Income Taxes

The provision for income taxes from continuing operations consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2014		2013		2012
Current:
Federal	$	324	$	307	$	363
State	20		28		28
Foreign	10		5		2
Total current	354		340		393
Deferred:
Federal	91		34		(23		)
State	6		2		(4		)
Foreign	2		11		8
Total deferred	99		47		(19		)
Total provision for income taxes from continuing operations	$	453	$	387	$	374

Excess tax benefits associated with share-based compensation deductions are credited to stockholders’ equity. The reductions of income taxes payable resulting from share-based compensation deductions that were credited to stockholders’ equity were approximately $82 million for the twelve months ended July 31, 2014, $69 million for the twelve months ended July 31, 2013, and $71 million for the twelve months ended July 31, 2012.

The sources of income from continuing operations before the provision for income taxes consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2014		2013		2012
United States	$	1,290	$	1,165	$	1,096
Foreign	24		45		42
Total	$	1,314	$	1,210	$	1,138

Differences between income taxes calculated using the federal statutory income tax rate of 35% and the provision for income taxes from continuing operations were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2014			2013			2012
Income from continuing operations before income taxes	$	1,314		$	1,210		$	1,138

Statutory federal income tax	$	460		$	424		$	398
State income tax, net of federal benefit	17			17			16
Federal research and experimentation credits	(8		)	(24		)	(8		)
Domestic production activities deduction	(25		)	(29		)	(27		)
Share-based compensation	9			7			8
Effects of non-U.S. operations	1			(2		)	(5		)
Other, net	(1		)	(6		)	(8		)
Total provision for income taxes from continuing operations	$	453		$	387		$	374

In January 2013 the American Taxpayer Relief Act of 2012 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2013 that was retroactive to January 1, 2012. We recorded a discrete tax benefit of approximately $8 million for the retroactive effect during the twelve months ended July 31, 2013. As of July 31, 2014, the federal research and experimentation credit has not been extended beyond December 31, 2013.

Significant deferred tax assets and liabilities were as follows at the dates indicated:



	July 31,
(In millions)	2014			2013
Deferred tax assets:
Accruals and reserves not currently deductible	$	60		$	51
Deferred rent	11			11
Accrued and deferred compensation	50			50
Loss and tax credit carryforwards	47			36
Property and equipment	—			12
Share-based compensation	50			97
Net basis difference in investments held for sale	—			41
Other, net	2			—
Total deferred tax assets	220			298
Deferred tax liabilities:
Intangible assets	120			93
Property and equipment	4			—
Other, net	—			10
Total deferred tax liabilities	124			103
Total net deferred tax assets	96			195
Valuation allowance	(24		)	(25		)
Total net deferred tax assets, net of valuation allowance	$	72		$	170

The components of total net deferred tax assets, net of valuation allowances, as shown on our balance sheets were as follows at the dates indicated:



	July 31,
(In millions)	2014			2013
Current deferred income taxes	$	133		$	166
Long-term deferred income taxes included in other assets	—			10
Long-term deferred income taxes included in other long-term obligations	(61		)	(6		)
Total net deferred tax assets, net of valuation allowance	$	72		$	170

We provide U.S. federal income taxes on the earnings of foreign subsidiaries unless the subsidiaries' earnings are intended to be indefinitely reinvested in our international operations. To the extent that foreign earnings previously treated as indefinitely reinvested are repatriated, the related U.S. tax liability may, subject to certain limitations, be reduced by any foreign income taxes paid on these earnings. At July 31, 2014, the cumulative amount of earnings upon which U.S. income taxes had not been provided was approximately $48 million. The unrecognized deferred tax liability for these earnings was approximately $7 million.

We have provided a valuation allowance related to the benefits of federal and state net basis difference in investments held for sale, state capital and operating loss carryforwards, foreign operating loss carryforwards, and state tax credit carryforwards that we believe are unlikely to be realized. Changes in the valuation allowance during the twelve months ended July 31, 2014 were primarily related to the reduction of the valuation allowance on the loss associated with the sale of our Intuit Health investment, partially offset by the increase of the valuation allowance related to state tax credit and state and foreign operating loss carryforwards. Changes in the valuation allowance during the twelve months ended July 31, 2013 were primarily related to the federal and state net basis difference in investments held for sale. The deferred tax assets for the net basis difference in the Intuit Financial Services and Intuit Health investments held for sale were $9 million and $32 million, on which we recorded valuation allowances of $1 million and $14 million. We recorded the related tax benefits of $8 million and $18 million to net gain on disposal of discontinued operations. See Note 7, “Discontinued Operations,” for more information.

At July 13, 2013, the deferred tax asset for the capital loss on the sale of Intuit Websites was $16 million, on which there was a valuation allowance of $2 million for state capital loss carryfowards. The deferred tax asset for the net basis difference in the Intuit Websites investment held for sale at the end of fiscal 2012 was $38 million, on which we recorded a valuation allowance of $2 million. We recorded the related tax benefit to net income from discontinued operations in fiscal 2012.

At July 31, 2014, we had total federal net operating loss carryforwards of approximately $61 million that will start to expire in fiscal 2021. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2014, we had total state net operating loss carryforwards of approximately $183 million for which we have recorded a deferred tax asset of $11 million and a valuation allowance of $9 million. The state net operating losses will start to expire in fiscal 2015. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2014, we had Singapore operating loss carryforwards of approximately $18 million which have an indefinite carryforward period. We recorded a full valuation allowance on the related deferred tax asset.

At July 31, 2014, we had California research and experimentation credit carryforwards of approximately $27 million. If realized, $7 million of the carryfoward will be recognized as additional paid in capital. We recorded a full valuation on the related deferred tax asset.

Unrecognized Tax Benefits

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2014			2013			2012
Gross unrecognized tax benefits, beginning balance	$	39		$	38		$	41
Increases related to tax positions from prior fiscal years, including acquisitions	4			5			3
Decreases related to tax positions from prior fiscal years	(8		)	(12		)	(9		)
Increases related to tax positions taken during current fiscal year	5			9			3
Settlements with tax authorities	—			(1		)	—
Gross unrecognized tax benefits, ending balance	$	40		$	39		$	38

The total amount of our unrecognized tax benefits at July 31, 2014 was $40 million. Net of related deferred tax assets, unrecognized tax benefits were $26 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $26 million. We do not believe that it is reasonably possible that there will be a significant increase or decrease in unrecognized tax benefits over the next 12 months.

We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal tax returns we are no longer subject to tax examinations for years prior to fiscal 2010. For California tax returns we are no longer subject to tax examinations for years prior to fiscal 2007. We are currently under examination by the Internal Revenue Service for fiscal 2010 through 2012 and by the California Franchise Tax Board for fiscal 2007 and 2008.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at July 31, 2014 and July 31, 2013 for the payment of interest and penalties were not significant. The amounts of interest and penalties that we recognized during the twelve months ended July 31, 2014, 2013 and 2012 were also not significant.