Income Taxes

Geographic sources of income (loss) from continuing operations before income taxes are as follows for the respective periods:



	Year Ended August 31,
($ in thousands)	2014			2013			2012
United States	$	384,146		$	468,738		$	727,965
Foreign	(51,406		)	(38,771		)	(61,679		)
Income from continuing operations before income taxes	$	332,740		$	429,967		$	666,286

Income tax (expense) benefit consists of the following for the respective periods:



	Year Ended August 31,
($ in thousands)	2014			2013			2012
Current:
U.S. Federal	$	(114,997	)	$	(174,020	)	$	(212,113	)
State and local	(17,664		)	(30,250		)	(46,676		)
Foreign	(2,575		)	(1,704		)	(2,140		)
Total current	(135,236		)	(205,974		)	(260,929		)
Deferred:
U.S. Federal	(3,154		)	20,420			(28,999		)
State and local	240			3,132			(1,039		)
Foreign	16,826			5,965			8,188
Total deferred	13,912			29,517			(21,850		)
Provision for income taxes	$	(121,324	)	$	(176,457	)	$	(282,779	)

The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items for the respective periods:



	Year Ended August 31,
	2014		2013		2012
Statutory U.S. federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.8	%	4.3	%	4.2	%
Foreign taxes	0.9	%	2.2	%	1.4	%
Goodwill impairments	—	%	—	%	0.9	%
Internal Revenue Service settlement	(3.1	)%	—	%	—	%
Mexico tax reform	(0.8	)%	—	%	—	%
Contingent consideration	1.0	%	—	%	—	%
Other, net	(1.3	)%	(0.5	)%	0.9	%
Effective income tax rate	36.5	%	41.0	%	42.4	%

Deferred tax assets and liabilities consist of the following as of August 31:



($ in thousands)	2014			2013
Deferred tax assets:
Allowance for doubtful accounts	$	13,100		$	16,479
Leasing transactions	74,528			86,946
Net operating loss carry-forward	16,938			25,055
Share-based compensation	23,796			35,123
Deferred revenue	18,539			4,698
Other	62,436			47,231
Gross deferred tax assets	209,337			215,532
Valuation allowance	(21,048		)	(17,998		)
Deferred tax assets, net of valuation allowance	188,289			197,534
Deferred tax liabilities:
Fixed assets	36,149			42,485
Intangibles	47,344			35,109
Other	6,264			7,929
Gross deferred tax liabilities	89,757			85,523
Net deferred income taxes	$	98,532		$	112,011

The net operating loss carry-forward in the above table represents $23.2 million of U.S. net operating losses that will begin to expire August 31, 2028. We also have $59.6 million of net operating losses in various foreign jurisdictions that do not expire.

As of August 31, 2014 and 2013, we have recorded a valuation allowance related to a portion of our net operating losses and other deferred tax assets of certain of our foreign subsidiaries because it is more likely than not that these deferred tax assets will not be utilized. We have concluded that it is more likely than not that we will ultimately realize the full benefit of our other deferred tax assets principally based on our history of profitable operations.

We have not provided deferred taxes on unremitted earnings attributable to international subsidiaries that have been considered permanently reinvested. As of August 31, 2014, the earnings from these operations are not significant.

Uncertain Tax Positions

The following summarizes the activity in our unrecognized tax benefits, excluding interest and penalties, for the respective periods:



	Year Ended August 31,
($ in thousands)	2014			2013			2012
Beginning unrecognized tax benefits	$	44,057		$	32,207		$	25,811
Increases for tax positions taken in the current year	—			13,095			7,708
Increases for tax positions taken in prior years	2,214			5,953			813
Decreases for settlements with tax authorities	(7,184		)	(197		)	(733		)
Decreases for tax positions of prior years⁽¹⁾	(10,541		)	(2,635		)	—
Decreases due to lapse of applicable statutes of limitations	(10,148		)	(4,366		)	(1,392		)
Ending unrecognized tax benefits	$	18,398		$	44,057		$	32,207

⁽¹⁾ Fiscal year 2014 includes the $10.2 million tax benefit discussed in Income Tax Audits below.

Our liabilities for unrecognized tax benefits are primarily included in accrued and other current liabilities and other long-term liabilities on our Consolidated Balance Sheets, which also includes $2.2 million and $4.2 million of interest and penalties associated with our unrecognized tax benefits as of August 31, 2014 and 2013, respectively.

We classify interest and penalties related to uncertain tax positions as a component of provision for income taxes on our Consolidated Statements of Income. We recognized a $1.9 million benefit in fiscal year 2014, and expense of $0.1 million and $0.4 million in fiscal years 2013 and 2012, respectively, related to interest and penalties.

Although we cannot predict the timing of resolution with taxing authorities, if any, we believe it is reasonably possible that $13.8 million of our unrecognized tax benefits will be reduced in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. These unrecognized tax benefits primarily relate to apportionment of service revenues for corporate income tax purposes and deductibility of certain costs of our foreign subsidiaries.

As of August 31, 2014, $10.0 million of our total unrecognized tax benefits would favorably affect our effective tax rate if recognized. If amounts accrued are less than amounts ultimately assessed by the taxing authorities, we would record additional income tax expense.

Income Tax Audits

Our U.S. federal income tax return for fiscal year 2013 is currently open for review by the Internal Revenue Service (“IRS”). During fiscal year 2014, the IRS completed its review of our federal income tax return for fiscal year 2012. In addition, we are participating in the IRS’s Compliance Assurance Process for fiscal years 2014 and 2015, which is a voluntary program in which taxpayers seek to resolve all or most issues with the IRS prior to or soon after filing their U.S. federal income tax returns.

In fiscal year 2014, we settled a matter with the IRS related to the deductibility of certain costs for our foreign subsidiaries in fiscal years 2011 through 2013, which resulted in a $10.2 million tax benefit during fiscal year 2014. In addition, our fiscal year 2011 federal income tax return was closed in connection with this settlement.

In addition to the IRS audits discussed above, we are subject to numerous ongoing audits by state, local and foreign tax authorities with various tax years as early as 2007 that remain subject to examination. Although we believe our tax accruals are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from our historical income tax provisions and accruals.