NOTE 11 — INCOME TAXES

Effective Tax Rate

Our effective tax rate was 16% and 17% for the three months ended December 31, 2020 and 2019, respectively, and 15% and 17% for the six months ended December 31, 2020 and 2019, respectively. The decrease in our effective tax rate for the three and six months ended December 31, 2020 compared to the prior year was primarily due to tax benefits from final Tax Cuts and Jobs Act regulations and an increase in tax benefits relating to stock-based compensation.

Our effective tax rate was lower than the U.S. federal statutory rate for the three and six months ended December 31, 2020, primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland and Puerto Rico, and tax benefits relating to stock-based compensation.

Uncertain Tax Positions

As of December 31, 2020 and June 30, 2020, unrecognized tax benefits and other income tax liabilities were $15.4 billion and $16.6 billion, respectively, and are included in long-term income taxes in our consolidated balance sheets. The decrease is primarily driven by a partial settlement of the Internal Revenue Service (“IRS”) audits for tax years 2004 to 2013.

We settled a portion of the IRS audit for tax years 2004 to 2006 in fiscal year 2011. In February 2012, the IRS withdrew its 2011 Revenue Agents Report related to unresolved issues for tax years 2004 to 2006 and reopened the audit phase of the examination. We also settled a portion of the IRS audit for tax years 2007 to 2009 in fiscal year 2016, and a portion of the IRS audit for tax years 2010 to 2013 in fiscal year 2018. In the second quarter of fiscal year 2021, we settled an additional portion of the IRS audits for tax years 2004 to 2013 and made a payment of $1.7 billion, including tax and interest. We remain under audit for tax years 2004 to 2017.

As of December 31, 2020, the primary unresolved issues for the IRS audits relate to transfer pricing, which could have a material impact in our consolidated financial statements when the matters are resolved. We believe our allowances for income tax contingencies are adequate. We have not received a proposed assessment for the unresolved key transfer pricing issues and do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.

We are subject to income tax in many jurisdictions outside the U.S. Our operations in certain jurisdictions remain subject to examination for tax years 1996 to 2020, some of which are currently under audit by local tax authorities. The resolution of each of these audits is not expected to be material to our consolidated financial statements.