Income Taxes

6 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

5.     Income Taxes

As of September 30, 2011, we had $654 million of unrecognized tax benefits, of which $433 million would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, it is reasonably possible that audit resolutions and the expiration of statutes of limitations could potentially reduce our unrecognized tax benefits by up to $163 million. However, this amount may change because we continue to have ongoing negotiations with various taxing authorities throughout the year.

The U.S. Internal Revenue Service has substantially completed their audit relating to 2003 through 2006 and issued Revenue Agent Reports with tax assessments of $98 million.We disagree with the tax assessments relating to various transfer pricing issues and the disallowance of the research and development credits, which comprise most of the tax assessments.We are pursuing administrative relief through the appeals process.We have received assessments from the Canada Revenue Agency ("CRA") for a total of $169 million related to transfer pricing for 2003 through 2007.Payments of most of the assessments to the CRA have been made to stop the accrual of interest.We have appealed the assessment for 2003 to the Tax Court of Canada and have filed a notice of objection for 2004 through 2007.We did not resolve these issues with the CRA and our trial with the Tax Court of Canada commenced on October 17, 2011.We continue to believe in the technical merits of our tax positions and that we have adequately provided for any potential adverse results relating to these examinations in our financial statements.However, the final resolution of these issues could result in an increase or decrease to income tax expense.

In nearly all jurisdictions, the tax years prior to 2003 are no longer subject to examination.We believe that we have made adequate provision for all remaining income tax uncertainties.

We report interest and penalties on tax deficiencies as income tax expense.At September 30, 2011, our gross accrued interest on unrecognized tax benefits amounted to $142 million.We recognized an income tax expense of $4 million and $7 million, before any tax benefit, related to interest in our condensed consolidated statements of operations during the second quarter and first six months ended September 30, 2011.We have no material amounts accrued for penalties.