Income Taxes

The provision for income taxes from continuing operations consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2016			2015		2014
Current:
Federal	$	401		$	253	$	358
State	33			20		21
Foreign	13			7		10
Total current	447			280		389
Deferred:
Federal	(42		)	14		51
State	(7		)	1		5
Foreign	(1		)	4		2
Total deferred	(50		)	19		58
Total provision for income taxes from continuing operations	$	397		$	299	$	447

Excess tax benefits associated with share-based compensation deductions are credited to stockholders’ equity. The reductions of income taxes payable resulting from share-based compensation deductions that were credited to stockholders’ equity were approximately $59 million for the twelve months ended July 31, 2016, $85 million for the twelve months ended July 31, 2015, and $82 million for the twelve months ended July 31, 2014.

The sources of income from continuing operations before the provision for income taxes consisted of the following for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2016			2015			2014
United States	$	1,205		$	716		$	1,276
Foreign	(2		)	(4		)	24
Total	$	1,203		$	712		$	1,300

Differences between income taxes calculated using the federal statutory income tax rate of 35% and the provision for income taxes from continuing operations were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2016			2015			2014
Income from continuing operations before income taxes	$	1,203		$	712		$	1,300

Statutory federal income tax	$	421		$	249		$	455
State income tax, net of federal benefit	17			15			17
Federal research and experimentation credits	(33		)	(19		)	(7		)
Domestic production activities deduction	(34		)	(19		)	(25		)
Share-based compensation	16			15			8
Effects of non-U.S. operations	11			12			1
Non-deductible goodwill	—			40			—
Other, net	(1		)	6			(2		)
Total provision for income taxes from continuing operations	$	397		$	299		$	447

In December 2015 the Consolidated Appropriations Act, 2016 was signed into law. The Act includes a permanent reinstatement of the federal research and experimentation credit that was retroactive to January 1, 2015. We recorded a discrete tax benefit of approximately $12 million for the retroactive effect during the twelve months ended July 31 2016.

In December 2014 the Tax Increase Prevention Act of 2014 was signed into law. The Act includes a reinstatement of the federal research and experimentation credit through December 31, 2014 that was retroactive to January 1, 2014. We recorded a discrete tax benefit of approximately $11 million for the retroactive effect during the twelve months ended July 31, 2015. As of July 31, 2015, the federal research and experimentation credit had not been extended beyond December 31, 2014.

Significant deferred tax assets and liabilities were as follows at the dates indicated:



	July 31,
(In millions)	2016			2015
Deferred tax assets:
Accruals and reserves not currently deductible	$	33		$	24
Deferred revenue	56			12
Deferred rent	14			10
Accrued and deferred compensation	55			52
Loss and tax credit carryforwards	51			44
Share-based compensation	62			52
Net basis difference in investments held for sale	—			122
Other, net	11			7
Total deferred tax assets	282			323
Deferred tax liabilities:
Intangible assets	86			87
Property and equipment	24			20
Total deferred tax liabilities	110			107
Total net deferred tax assets	172			216
Valuation allowance	(40		)	(30		)
Total net deferred tax assets, net of valuation allowance	$	132		$	186

The components of total net deferred tax assets, net of valuation allowances, as shown on our balance sheets were as follows at the dates indicated:



	July 31,
(In millions)	2016			2015
Current deferred income taxes	$	—		$	231
Long-term deferred income taxes	139			5
Long-term deferred income taxes included in other long-term obligations	(7		)	(50		)
Total net deferred tax assets, net of valuation allowance	$	132		$	186

In the second quarter of fiscal 2016, we elected to early adopt ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” on a prospective basis. This new standard requires all deferred tax assets and liabilities, and any related valuation allowance, to be classified as noncurrent on the balance sheet. Prior periods were not adjusted.

We have provided a valuation allowance related to state tax credit carryforwards, foreign operating loss carryforwards, and state capital and operating loss carryforwards that we believe are unlikely to be realized. Changes in the valuation allowance during the twelve months ended July 31, 2016 were primarily related to an increase in the valuation allowance for foreign operating loss carryforwards, state tax credit and state capital loss carryforwards. Changes in the valuation allowance during the twelve months ended July 31, 2015 were primarily related to an increase in the valuation allowance for state tax credit and foreign operating loss carryforwards, offset with a reduction in the valuation allowance for state capital loss carryforwards.

At July 31, 2016, the income tax expense associated with the net gain from discontinued operations consisted of $179 million related to the sale of Demandforce, QuickBase, and Quicken, and $2 million related to the increase of valuation allowance on state capital loss carryforwards.

At July 31, 2015, the deferred tax asset for the net basis difference in the Demandforce investment held for sale was $122 million. We recorded the related tax benefit to the net gain on disposal of Demandforce, QuickBase, and Quicken. See Note 7, “Discontinued Operations,” for more information.

At July 31, 2015, the deferred tax asset for the state capital loss carryforwards on the sale of Intuit Websites and Intuit Financial Services was $4 million, on which there was a valuation allowance of $1 million. During the twelve months ended July 31, 2015 the valuation allowance was reduced by $2 million and the related tax benefit was recorded to tax benefit from discontinued operations. See Note 7, “Discontinued Operations,” for more information.

At July 31, 2016, we had total federal net operating loss carryforwards of approximately $19 million that will start to expire in fiscal 2029. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2016, we had total state net operating loss carryforwards of approximately $156 million for which we have recorded a deferred tax asset of $8 million and a valuation allowance of $5 million. The state net operating losses will start to expire in fiscal 2017. Utilization of the net operating losses is subject to annual limitation. The annual limitation may result in the expiration of net operating losses before utilization.

At July 31, 2016, we had Singapore operating loss carryforwards of approximately $76 million which have an indefinite carryforward period. We recorded a full valuation allowance on the related deferred tax asset.

At July 31, 2016, we had California research and experimentation credit carryforwards of approximately $52 million. If realized, $11 million of the carryfoward will be recognized as additional paid in capital. We recorded a full valuation on the related deferred tax asset.

Unrecognized Tax Benefits

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows for the periods indicated:



	Twelve Months Ended July 31,
(In millions)	2016			2015			2014
Gross unrecognized tax benefits, beginning balance	$	56		$	40		$	39
Increases related to tax positions from prior fiscal years, including acquisitions	7			15			4
Decreases related to tax positions from prior fiscal years	(7		)	(1		)	(8		)
Increases related to tax positions taken during current fiscal year	15			5			5
Settlements with tax authorities	(11		)	(3		)	—
Gross unrecognized tax benefits, ending balance	$	60		$	56		$	40

The total amount of our unrecognized tax benefits at July 31, 2016 was $60 million. Net of related deferred tax assets, unrecognized tax benefits were $40 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $40 million. We do not believe that it is reasonably possible that there will be a significant increase or decrease in unrecognized tax benefits over the next 12 months.

We file U.S. federal, U.S. state, and foreign tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal tax returns we are no longer subject to tax examinations for years prior to fiscal 2013. For California tax returns we are no longer subject to tax examinations for years prior to fiscal 2009.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. Amounts accrued at July 31, 2016 and July 31, 2015 for the payment of interest and penalties were not significant. The amounts of interest and penalties that we recognized during the twelve months ended July 31, 2016, 2015 and 2014 were also not significant.