Provision for income taxes


Notes to Financial Statements

NOTE 11    INCOME TAXES

Our effective tax rates were approximately 13% and 25% for the three months ended March 31, 2011 and 2010, respectively, and 21% and 25% for the nine months ended March 31, 2011 and 2010, respectively. Our rates decreased and were lower than the U.S. federal statutory rate primarily due to the settlement of a portion of a U.S. Internal Revenue Service (“I.R.S.”) audit of tax years 2004 to 2006, which reduced our income tax expense for the third quarter by $461 million, and a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from continued emphasis on producing and distributing our products and services through our foreign regional operational centers in Ireland, Singapore and Puerto Rico, which are subject to lower income tax rates.

Tax contingencies and other tax liabilities were $7.2 billion and $6.9 billion as of March 31, 2011 and June 30, 2010, respectively, and were included in other long-term liabilities. While we settled a portion of the I.R.S. audit for tax years 2004 to 2006, we remain under audit for these years. Subsequent to quarter end, the I.R.S. issued proposed adjustments for tax years 2004 to 2006 that we have not agreed to and intend to contest through the administrative process. The impact of these proposed adjustments on years currently open to examination could have a significant impact on our financial statements if not resolved favorably. We do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months, as we do not believe the audit will be concluded within the next 12 months. We also continue to be subject to examination by the I.R.S. for tax years 2007 to 2010.