Note 15 – Income Taxes

The amounts of income from continuing operations before income taxes attributable to domestic and foreign operations were as follows:



	Year Ended March 31,
(in millions)	2016		2015		2014
Domestic	$	729	$	737	$	683
Foreign	355		378		333
Income from continuing operations before income taxes	$	1,084	$	1,115	$	1,016

Income tax expense (benefit) from continuing operations consisted of the following:



	Year Ended March 31,
(in millions)	2016			2015			2014
Current:
Federal	$	285		$	284		$	184
State	50			37			33
Foreign	95			56			(19		)
Total current	$	430		$	377		$	198
Deferred:
Federal	$	(86	)	$	(74	)	$	(82	)
State	(20		)	(12		)	(12		)
Foreign	(9		)	14			25
Total deferred	$	(115	)	$	(72	)	$	(69	)
Total:
Federal	$	199		$	210		$	102
State	30			25			21
Foreign	86			70			6
Total income tax expense from continuing operations	$	315		$	305		$	129

The income tax expense from continuing operations was reconciled to the tax expense computed at the U.S. federal statutory tax rate as follows:



	Year Ended March 31,
(in millions)	2016			2015			2014
Tax expense at U.S. federal statutory tax rate	$	379		$	390		$	356
Effect of international operations	(77		)	(91		)	(147		)
U.S. federal and state tax contingencies	8			1			(123		)
Domestic manufacturing deduction	(27		)	(23		)	(24		)
State taxes, net of U.S. federal tax benefit	16			15			19
Valuation allowance	3			8			23
Other, net	13			5			25
Income tax expense from continuing operations	$	315		$	305		$	129

Deferred income taxes reflect the effect of temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The tax effects of the temporary differences from continuing operations were as follows:



	At March 31,
(in millions)	2016			2015
Deferred tax assets:
Modified accrual basis accounting for revenue	$	391		$	349
Share-based compensation	36			31
Accrued expenses	42			36
Net operating losses	135			96
Intangible assets amortizable for tax purposes	2			3
Deductible state tax and interest benefits	17			20
Other	73			69
Total deferred tax assets	$	696		$	604
Valuation allowances	(96		)	(85		)
Total deferred tax assets, net of valuation allowance	$	600		$	519
Deferred tax liabilities:
Purchased software	$	100		$	48
Depreciation	4			3
Other intangible assets	39			17
Internally developed software	53			93
Total deferred tax liabilities	$	196		$	161
Net deferred tax asset	$	404		$	358

In management’s judgment, it is more likely than not that the total deferred tax assets, net of valuation allowance, of approximately $600 million will be realized in the foreseeable future. Realization of the net deferred tax assets is dependent on the Company’s generation of sufficient future taxable income in the related tax jurisdictions to obtain benefit from the reversal of temporary differences, net operating loss carryforwards, and tax credit carryforwards. The amount of deferred tax assets considered realizable is subject to adjustments in future periods if estimates of future taxable income change.

U.S. federal, state and foreign net operating loss carryforwards (NOLs) totaled approximately $671 million and $542 million at March 31, 2016 and 2015, respectively. The NOLs will expire as follows: $497 million between 2016 and 2035 and $174 million may be carried forward indefinitely.

A valuation allowance has been provided for deferred tax assets that are not expected to be realized. The valuation allowance increased approximately $11 million at March 31, 2016 and decreased approximately $2 million at March 31, 2015. The increase in the valuation allowance at March 31, 2016 primarily related to acquired NOL's which are subject to annual limitations under IRS code Section 382, and NOL's and other deferred tax assets in foreign jurisdictions that in management's judgment will not be realized, offset by currency translation adjustments. The decrease in the valuation allowance at March 31, 2015 primarily related to NOL's and other deferred tax assets in foreign jurisdictions that in management's judgment will not be realized, offset by currency translation adjustments.

No provision has been made for U.S. federal income taxes on approximately $2,987 million and $2,759 million at March 31, 2016 and 2015, respectively, of unremitted earnings of the Company’s foreign subsidiaries since the Company plans to permanently reinvest all such earnings outside the United States. It is not practicable to determine the amount of tax associated with such unremitted earnings.

At March 31, 2016, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $163 million (of which $1 million was classified as current). In addition, at March 31, 2016, the Company recorded approximately $17 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions. At March 31, 2015, the gross liability for income taxes associated with uncertain tax positions, including interest and penalties, was approximately $162 million (of which $3 million was classified as current). In addition, at March 31, 2015, the Company recorded approximately $16 million of deferred tax assets for future deductions of interest and state income taxes related to these uncertain tax positions.

A roll-forward of the Company’s uncertain tax positions for all U.S. federal, state and foreign tax jurisdictions was as follows:



	At March 31,
(in millions)	2016			2015
Balance at beginning of year	$	134		$	170
Additions for tax positions related to the current year	22			16
Additions for tax positions from prior years	20			23
Reductions for tax positions from prior years	(14		)	(43		)
Settlement payments	(16		)	(5		)
Statute of limitations expiration	(5		)	(13		)
Translation and other	2			(14		)
Balance at end of year	$	143		$	134

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $119 million and $109 million at March 31, 2016 and 2015, respectively. The gross amount of interest and penalties accrued, reported in “Total liabilities,” was approximately $20 million and $28 million for fiscal years 2016 and 2015, respectively. The amount of interest and penalties decreased approximately $8 million and $4 million for fiscal years 2016 and 2015, respectively.

A number of years may elapse before a particular uncertain tax position for which the Company has not recorded a financial statement benefit is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction. The Company is subject to tax audits in the following major taxing jurisdictions:


•	United States — federal tax years are open for years 2013 and forward;


•	Brazil — tax years are open for years 2008 and forward;


•	Canada — tax years are open for years 2008 and forward; and


•	Italy — tax years are open for years 2012 and forward.

In November 2013, the Company received a tax assessment of approximately Brazilian reais 211 million (which translated to approximately $59 million at March 31, 2016), including interest and penalties, from the Brazilian tax authority relating to fiscal years 2008-2013. The assessment included a report of findings in connection with the examination. The Company disagrees with the proposed adjustments in the assessment and intends to vigorously dispute these matters through applicable administrative and judicial procedures, as appropriate. While the Company believes that it will ultimately prevail, if the assessment is not resolved in favor of the Company, it would have an impact on the Company’s consolidated financial position, cash flows and results of operations.

The Company does not believe it is reasonably possible that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.