The components of earnings before income taxes and after-tax earnings from joint ventures and the corresponding income taxes thereon are as follows:

		Fiscal Year
In Millions		2013		2012		2011
Earnings before income taxes and after-tax earnings from joint ventures:
United States	$	2,051.2	$	1,816.5	$	2,144.8
Foreign		483.7		394.0		283.4
Total earnings before income taxes and after-tax earnings from joint ventures	$	2,534.9	$	2,210.5	$	2,428.2
Income taxes:
Currently payable:
Federal	$	493.4	$	399.1	$	370.0
State and local		39.5		52.0		76.9
Foreign		126.5		109.1		68.9
Total current		659.4		560.2		515.8
Deferred:
Federal		68.8		167.9		178.9
State and local		19.2		(1.3)		30.8
Foreign		(6.2)		(17.2)		(4.4)
Total deferred		81.8		149.4		205.3
Total income taxes	$	741.2	$	709.6	$	721.1

The following table reconciles the United States statutory income tax rate with our effective income tax rate:

	Fiscal Year
	2013		2012		2011
United States statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax benefits	1.3		1.4		2.7
Foreign rate differences	(0.6)		(2.0)		(2.0)
Deferred taxes for Medicare subsidies	(1.3)		-		-
GMC subsidiary restructure	(2.5)		-		-
Court decisions and audit settlements	-		-		(3.7)
Domestic manufacturing deduction	(2.1)		(1.8)		(1.6)
Other, net	(0.6)		(0.5)		(0.7)
Effective income tax rate	29.2	%	32.1	%	29.7	%

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows:

In Millions		May 26, 2013		May 27, 2012
Accrued liabilities	$	154.6	$	86.9
Compensation and employee benefits		619.2		635.4
Unrealized hedge losses		6.9		26.4
Pension liability		112.5		240.1
Tax credit carryforwards		78.0		86.5
Stock, partnership, and miscellaneous investments		461.1		534.3
Capital losses		13.6		90.7
Net operating losses		65.1		130.6
Other		138.8		151.9
Gross deferred tax assets		1,649.8		1,982.8
Valuation allowance		232.8		384.4
Net deferred tax assets		1,417.0		1,598.4
Brands		1,380.4		1,292.8
Fixed assets		537.4		500.1
Intangible assets		168.3		289.1
Tax lease transactions		55.1		56.5
Inventories		52.0		55.9
Stock, partnership, and miscellaneous investments		456.7		468.2
Unrealized hedges		-		-
Other		28.2		47.5
Gross deferred tax liabilities		2,678.1		2,710.1
Net deferred tax liability	$	1,261.1	$	1,111.7

We have established a valuation allowance against certain of the categories of deferred tax assets described above as current evidence does not suggest we will realize sufficient taxable income of the appropriate character (e.g., ordinary income versus capital gain income) within the carryforward period to allow us to realize these deferred tax benefits.

Of the total valuation allowance of $232.8 million, $161.8 million relates to a deferred tax asset for losses recorded as part of the Pillsbury acquisition. Of the remaining valuation allowance, $67.1 million relates to state net operating loss carryforwards and various foreign loss carryforwards. During fiscal 2013, we reversed deferred tax assets and related valuation allowances of $85.6 million due to the expiration of certain capital loss carryovers. We have approximately $72 million of U.S. foreign tax credit carryforwards for which no valuation allowance has been recorded. As of May 26, 2013, we believe it is more-likely-than-not that the remainder of our deferred tax assets are realizable.

The carryforward periods on our foreign loss carryforwards are as follows: $33.4 million do not expire; $4.6 million expire in fiscal 2014 and 2015; and $21.6 million expire in fiscal 2016 and beyond.

We have not recognized a deferred tax liability for unremitted earnings of approximately $2.7 billion from our foreign operations because our subsidiaries have invested or will invest the undistributed earnings indefinitely, or the earnings will be remitted in a tax-neutral transaction. It is not practicable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Deferred taxes are recorded for earnings of our foreign operations when we determine that such earnings are no longer indefinitely reinvested.

In fiscal 2010, we recorded a non-cash income tax charge and decrease to our deferred tax assets of $35.0 million related to a reduction of the tax deductibility of retiree health cost to the extent of any Medicare Part D subsidy received beginning in fiscal 2013 under the enactment of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. During fiscal 2013, we took certain actions to restore part of the tax benefits associated with Medicare Part D subsidies and recorded a $33.7 million discrete decrease to income tax expense and an increase to our deferred tax assets.

During the first quarter of fiscal 2013, in conjunction with the consent of the Class A investor, we restructured GMC through the distribution of its manufacturing assets, stock, inventory, cash and certain intellectual property to a wholly owned subsidiary. GMC retained the remaining intellectual property. Immediately following this restructuring, the Class A Interests were sold by the then current holder to another unrelated third party investor. As a result of these transactions, we recorded a $63.3 million decrease to deferred income tax liabilities related to the tax basis of the investment in GMC and certain distributed assets, with a corresponding discrete non-cash reduction to income taxes in fiscal 2013.

We are subject to federal income taxes in the United States as well as various state, local, and foreign jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our liabilities for income taxes reflect the most likely outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and circumstances. Settlement of any particular position would usually require the use of cash.

The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing jurisdictions include the United States (federal and state) and Canada. Various tax examinations by United States state taxing authorities could be conducted for any open tax year, which vary by jurisdiction, but are generally from 3 to 5 years.

The Internal Revenue Service (IRS) initiated its audit of our fiscal 2011 and fiscal 2012 tax years during fiscal 2013. Currently, several state examinations are in progress.

During fiscal 2013, the IRS concluded its field examination of our 2009 and 2010 tax years. The IRS has proposed adjustments related to the timing for deducting accrued bonus expenses. We believe our position is supported by substantial technical authority and have filed an appeal with the IRS Appeals Division (IRS Appeals). The audit closure and related proposed adjustments did not have a material impact on our current year results of operations or financial position. If we are unsuccessful in defending our position with respect to accrued bonuses, we will incur a one-time cash tax payment of approximately $80 million. As of May 26, 2013, we have effectively settled all issues with the IRS for fiscal years 2008 and prior.

Also during fiscal 2013, the California Court of Appeal issued an adverse decision concerning our state income tax apportionment calculations. We had previously recorded an $11.5 million increase in our total liabilities for uncertain tax positions in fiscal 2011 following an unfavorable decision by the Superior Court of the State of California related to this matter. We expect to pay a majority of the tax due related to this issue in fiscal 2014.

During fiscal 2012, we reached a settlement with IRS Appeals concerning research and development tax credits claimed for fiscal years 2002 to 2008. This settlement did not have a material impact on our results of operations or financial position.

During fiscal 2011, we reached a settlement with IRS Appeals concerning certain corporate income tax adjustments for fiscal years 2002 to 2008. The adjustments primarily relate to the amount of capital loss, depreciation, and amortization we reported as a result of the sale of noncontrolling interests in our GMC subsidiary. As a result, we recorded a $108.1 million reduction in our total liabilities for uncertain tax positions in fiscal 2011. We made payments totaling $385.3 million in fiscal 2011 related to this settlement.

The Canadian Revenue Agency (CRA) reviewed our Canadian income tax returns for fiscal years 2003 to 2005 and raised assessments for these years to which we have objected. During fiscal 2013, the issue related to our 2003 fiscal year was resolved with no adjustment. The issue for fiscal years 2004 and 2005 is currently under review by the U.S. and Canadian competent authority divisions. The CRA initiated its audit of our fiscal years 2008 through 2011 during fiscal year 2013. The CRA audit for fiscal 2008 was closed with no significant adjustments. The audit for fiscal years 2009 through 2011 is ongoing.

We do not anticipate that any United States or Canadian tax adjustments will have a significant impact on our financial position or results of operations.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change.

The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for fiscal 2013. Approximately $92 million of this total represents the amount that, if recognized, would affect our effective income tax rate in future periods. This amount differs from the gross unrecognized tax benefits presented in the table because certain of the liabilities below would impact deferred taxes if recognized or are the result of stock compensation items impacting additional paid-in capital. We also would record a decrease in U.S. federal income taxes upon recognition of the state tax benefits included therein.

	Fiscal Year
In Millions		2013		2012
Balance, beginning of year	$	231.3	$	226.2
Tax positions related to current year:
Additions		38.5		23.8
Tax positions related to prior years:
Additions		69.6		24.3
Reductions		(74.0)		(13.4)
Settlements		(39.0)		(6.6)
Lapses in statutes of limitations		(10.2)		(23.0)
Balance, end of year	$	216.2	$	231.3

As of May 26, 2013, we expect to pay approximately $12 million of unrecognized tax benefit liabilities and accrued interest within the next 12 months. We are not able to reasonably estimate the timing of future cash flows beyond 12 months due to uncertainties in the timing of tax audit outcomes. The remaining amount of our unrecognized tax liability was classified in other liabilities.

We report accrued interest and penalties related to unrecognized tax benefit liabilities in income tax expense. For fiscal 2013, we recognized a net benefit of $3.0 million of tax-related net interest and penalties, and had $53.1 million of accrued interest and penalties as of May 26, 2013. For fiscal 2012, we recognized $0.2 million associated with tax-related interest and penalties, and had $49.3 million of accrued interest and penalties as of May 27, 2012.