NOTE 19. INCOME TAXES

The domestic and foreign components of income before provision for income taxes are as follows (in thousands):


	Year ended June 30,
	2012		2011		2010
Domestic	$	263,790	$	215,200	$	156,024
Foreign		11,201		12,123		11,662
Income before income taxes	$	274,991	$	227,323	$	167,686

The components of income tax expense are as follows (in thousands):


	Year ended June 30,
	2012		2011		2010
Current:
Federal	$	76,874	$	59,095	$	51,572
State and local		16,678		13,578		11,155
Foreign		3,332		2,845		3,147
Total current		96,884		75,518		65,874
Deferred:
Federal		9,000		6,175		(4,082	)
State and local		1,458		1,194		(820	)
Foreign		195		218		199
Total deferred		10,653		7,587		(4,703	)
Total income tax expense	$	107,537	$	83,105	$	61,171

Income tax expense differs from the amounts computed by applying the statutory U.S. income tax rate of 35 percent as a result of the following (in thousands):


	Year ended June 30,
	2012			2011			2010
Expected tax expense computed at federal rate	$	96,247		$	79,563		$	58,690
State and local taxes, net of federal benefit		11,788			9,602			6,759
Nondeductible (nonincludible) items		2,065			(1,965	)		(861	)
Incremental effect of foreign tax rates		(1,026	)		(914	)		(830	)
Other		(1,537	)		(3,181	)		(2,587	)
Total income tax expense	$	107,537		$	83,105		$	61,171

The tax effects of temporary differences that give rise to deferred taxes are presented below (in thousands):


	June 30,
	2012			2011
Deferred tax assets:
Deferred compensation and post-retirement obligations	$	31,880		$	27,977
Reserves and accruals		28,289			29,945
Stock-based compensation		26,682			28,768
Deferred rent		3,130			2,929
Original issue discount related to the Notes		486			883
Other		4,217			1,323
Total deferred tax assets		94,684			91,825
Deferred tax liabilities:
Goodwill and other intangible assets		(143,616	)		(121,842	)
Unbilled revenue		(9,448	)		(11,758	)
Prepaid expenses		(4,313	)		(4,011	)
Other		(6,974	)		(6,257	)
Total deferred tax liabilities		(164,351	)		(143,868	)
Net deferred tax liability	$	(69,667	)	$	(52,043	)

The Company is subject to income taxes in the U.S. and various state and foreign jurisdictions. Tax statutes and regulations within each jurisdiction are subject to interpretation and require the application of significant judgment. The Company's consolidated federal income tax returns through June 30, 2008 are no longer subject to audit. The Company is currently under examination by three state jurisdictions and one foreign jurisdiction for years ended June 30, 2003 through June 30, 2009. The Company does not expect the resolution of these examinations to have a material impact on its results of operations, financial condition or cash flows.

During the years ended June 30, 2012 and June 30, 2011, the Company's income tax expense was favorably impacted by non-taxable gains on assets invested in corporate-owned life insurance (COLI) policies, tax benefits related to deductions claimed for income from domestic production activities and interest earned from refunds due on prior year tax returns.

In connection with the issuance of the Notes referred to in Note 13, there was original issue discount (OID) created for income tax purposes. Over the term of the Notes, this OID will generate additional interest expense for income tax reporting purposes.

U.S. income taxes have not been provided for with respect to undistributed earnings of foreign subsidiaries that have been permanently reinvested outside the United States. As of June 30, 2012, the estimated deferred liability associated with these undistributed earnings is approximately $6.7 million.

The Company's total liability for unrecognized tax benefits as of June 30, 2012, 2011 and 2010 was $7.0 million, $5.9 million and $5.2 million, respectively. Of the $7.0 million unrecognized tax benefit at June 30, 2012, $2.4 million, if recognized, would impact the Company's effective tax rate. A reconciliation of the beginning and ending amount of unrecognized benefits is shown in the table below (in thousands):


	Year ended June 30,
	2012			2011			2010
Beginning of year	$	5,897		$	5,189		$	11,945
Additions based on current year tax positions		1,181			2,711			1,323
Reductions based on prior year tax positions		—			(2,003	)		(7,332	)
Lapse of statute of limitations		(65	)		—			(630	)
Settlements with taxing authorities		—			—			(117	)
End of year	$	7,013		$	5,897		$	5,189

The Company recognizes net interest and penalties as a component of income tax expense. During the years ended June 30, 2012 and 2011, the Company's income tax expense was reduced by $0.3 million and $0.2 million, respectively, related to interest earned in connection with amended returns and carryback claims filed by the Company related to prior years. Over the next 12 months, the Company does not expect a significant increase or decrease in the unrecognized tax benefits recorded at June 30, 2012. As of June 30, 2012, $6.2 million of the unrecognized tax benefits are included in other long-term liabilities, with the remainder included in other balance sheet accounts.