INCOME TAXES

Domestic and foreign income (loss) before income taxes for the three years ended June 30 were as follows:



(in thousands)	2013		2012		2011
Domestic	$	35,792	$	18,347	$	(18,712	)
Foreign	97,358		61,359		77,346
	$	133,150	$	79,706	$	58,634

Provisions for income taxes for the three years ended June 30 were as follows:



(in thousands)	2013			2012			2011
Current:
Federal	$	6,279		$	8,054		$	3,618
State	2,565			1,010			(702		)
Foreign	26,651			9,608			26,072
	35,495			18,672			28,988
Deferred:
Federal	7,650			2,447			(17,307		)
State	(2,113		)	(869		)	(128		)
Foreign	(3,854		)	(3,702		)	(1,705		)
	1,683			(2,124		)	(19,140		)
	$	37,178		$	16,548		$	9,848

Our consolidated effective income tax rate differed from the U.S. federal statutory income tax rate as set forth below:



(in thousands)	2013			%		2012			%		2011			%
Income tax expense computed at the federal statutory rate	$	46,602		35.0	%	$	27,897		35.0	%	$	20,522		35.0	%
State income taxes, net of federal benefit	1,914			1.4	%	(232		)	(0.3	)%	61			0.1	%
Foreign rate differential	(7,960		)	(6.0	)%	(6,539		)	(8.2	)%	(3,151		)	(5.4	)%
Change in valuation allowances	(4,708		)	(3.5	)%	1,630			2.0	%	(8,174		)	(13.9	)%
Change in reserves	394			0.3	%	(7,655		)	(9.6	)%	47			0.1	%
Research and development	(2,986		)	(2.2	)%	(2,734		)	(3.4	)%	(2,196		)	(3.7	)%
Non-deductible losses	440			0.3	%	678			0.9	%	—			—	%
Other non-deductible expenses	2,074			1.6	%	393			0.5	%	1,004			1.7	%
Adjustment of net operating losses	608			0.5	%	2,243			2.8	%	—			—
Statutory tax rate changes	798			0.5	%	(1,047		)	(1.3	)%	436			0.7	%
Other, net	2			—	%	1,914			2.4	%	1,299			2.2	%
	$	37,178		27.9	%	$	16,548		20.8	%	$	9,848		16.8	%

Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings are indefinitely reinvested. Undistributed earnings of foreign subsidiaries that are indefinitely reinvested are approximately $368 million and $327 million at June 30, 2013 and June 30, 2012, respectively. Due to the complexities associated with this hypothetical calculation, it is not practicable to estimate the unrecognized deferred tax liability on the earnings that are indefinitely reinvested in foreign operations.

Significant components of our net deferred tax assets (liabilities) as of June 30, 2013 and June 30, 2012 were as follows:



(in thousands)	2013			2012
Deferred tax assets:
U.S. loss carryforwards	$	1,981		$	3,431
Foreign loss carryforwards	6,240			6,885
Accrued expenses	35,340			26,528
Tax credit carryforwards	14,559			20,394
Provision for losses on receivables	1,161			1,239
Deferred compensation	7,517			9,120
Deferred revenue	8,949			11,666
Intercompany loans	2,765			2,774
Other	1,168			663
Gross deferred tax assets	79,680			82,700
Deferred tax asset valuation allowance	(6,023		)	(11,392		)
Total deferred tax assets	73,657			71,308
Deferred tax liabilities:
Property and equipment	(5,606		)	(2,328		)
Revenue recognition	(26,537		)	(24,660		)
Intangible assets	(38,186		)	(30,817		)
Other	(2,491		)	(2,135		)
Total deferred tax liabilities	(72,820		)	(59,940		)
Net deferred tax assets	$	837		$	11,368

The net deferred tax assets and liabilities included in the consolidated balance sheets as of June 30, 2013 and June 30, 2012 were as follows:



(in thousands)	2013			2012
Current deferred tax assets	$	44,236		$	37,159
Non-current deferred tax assets	8,556			13,885
Current deferred tax liabilities	(16,512		)	(14,998		)
Non-current deferred tax liabilities	(35,443		)	(24,678		)
	$	837		$	11,368

At June 30, 2013, federal, state and foreign loss carryforwards of $1.7 million, $35.4 million and $23.7 million, respectively, were available to offset future liabilities for income taxes. The federal net operating losses expire in the years 2023 through 2030. Included in the state loss carryforwards is $8.7 million attributable to deductions from the exercise of equity awards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash. Use of these loss carryforwards is limited based on the future income of certain subsidiaries. The state net operating losses expire in the years 2014 through 2033. Of the non-U.S. loss carryforwards, $8.2 million will expire between 2015 and 2023; the remainder does not expire. We also have U.S. foreign tax credit carryforwards of $29.1 million, which expire in the years 2018 through 2022. Included in the U.S. foreign tax credit carryforwards is $15.4 million attributable to deductions from the exercise of equity awards. The benefit from these credits will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash.

A valuation allowance has been established for certain future income tax benefits related to loss carryforwards and temporary tax adjustments based on an assessment that it is more likely than not that these benefits will not be realized. The decrease in the valuation allowance in Fiscal Year 2013 was principally due to improved profitability in several U.S. states.

As of June 30, 2013, we had $46.6 million of gross unrecognized tax benefits of which $31.0 million would impact the effective tax rate if recognized. As of June 30, 2012, we had $53.8 million of gross unrecognized tax benefits of which $10.0 million would impact the effective tax rate if recognized. This reserve primarily relates to exposures for income tax matters such as changes in the jurisdiction in which income is taxable and taxation of certain investments.

Unrecognized tax benefits represent favorable positions we have taken, or expect to take, on tax returns. These positions have reduced, or are expected to reduce, our income tax liability on our tax returns and financial statements. As a result of the uncertainty associated with these positions, we have established a liability that effectively reverses the previous recognition of the tax benefits, making them “unrecognized.” Our unrecognized income tax benefits, excluding accrued interest and penalties, are as follows:



(in thousands)	2013			2012			2011
Balance at beginning of year	$	53,813		$	62,211		$	56,345
Additions related to tax positions in prior years	—			4,433			1,784
Reductions related to tax positions in prior years	(2,869		)	(1,898		)	(127		)
Reductions related to settlements with tax authorities	—			(477		)	(23		)
Reductions related to the expiration of statutes	(4,662		)	(6,789		)	(901		)
Currency translation adjustments	309			(3,667		)	5,133
Balance at end of year	$	46,591		$	53,813		$	62,211

As of June 30, 2013, we anticipate that the liability for unrecognized tax benefits for uncertain tax positions could change by up to $5.8 million in the next twelve months as a result of the expiration of statutes. This change is composed primarily of reserves associated with the jurisdiction in which income is taxable.

We recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2013 and June 30, 2012, interest and penalties of $5.0 million and $6.1 million, respectively, were included in our liability for unrecognized tax benefits. Interest and penalties included in income tax expense for Fiscal Years 2013, 2012 and 2011 amounted to benefits of $0.9 million, $2.1 million, and $0.8 million, respectively.

PAREXEL is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. All material state and local income tax matters through 2004 have been concluded. All material federal income tax matters have been concluded through 2004. Substantially all material foreign income tax matters have been concluded for all years through 2000.