Income before taxes and the provision for taxes consisted of the following:

The difference between the tax provision at the statutory federal income tax rate and the tax provision as a percentage of income before income taxes was as follows:

During 2008, income tax benefits attributable to equity-based compensation transactions that were allocated to stockholders' equity totaled $8 million ($123 million in 2007 and $126 million in 2006).

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at fiscal year-ends were as follows:

We had state tax credits of $158 million as of December 27, 2008 that will expire between 2009 and 2019. The net deferred tax asset valuation allowance was $358 million as of December 27, 2008 compared to $133 million as of December 29, 2007. The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. $258 million of the valuation allowance as of December 27, 2008 was related to investment asset impairments, and the remaining $100 million of the valuation allowance was related to unrealized state credit carry forwards.

As of December 27, 2008, U.S. deferred income taxes have not been provided for on a cumulative total of approximately $7.5 billion of undistributed earnings for certain non-U.S. subsidiaries. Determination of the amount of unrecognized deferred tax liability for temporary differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable. We currently intend to reinvest those earnings in operations outside the U.S.

Effective at the beginning of the first quarter of 2007, we adopted the provisions of FIN 48. As a result of the implementation of FIN 48, we reduced the liability for net unrecognized tax benefits by $181 million, and accounted for the reduction as a cumulative effect of a change in accounting principle that resulted in an increase to retained earnings of $181 million.

Long-term income taxes payable include uncertain tax positions, reduced by the associated federal deduction for state taxes and non-U.S. tax credits, and may also include other long-term tax liabilities that are not uncertain but have not yet been paid.

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

During 2007, the U.S. Internal Revenue Service (IRS) closed its examination of our tax returns for the years 1999 through 2002, resolving issues related to the tax benefits for export sales as well as a number of other issues. Additionally, we reached a settlement with the IRS for years 2003 through 2005 with respect to the tax benefits for export sales. In connection with the $739 million settlement with the IRS, we reversed long-term income taxes payable, which resulted in a $276 million tax benefit in 2007.

Also during 2007, we effectively settled with the IRS on several other matters related to the audit for the 2003 and 2004 tax years, despite the fact that the IRS audit for those years remains open. The result of effectively settling those positions and the process of re-evaluating, based on all available information and certain required remeasurements, was a reduction of $389 million in the balance of our gross unrecognized tax benefits, $155 million of which resulted in a tax benefit in 2007.

If the remaining balance of $744 million of unrecognized tax benefits as of December 27, 2008 ($794 million as of December 29, 2007) were realized in a future period, it would result in a tax benefit of $590 million and a reduction of the effective tax rate ($661 million as of December 29, 2007).

During all years presented, we recognized interest and penalties related to unrecognized tax benefits within the provision for taxes on the consolidated statements of income. Therefore, no change was necessary upon adoption of FIN 48. In 2008, we recognized $6 million in interest and penalties. In 2007, we recognized a net benefit of $142 million, primarily due to the reversal of accrued interest and penalties related to the settlement activity described above. As of December 27, 2008, we had $153 million of accrued interest and penalties related to unrecognized tax benefits ($115 million as of December 29, 2007).

During 2008, we reached a settlement with the IRS and several state tax authorities related to prior years resulting in payments of $51 million and a decrease in balances related to tax positions taken during prior periods of $103 million.

Although the timing of the resolution and/or closure on audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. Given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. However, we can reasonably expect a minimum reduction of $80 million of our existing gross unrealized tax benefits upon settlement or effective settlement with the various tax authorities, the closure of certain audits, and the lapse of statute of limitations.

We file U.S. federal, U.S. state, and non-U.S. tax returns. For U.S. state and non-U.S. tax returns, we are generally no longer subject to tax examinations for years prior to 1996. For U.S. federal tax returns, we are no longer subject to tax examination for years prior to 2003.