Income Taxes

The following table reflects changes in unrecognized tax benefits for the three months ended March 31, 2014:



	(In millions)
Gross amounts of unrecognized tax benefits as of January 1, 2014	$	334
Increases related to prior period tax positions	—
Decreases related to prior period tax positions	—
Increases related to current period tax positions	4
Settlements	(3		)
Gross amounts of unrecognized tax benefits as of March 31, 2014	$	335

As of March 31, 2014, our liabilities for unrecognized tax benefits were included in accrued expenses and other current liabilities, deferred and other tax liabilities, net and as a reduction of the amount of deferred tax asset for tax credit carryforwards.

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of March 31, 2014 and December 31, 2013 was approximately $80 million and $77 million, respectively.

We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by certain tax authorities for the 2003 to 2012 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these or other examinations. The material jurisdictions where we are subject to potential examination by tax authorities for certain tax years after 2002 include, among others, the U.S. (Federal and California), France, Germany, Italy, Korea, Israel, Switzerland, Singapore, the United Kingdom and Canada.

Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

As of December 31, 2013, we had approximately $14.0 billion of indefinitely reinvested foreign earnings for which we had not provided U.S. income or applicable foreign withholding taxes. During the first quarter of 2014, we altered our capital allocation strategy. As a result, we changed our intent with regard to the indefinite reinvestment of undistributed foreign earnings of certain of our foreign subsidiaries for 2013 and prior years. Accordingly, a portion of these earnings are no longer considered indefinitely reinvested in our international operations. In connection with this change in our capital allocation strategy during the first quarter of 2014, we provided for U.S. income and applicable foreign withholding taxes on $9.0 billion of undistributed foreign earnings of those subsidiaries for 2013 and prior years, and recorded a deferred tax liability of approximately $3.0 billion, which is included in accrued expenses and other current liabilities on on condensed consolidated balance sheet at March 31, 2014. The remaining approximately $5.0 billion of undistributed foreign earnings have been reinvested in our foreign operations, as we have determined that these earnings are necessary to support our planned ongoing investments in our foreign operations, and as a result, these earnings remain indefinitely reinvested in those operations. In making this determination, we consider projected cash needs for, among other things, investment in our existing businesses, potential acquisitions and capital transactions, including repurchases of our common stock and debt repayments. Additionally, we estimate the amount of cash available or needed in the jurisdictions where these investments are expected, as well as our ability to generate cash in those jurisdictions and our access to capital markets. This analysis enables us to conclude whether or not we will indefinitely reinvest foreign earnings in our international operations. The remaining approximately $5.0 billion of undistributed foreign earnings for 2013 and prior years that is indefinitely reinvested in our foreign operations relates to a large number of our non-U.S. subsidiaries located in numerous jurisdictions for which it is impracticable to determine the impact of U.S. income or applicable foreign taxes that would be payable if such earnings were repatriated to the U.S.

In addition to the accrual of deferred taxes related to undistributed foreign earnings of certain of our non-U.S. subsidiaries for 2013 and prior years discussed above, we recorded in the first quarter of 2014 U.S. income and applicable foreign taxes of $53 million based on our estimated 2014 earnings of our non-U.S. subsidiaries not considered indefinitely reinvested in our foreign operations.