Our effective tax rates for each of the periods presented are the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. Our provision for income taxes for fiscal 2021 varied from the tax computed at the U.S. federal statutory income tax rate primarily due to a net deferred tax benefit that totaled $2.3 billion that we recognized as a result of a partial realignment of our legal entity structure that resulted in the intra-group transfer of certain intellectual property (IP) rights, earnings in foreign operations, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation, the Foreign Derived Intangible Income deduction and the tax effect of GILTI. Our provision for income taxes for fiscal 2020 varied from the tax computed at the U.S. federal statutory income tax rate primarily due to earnings in foreign operations, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation, the Foreign Derived Intangible Income deduction and the tax effect of GILTI. Our provision for income taxes for fiscal 2019 varied from the 21% U.S. statutory rate imposed by the U.S. Tax Cuts and Jobs Act of 2017 (the Tax Act) primarily due to earnings in foreign operations, state taxes, the U.S. research and development tax credit, settlements with tax authorities, the tax effects of stock-based compensation, the Foreign Derived Intangible Income deduction, GILTI, and a $389 million net reduction to our transition tax recorded in connection with the Tax Act pursuant to SEC Staff Accounting Bulletin No. 118.

The following is a geographical breakdown of income before benefit from (provision for) income taxes:

	Year Ended May 31,
(in millions)	2021		2020		2019
Domestic	$	4,375	$	3,890	$	3,774
Foreign		8,624		8,173		8,494
Income before benefit from (provision for) income taxes	$	12,999	$	12,063	$	12,268

	Year Ended May 31,
(Dollars in millions)	2021			2020			2019
Current provision:
Federal	$	(516	)	$	(1,616	)	$	(979	)
State		(233	)		(19	)		(300	)
Foreign		(929	)		(1,144	)		(1,097	)
Total current provision	$	(1,678	)	$	(2,779	)	$	(2,376	)
Deferred benefit:
Federal	$	(8,631	)	$	983		$	(483	)
State		77			(50	)		28
Foreign		10,979			(82	)		1,646
Total deferred benefit	$	2,425		$	851		$	1,191
Total benefit from (provision for) income taxes	$	747		$	(1,928	)	$	(1,185	)
Effective income tax (benefit) expense rate	(5.7%)			16.0%			9.7%

The benefit from (provision for) income taxes differed from the amount computed by applying the federal statutory rate to our income before benefit from (provision for) income taxes as follows (certain prior year amounts have been reclassified to conform to the current year’s presentation):

	Year Ended May 31,
(Dollars in millions)	2021			2020			2019
U.S. federal statutory tax rate	21.0%			21.0%			21.0%
Tax provision at statutory rate	$	(2,730	)	$	(2,533	)	$	(2,576	)
Impact of the Tax Act of 2017:
One-time transition tax		—			—			529
Deferred tax effects		—			—			(140	)
Foreign earnings at other than United States rates		580			496			1,053
Net impact of intra-entity IP transfer		2,266			—			—
State tax expense, net of federal benefit		(206	)		(172	)		(163	)
Settlements and releases from judicial decisions and statute expirations, net		582			137			132
Tax contingency interest accrual, net		(55	)		(163	)		(245	)
Domestic tax contingency, net		(282	)		(58	)		(183	)
Federal research and development credit		169			151			159
Stock-based compensation		300			166			201
Other, net		123			48			48
Total benefit from (provision for) income taxes	$	747		$	(1,928	)	$	(1,185	)

	May 31,
(in millions)	2021			2020
Deferred tax assets:
Accruals and allowances	$	452		$	469
Employee compensation and benefits		755			638
Differences in timing of revenue recognition		547			524
Lease liabilities		524			253
Basis of property, plant and equipment and intangible assets		12,161			1,115
Tax credit and net operating loss carryforwards		3,934			3,871
Total deferred tax assets		18,373			6,870
Valuation allowance		(1,526	)		(1,359	)
Total deferred tax assets, net		16,847			5,511
Deferred tax liabilities:
Unrealized gain on stock		(78	)		(78	)
Acquired intangible assets		(266	)		(561	)
GILTI deferred		(9,883	)		(1,108	)
ROU assets		(488	)		(241	)
Withholding taxes on foreign earnings		(195	)		(171	)
Other		(165	)		(141	)
Total deferred tax liabilities		(11,075	)		(2,300	)
Net deferred tax assets	$	5,772		$	3,211
Recorded as:
Non-current deferred tax assets	$	13,636		$	3,252
Non-current deferred tax liabilities		(7,864	)		(41	)
Net deferred tax assets	$	5,772		$	3,211

We provide for United States income taxes on the undistributed earnings and the other outside basis temporary differences of foreign subsidiaries unless they are considered indefinitely reinvested outside the United States. At May 31, 2021, the amount of temporary differences related to undistributed earnings and other outside basis temporary differences of investments in foreign subsidiaries upon which U.S. income taxes have not been provided was approximately $7.9 billion. If the undistributed earnings and other outside basis differences were recognized in a taxable transaction, they would generate foreign tax credits that would reduce the federal tax liability associated with the foreign dividend or the otherwise taxable transaction. At May 31, 2021, assuming a full utilization of the foreign tax credits, the potential net deferred tax liability associated with these other outside basis temporary differences would be approximately $1.4 billion.

Our net deferred tax assets were $5.8 billion and $3.2 billion as of May 31, 2021 and 2020, respectively. We believe that it is more likely than not that the net deferred tax assets will be realized in the foreseeable future. Realization of our net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards and tax credit carryforwards. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.

The valuation allowance was $1.5 billion and $1.4 billion as of May 31, 2021 and 2020, respectively. A majority of the valuation allowances as of May 31, 2021 and 2020 related to tax assets established in purchase accounting and other tax credits. Any subsequent reduction of that portion of the valuation allowance and the recognition of the associated tax benefits associated with our acquisitions will be recorded to our provision for income taxes

subsequent to our final determination of the valuation allowance or the conclusion of the measurement period (as defined above), whichever comes first.

At May 31, 2021, we had federal net operating loss carryforwards of approximately $502 million, which are subject to limitation on their utilization. Approximately $447 million of these federal net operating losses expire in various years between fiscal 2022 and fiscal 2038. Approximately $55 million of these federal net operating losses are not currently subject to expiration dates. We had state net operating loss carryforwards of approximately $2.0 billion at May 31, 2021, which expire between fiscal 2022 and fiscal 2040 and are subject to limitations on their utilization. We had total foreign net operating loss carryforwards of approximately $1.8 billion at May 31, 2021, which are subject to limitations on their utilization. Approximately $1.7 billion of these foreign net operating losses are not currently subject to expiration dates. The remainder of the foreign net operating losses, approximately $86 million, expire between fiscal 2022 and fiscal 2041. At May 31, 2021, we had federal capital loss carryforwards of approximately $501 million, which expire in fiscal 2026. We had state capital loss carryforwards of approximately $661 million, which expire between fiscal 2025 and fiscal 2026. We had tax credit carryforwards of approximately $1.1 billion at May 31, 2021, which are subject to limitations on their utilization. Approximately $765 million of these tax credit carryforwards are not currently subject to expiration dates. The remainder of the tax credit carryforwards, approximately $378 million, expire in various years between fiscal 2022 and fiscal 2041.

We classify our unrecognized tax benefits as either current or non-current income taxes payable in the accompanying consolidated balance sheets. The aggregate changes in the balance of our gross unrecognized tax benefits, including acquisitions, were as follows:

	Year Ended May 31,
(in millions)	2021			2020			2019
Gross unrecognized tax benefits as of June 1	$	6,972		$	6,348		$	5,592
Increases related to tax positions from prior fiscal years		225			624			772
Decreases related to tax positions from prior fiscal years		(836	)		(298	)		(135	)
Increases related to tax positions taken during current fiscal year		531			628			540
Settlements with tax authorities		(51	)		(177	)		(153	)
Lapses of statutes of limitation		(66	)		(116	)		(202	)
Cumulative translation adjustments and other, net		137			(37	)		(66	)
Total gross unrecognized tax benefits as of May 31	$	6,912		$	6,972		$	6,348

As of May 31, 2021, 2020 and 2019, $4.4 billion, $4.3 billion and $4.2 billion, respectively, of unrecognized tax benefits would affect our effective tax rate if recognized. We recognized interest and penalties related to uncertain tax positions in our provision for income taxes line of our consolidated statements of operations of $166 million, $202 million and $312 million during fiscal 2021, 2020 and 2019, respectively. Interest and penalties accrued as of May 31, 2021 and 2020 were $1.6 billion and $1.4 billion, respectively.

Domestically, U.S. federal and state taxing authorities are currently examining income tax returns of Oracle and various acquired entities for years through fiscal 2019. Many issues are at an advanced stage in the examination process, the most significant of which include transfer pricing, domestic production activity, foreign tax credits, research and development credits, state economic nexus, and qualification as a state manufacturer. With all of these domestic audit issues considered in the aggregate, we believe that it was reasonably possible that, as of May 31, 2021, the gross unrecognized tax benefits related to these audits could decrease (whether by payment, release, or a combination of both) in the next 12 months by as much as $798 million ($671 million net of offsetting tax benefits). Our U.S. federal income tax returns have been examined for all years prior to fiscal 2010 and, with some exceptions, we are no longer subject to audit for those periods. Our U.S. state income tax returns, with some exceptions, have been examined for all years prior to fiscal 2007, and we are no longer subject to audit for those periods.

Internationally, tax authorities for numerous non-U.S. jurisdictions are also examining returns affecting our unrecognized tax benefits. We believe that it was reasonably possible that, as of May 31, 2021, the gross unrecognized tax benefits could decrease (whether by payment, release, or a combination of both) by as much as $197 million ($89 million net of offsetting tax benefits) in the next 12 months related primarily to transfer pricing. With some exceptions, we are generally no longer subject to tax examinations in non-U.S. jurisdictions for years prior to fiscal 2001.

We are under audit by the IRS and various other domestic and foreign tax authorities with regards to income tax and indirect tax matters and are involved in various challenges and litigation in a number of countries, including, in particular, Australia, Brazil, Canada, India, Indonesia, Israel, Mexico, New Zealand, Pakistan, Saudi Arabia, South Korea and Spain, where the amounts under controversy are significant. In some, although not all, cases, we have reserved for potential adjustments to our provision for income taxes and accrual of indirect taxes that may result from examinations by, or any negotiated agreements with, these tax authorities or final outcomes in judicial proceedings, and we believe that the final outcome of these examinations, agreements or judicial proceedings will not have a material effect on our results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of benefits in the period we determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax liabilities and indirect tax liabilities are less than the ultimate assessment, it could result in a further charge to expense.

We believe that we have adequately provided under GAAP for outcomes related to our tax audits. However, there can be no assurances as to the possible outcomes or any related financial statement effect thereof.