United States Securities and Exchange Commission Washington, D. C. 20549 form 10-K

In general, other reconciling items consist of interest, U.S. state income taxes, domestic production deductions, and research credits. In fiscal years 2009 and 2008, there were no individually significant other reconciling items. Other reconciling items in fiscal year 2007 included the impact of a $195 million reduction resulting from various changes in tax positions taken in prior periods, related primarily to favorable developments in an IRS position and multiple foreign audit assessments.

The components of the deferred income tax assets and liabilities were as follows:

 

(In millions)
June 30,			2009				2008
Deferred income tax assets:
Stock-based compensation expense		$		2,004			$		2,225
Other expense items				1,595					1,933
Unearned revenue				743					928
Impaired investments				236					331
Other revenue items				120					91
Deferred income tax assets		$		4,698			$		5,508
Deferred income tax liabilities:
International earnings		$		(1,191	)		$		(1,300	)
Unrealized gain on investments				(516	)				(513	)
Other				(499	)				(729	)
Deferred income tax liabilities				(2,206	)				(2,542	)
Net deferred income tax assets		$		2,492			$		2,966
Reported as:
Current deferred income tax assets		$		2,213			$		2,017
Long-term deferred income tax assets				279					949
Net deferred income tax assets		$		2,492			$		2,966

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when the taxes are actually paid or recovered.

We have not provided deferred U.S. income taxes or foreign withholding taxes on temporary differences of approximately $18.0 billion resulting from earnings for certain non-U.S. subsidiaries which are permanently reinvested outside the United States. The unrecognized deferred tax liability associated with these temporary differences is approximately $5.4 billion.

Income taxes paid were $6.6 billion in fiscal year 2009, $5.4 billion in fiscal year 2008, and $5.2 billion in fiscal year 2007.

As of June 30, 2009, we had $5.4 billion of unrecognized tax benefits of which $4.4 billion, if recognized, would affect our effective tax rate. As of June 30, 2008, we had $3.2 billion of unrecognized tax benefits of which $2.3 billion, if recognized, would affect our effective tax rate.

Interest and penalties related to unrecognized tax benefits are included in income tax expense. Such interest totaled $230 million in fiscal year 2009 and $121 million in fiscal year 2008. As of June 30, 2009 and 2008, we had accrued interest related to uncertain tax positions of $554 million and $324 million, respectively, net of federal income tax benefits, on our balance sheets.

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

 

(In millions)
Year Ended June 30,		2009				2008
Balance, beginning of year		$	3,195			$	7,076
Decreases related to settlements			(82	)			(4,787	)
Increases for tax positions related to the current year			2,203				934
Increases for tax positions related to prior years			239				66
Decreases for tax positions related to prior years			(132	)			(80	)
Reductions due to lapsed statute of limitations			(20	)			(14	)
Balance, end of year		$	5,403			$	3,195