69	)	$	13
Total:
Federal	$	210		$	102		$	243
State	25			21			42
Foreign	70			6			54
Total income tax expense from continuing operations	$	305		$	129		$	339

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)	2015			2014			2013
Tax expense at U.S. federal statutory tax rate	$	390		$	356		$	440
Effect of international operations	(91		)	(147		)	(131		)
U.S. federal and state tax contingencies	1			(123		)	(8		)
Domestic manufacturing deduction	(23		)	(24		)	(21		)
State taxes, net of U.S. federal tax benefit	15			19			23
Valuation allowance	8			23			11
Other, net	5			25			25
Income tax expense from continuing operations	$	305		$	129		$	339

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)	2015			2014
Deferred tax assets:
Modified accrual basis accounting for revenue	$	349		$	373
Share-based compensation	31			30
Accrued expenses	36			36
Net operating losses	96			131
Intangible assets amortizable for tax purposes	3			4
Deductible state tax and interest benefits	20			20
Other	69			65
Total deferred tax assets	$	604		$	659
Valuation allowances	(85		)	(87		)
Total deferred tax assets, net of valuation allowance	$	519		$	572
Deferred tax liabilities:
Purchased software	$	48		$	76
Depreciation	3			6
Other intangible assets	17			34
Internally developed software	93			158
Total deferred tax liabilities	$	161		$	274
Net deferred tax asset	$	358		$	298

In management’s judgment, it is more likely than not that the total deferred tax assets, net of valuation allowance, of approximately $519 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 $542 million and $672 million at March 31, 2015 and 2014, respectively. The NOLs will expire as follows: $412 million between 2015 and 2034 and $130 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 decreased approximately $2 million at March 31, 2015 and increased approximately $4 million at March 31, 2014. The decrease in the valuation allowance at March 31, 2015 primarily related to NOL's and other deferred tax assets in foreign jurisdictions that in management's judgment will not be realized, offset by currency translation adjustments. The increase in the valuation allowance at March 31, 2014 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.

No provision has been made for U.S. federal income taxes on approximately $2,759 million and $2,349 million at March 31, 2015 and 2014, 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, 2015, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $162 million (of which $3 million was classified as current). In addition, at March 31, 2015, the Company recorded approximately $16 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions. 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.

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)	2015			2014
Balance at beginning of year	$	170		$	382
Additions for tax positions related to the current year	16			20
Additions for tax positions from prior years	23			70
Reductions for tax positions from prior years	(43		)	(233		)
Settlement payments	(5		)	(61		)
Statute of limitations expiration	(13		)	(11		)
Translation and other	(14		)	3
Balance at end of year	$	134		$	170

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $109 million and $127 million at March 31, 2015 and 2014, respectively. The gross amount of interest and penalties accrued, reported in “Total liabilities,” was approximately $28 million and $32 million for fiscal years 2015 and 2014, respectively. The amount of interest and penalties decreased approximately $4 million and $72 million for fiscal years 2015 and 2014, respectively.

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 2013 and forward;


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


•	Canada — federal tax years are open for years 2010 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 $66 million at March 31, 2015), 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 and results of operations.

The Company does not believe it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.