Income Taxes

The components of income tax expense (benefit) recorded in continuing operations are as follows:



	Year Ended
(In millions)	March 31, 2017			April 1, 2016		April 3, 2015
Current:
Federal	$	108		$	69	$	4
State	6			13		(18		)
International	68			46		40
Total	182			128		26
Deferred:
Federal	(177		)	1,060		(38		)
State	(17		)	15		(4		)
International	(14		)	10		8
Total	(208		)	1,085		(34		)
Income tax expense (benefit)	$	(26	)	$	1,213	$	(8	)

Pre-tax income from international operations was $353 million, $125 million, and $41 million for fiscal 2017, 2016, and 2015, respectively.

The difference between our effective income tax and the federal statutory income tax is as follows:



	Year Ended
(In millions)	March 31, 2017			April 1, 2016			April 3, 2015
Federal statutory tax expense (benefit)	$	(92	)	$	138		$	35
Foreign earnings not considered indefinitely reinvested, net	12			1,065			(8		)
State taxes, net of federal benefit	(11		)	9			(13		)
Foreign earnings taxed at less than the federal rate	34			12			34
Domestic production activities deduction	—			(5		)	(1		)
Federal research and development credit	(9		)	(9		)	(8		)
Valuation allowance (decrease) increase	(1		)	10			1
Nondeductible separation costs	—			1			2
Change in uncertain tax positions	(24		)	(4		)	(57		)
Nondeductible transaction costs	11			—			—
Write-off of tax attributes due to restructuring	52			—			—
Nondeductible officer compensation	7			—			—
Other, net	(5		)	(4		)	7
Income tax expense (benefit)	$	(26	)	$	1,213		$	(8	)

The principal components of deferred tax assets and liabilities are as follows:



	Year Ended
(In millions)	March 31, 2017			April 1, 2016
Deferred tax assets:
Tax credit carryforwards	$	42		$	53
Net operating loss carryforwards of acquired companies	82			34
Other accruals and reserves not currently tax deductible	127			112
Deferred revenue	137			89
Loss on investments not currently tax deductible	9			14
State income taxes	2			8
Stock-based compensation	122			39
Other	14			9
Gross deferred tax assets	535			358
Valuation allowance	(38		)	(50		)
Deferred tax assets, net of valuation allowance	$	497		$	308
Deferred tax liabilities:
Property and equipment	$	(34	)	$	(106	)
Goodwill	(54		)	(50		)
Intangible assets	(783		)	(11		)
Unremitted earnings of foreign subsidiaries	(1,939		)	(1,327		)
Prepaids and deferred expenses	(24		)	(17		)
Convertible debt	(21		)	—
Deferred tax liabilities	(2,855		)	(1,511		)
Net deferred tax liabilities	$	(2,358	)	$	(1,203	)

The valuation allowance provided against our deferred tax assets as of March 31, 2017, is mainly attributable to capital losses, state tax credits, and net operating losses in foreign jurisdictions. The valuation allowance decreased by a net of $12 million in fiscal 2017, due to changes in corresponding deferred tax assets primarily related to capital losses and state tax credits.

As of March 31, 2017, we have U.S. federal net operating losses attributable to various acquired companies of approximately $186 million, which, if not used, will expire between fiscal 2018 and 2036. We have U.S. federal research and development credits and alternative minimum tax credits of approximately $4 million and $5 million, respectively. The research and development credits, if not used, will expire between fiscal 2019 and 2036 and the alternative minimum tax credit carryforwards can be carried forward indefinitely. The net operating loss carryforwards, U.S. federal research and development tax credits, and alternative minimum tax credits are subject to an annual limitation under Internal Revenue Code §382, but are expected to be fully realized. We have $14 million of foreign tax credits which, if not used, will expire beginning in fiscal 2027. Furthermore, we have U.S. state net operating loss and credit carryforwards attributable to various acquired companies of approximately $185 million and $28 million, respectively. If not used, our U.S. state net operating losses will expire between fiscal 2018 and 2037 and the majority of our U.S. state credit carryforwards can be carried forward indefinitely. In addition, we have foreign net operating loss carryforwards attributable to various acquired foreign companies of approximately $40 million, the majority of which, under current applicable foreign tax law, can be carried forward indefinitely.

In assessing the ability to realize our deferred tax assets, we considered whether it is more likely than not that some portion or all the deferred tax assets will not be realized. We considered the following: we have historical cumulative book income, as measured by the current and prior two years; we have strong, consistent taxpaying history; we have substantial U.S. federal income tax carryback potential; and we have substantial amounts of scheduled future reversals of taxable temporary differences from our deferred tax liabilities. We have concluded that this positive evidence outweighs the negative evidence and, thus, that the deferred tax assets as of March 31, 2017 are realizable on a “more likely than not” basis.

As of March 31, 2017, no provision has been made for federal or state income taxes on $3.9 billion of cumulative unremitted earnings of certain of our foreign subsidiaries since we plan to indefinitely reinvest these earnings. As of March 31, 2017, the unrecognized deferred tax liability for these earnings was approximately $1.1 billion.

The increase in our effective tax rate in fiscal 2016 compared to fiscal 2015 was primarily driven by $1.1 billion of tax expense for providing U.S. taxes on certain undistributed foreign earnings, primarily those attributable to the sale of Veritas. These undistributed foreign earnings have been excluded from the $3.9 billion noted above of cumulative unremitted earnings of certain of our foreign subsidiaries that we plan to reinvest indefinitely as of March 31, 2017.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows:



	Year Ended
(In millions)	March 31, 2017			April 1, 2016			April 3, 2015
Balance at beginning of year	$	197		$	193		$	282
Settlements with tax authorities	(23		)	(25		)	(150		)
Lapse of statute of limitations	(9		)	(15		)	(13		)
Decrease due to divestiture	—			(7		)	—
Increase related to prior period tax positions	21			4			147
Decrease related to prior period tax positions	(9		)	(7		)	(96		)
Increase related to current year tax positions	38			54			23
Increase due to acquisition	33			—			—
Net increase (decrease)	51			4			(89		)
Balance at end of year	$	248		$	197		$	193

There was a change of $51 million in gross unrecognized tax benefits during the 2017 fiscal year. This gross liability does not include offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments, interest deductions, and state income taxes.

Of the total unrecognized tax benefits at March 31, 2017, $176 million, if recognized, would favorably affect the Company’s effective tax rate.

We recognize interest and/or penalties related to uncertain tax positions in income tax expense. At March 31, 2017, before any tax benefits, we had $22 million of accrued interest and penalties on unrecognized tax benefits. Interest included in our provision for income taxes was an expense of $5 million for the year ended March 31, 2017. If the accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced in the period that such determination is made, and reflected as a reduction of the overall income tax provision.

We file income tax returns in the U.S. on a federal basis and in many U.S. state and foreign jurisdictions. Our most significant tax jurisdictions are the U.S., Ireland, and Singapore. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. Our fiscal years 2014 through 2017 remain subject to examination by the Internal Revenue Service (“IRS”) for U.S. federal tax purposes. Our fiscal years prior to 2014 have been settled and closed with the IRS. Our 2013 through 2017 fiscal years remain subject to examination by the appropriate governmental agencies for Irish tax purposes, and our 2012 through 2017 fiscal years remain subject to examination by the appropriate governmental agencies for Singapore tax purposes.

On March 18, 2015, we settled and effectively settled matters with the IRS for the Symantec 2009 through 2013 fiscal years. The settlement and effective settlement resulted in a benefit to tax expense in fiscal year 2015 of $59 million. Additionally, the Company settled transfer price related matters of $158 million, a portion of which was accounted for against deferred tax liabilities on unremitted foreign earnings. The Company has paid in $155 million to cover the final tax and interest liability on the settlement.

The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year. Although potential resolution of uncertain tax positions involve multiple tax periods and jurisdictions, it is reasonably possible that 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 $4 million. Depending on the nature of the settlement or expiration of statutes of limitations, we estimate $3 million could affect our income tax provision and therefore benefit the resulting effective tax rate.

We continue to monitor the progress of ongoing income tax controversies and the impact, if any, of the expected tolling of the statute of limitations in various taxing jurisdictions.