NOTE 12. INCOME TAXES

Earnings from continuing operations before income taxes shown below are based on the geographic location to which such earnings are attributable.



Years ended June 30,	2014		2013		2012

Earnings from continuing operations before income taxes:
United States	$	1,960.3	$	1,757.6	$	1,874.4
Foreign	314.3		318.5		227.3
	$	2,274.6	$	2,076.1	$	2,101.7

The provision (benefit) for income taxes consists of the following components:



Years ended June 30,	2014			2013			2012

Current:
Federal	$	666.6		$	539.2		$	537.6
Foreign	92.2			103.6			85.4
State	63.5			50.5			67.4
Total current	822.3			693.3			690.4

Deferred:
Federal	(35.4		)	35.2			48.4
Foreign	(19.2		)	(14.9		)	(9.1		)
State	4.3			4.4			(3.2		)
Total deferred	(50.3		)	24.7			36.1
Total provision for income taxes	$	772.0		$	718.0		$	726.5

A reconciliation between the Company's effective tax rate and the U.S. federal statutory rate is as follows:



Years ended June 30,	2014			%		2013			%		2012			%

Provision for taxes at U.S. statutory rate	$	796.1		35.0		$	726.7		35.0		$	735.7		35.0

Increase (decrease) in provision from:
State taxes, net of federal tax benefit	44.2			1.9		35.3			1.7		37.6			1.8
U.S. tax on foreign income	26.8			1.2		85.3			4.2		51.4			2.5
Utilization of foreign tax credits	(27.5		)	(1.2	)	(94.4		)	(4.6	)	(51.7		)	(2.5	)
Section 199 - Qualified production activities	(23.0		)	(1.0	)	(22.3		)	(1.1	)	(22.4		)	(1.1	)
Other (A)	(44.6		)	(2.0	)	(12.6		)	(0.6	)	(24.1		)	(1.1	)
	$	772.0		33.9		$	718.0		34.6		$	726.5		34.6

(A) Fiscal 2014 includes $5.6 million for the tax impact of non tax-deductible separation cost related to the Company's planned separation of the Dealer Services business which increased our fiscal 2014 effective tax rate 0.2 percentage points. Fiscal 2013 includes $16.0 million for the tax impact of the non tax-deductible goodwill impairment related to ADP AdvancedMD which increased our fiscal 2013 effective tax rate 0.7 percentage points.

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:



Years ended June 30,	2014			2013

Deferred tax assets:
Accrued expenses not currently deductible	$	248.0		$	223.4
Stock-based compensation expense	87.3			84.1
Net operating losses	79.7			97.6
Other	36.4			39.5
	451.4			444.6
Less: valuation allowances	(44.0		)	(48.8		)
Deferred tax assets, net	$	407.4		$	395.8

Deferred tax liabilities:
Prepaid retirement benefits	$	183.7		$	146.2
Deferred revenue	71.9			62.9
Fixed and intangible assets	203.1			235.3
Prepaid expenses	100.7			88.9
Unrealized investment gains, net	112.3			99.8
Tax on unrepatriated earnings	14.1			12.3
Other	1.9			7.3
Deferred tax liabilities	$	687.7		$	652.7
Net deferred tax liabilities	$	280.3		$	256.9

There are $29.4 million and $26.1 million of current deferred tax assets included in other current assets on the Consolidated Balance Sheets at June 30, 2014 and 2013, respectively. There are $76.6 million and $89.4 million of long-term deferred tax assets included in other assets on the Consolidated Balance Sheets at June 30, 2014 and 2013, respectively. There are $97.5 million and $138.0 million of current deferred tax liabilities included in accrued expenses and other current liabilities on the Consolidated Balance Sheets at June 30, 2014 and 2013, respectively.

Income taxes have not been provided on undistributed earnings of certain foreign subsidiaries in an aggregate amount of approximately $1,031.6 million as of June 30, 2014, as the Company considers such earnings to be permanently reinvested

outside of the United States. The additional U.S. income tax that would arise on repatriation of the remaining undistributed earnings could be offset, in part, by foreign tax credits on such repatriation. However, it is impracticable to estimate the amount of net income tax that might be payable.

The Company has estimated foreign net operating loss carry-forwards of approximately $105.5 million as of June 30, 2014, of which $47.3 million expire through 2034 and $58.2 million has an indefinite utilization period. As of June 30, 2014, the Company has approximately $77.8 million of federal net operating loss carry-forwards from acquired companies. The net operating losses have an annual utilization limitation pursuant to section 382 of the Internal Revenue Code and expire through 2030.

The Company has state net operating loss carry-forwards of approximately $193.6 million as of June 30, 2014, which expire through 2033.

The Company has recorded valuation allowances of $44.0 million and $48.8 million at June 30, 2014 and 2013, respectively, to reflect the estimated amount of domestic and foreign deferred tax assets that may not be realized.

Income tax payments were approximately $821.5 million, $691.0 million, and $658.7 million for fiscal 2014, 2013, and 2012, respectively.

As of June 30, 2014, 2013, and 2012 the Company's liabilities for unrecognized tax benefits, which include interest and penalties, were $56.7 million, $70.7 million, and $84.7 million respectively. The amount that, if recognized, would impact the effective tax rate is $31.2 million, $38.8 million, and $43.7 million, respectively. The remainder, if recognized, would principally impact deferred taxes.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:



	Fiscal 2014			Fiscal 2013			Fiscal 2012

Unrecognized tax benefits at beginning of the year	$	70.7		$	84.7		$	105.7
Additions for tax positions	3.6			5.0			8.0
Reductions for tax positions	—			—			(0.8		)
Additions for tax positions of prior periods	7.0			5.3			13.0
Reductions for tax positions of prior periods	(7.4		)	(3.7		)	(21.6		)
Settlement with tax authorities	(4.4		)	(12.0		)	(4.2		)
Expiration of the statute of limitations	(13.7		)	(9.7		)	(9.8		)
Impact of foreign exchange rate fluctuations	0.9			1.1			(5.6		)
Unrecognized tax benefit at end of year	$	56.7		$	70.7		$	84.7

Interest expense and penalties associated with uncertain tax positions have been recorded in the provision for income taxes on the Statements of Consolidated Earnings. During the fiscal years ended June 30, 2014, 2013, and 2012, the Company recorded interest (benefit) expense of $(3.4) million, $0.4 million, and $1.2 million, respectively. Penalties incurred during fiscal years ended June 30, 2014, 2013, and 2012 were not material.

At June 30, 2014, the Company had accrued interest of $10.7 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2013, the Company had accrued interest of $12.2 million recorded on the Consolidated Balance Sheets, of which $1.2 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2014, the Company had accrued penalties of $0.6 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities. At June 30, 2013, the Company had accrued penalties of $1.0 million recorded on the Consolidated Balance Sheets, of which $0.1 million was recorded within income taxes payable, and the remainder was recorded within other liabilities.

The Company is routinely examined by the IRS and tax authorities in foreign countries in which it conducts business, as well as tax authorities in states in which it has significant business operations. The tax years currently under examination vary by jurisdiction. Examinations in progress in which the Company has significant business operations are as follows:



Taxing Jurisdiction		Fiscal Years under Examination
U.S. (IRS)		2013-2014
Arizona		1998-2007
Illinois		2004-2011
Minnesota		2005-2012
New York		2007-2009
New Jersey		2002-2009

The Company regularly considers the likelihood of assessments resulting from examinations in each of the jurisdictions. The resolution of tax matters is not expected to have a material effect on the consolidated financial condition of the Company, although a resolution could have a material impact on the Company's Statements of Consolidated Earnings for a particular future period and on the Company's effective tax rate.

If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase earnings up to $10 million in the next twelve months. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period in which the facts that give rise to a revision become known.

In fiscal 2014, the Company reached agreements with the IRS regarding all outstanding tax audit issues in dispute for the tax years through and including June 30, 2012, which did not have a material impact to the consolidated financial statements of the Company.