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Income Taxes | 12 Months Ended
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Jul. 27, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes (a)Provision for Income Taxes The provision for income taxes consists of the following (in millions):
Years Ended | July 27, 2024 |  | July 29, 2023 |  | July 30, 2022
Federal: |  |  |  |  |
Current | $ | 1,939 |  |  | $ | 3,754 |  |  | $ | 2,203 |
Deferred | (883) |  |  | (1,955) |  |  | (176) |
| 1,056 |  |  | 1,799 |  |  | 2,027 |
State: |  |  |  |  |
Current | 388 |  |  | 623 |  |  | 458 |
Deferred | 11 |  |  | (175) |  |  | (156) |
| 399 |  |  | 448 |  |  | 302 |
Foreign: |  |  |  |  |
Current | 559 |  |  | 412 |  |  | 313 |
Deferred | (100) |  |  | 46 |  |  | 23 |
| 459 |  |  | 458 |  |  | 336 |
Total | $ | 1,914 |  |  | $ | 2,705 |  |  | $ | 2,665 |
Income before provision for income taxes consists of the following (in millions):
Years Ended | July 27, 2024 |  | July 29, 2023 |  | July 30, 2022
United States | $ | 10,790 |  |  | $ | 14,074 |  |  | $ | 13,550 |
International | 1,444 |  |  | 1,244 |  |  | 927 |
Total | $ | 12,234 |  |  | $ | 15,318 |  |  | $ | 14,477 |
The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consist of the following:
Years Ended | July 27, 2024 |  | July 29, 2023 |  | July 30, 2022
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Effect of: |  |  |  |  |
State taxes, net of federal tax benefit | 2.8 |  |  | 2.4 |  |  | 1.7 |
Foreign income at other than U.S. rates | (0.3) |  |  | (0.1) |  |  | 0.8 |
Tax credits | (2.4) |  |  | (0.3) |  |  | (1.6) |
Foreign-derived intangible income deduction | (5.5) |  |  | (5.8) |  |  | (3.9) |
Stock-based compensation | 0.7 |  |  | 1.1 |  |  | 0.3 |
Other, net | (0.7) |  |  | (0.6) |  |  | 0.1 |
Total | 15.6 | % |  | 17.7 | % |  | 18.4 | %
On August 26, 2024, the U.S. Tax Court issued a ruling in Varian Medical Systems, Inc. v. Commissioner. The ruling related to the U.S. taxation of deemed foreign dividends in the transition year of the Tax Act (our fiscal 2018). We are currently evaluating the potential benefit of this ruling to our provision for income taxes. During fiscal 2023, we resolved certain items with the Internal Revenue Service (IRS) related to the audit of our federal income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016. As a result of this resolution, we recognized a net benefit to the provision for income taxes of $145 million, which included a reduction of interest expense of $53 million. During fiscal 2024, we resolved all remaining items with the IRS related to the audit of our federal income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016. As a result of this resolution, we recognized a net benefit to the provision for income taxes of $55 million, which included a reduction of interest expense of $18 million. Foreign taxes associated with the repatriation of earnings of foreign subsidiaries were not provided on a cumulative total of $6.5 billion of undistributed earnings for certain foreign subsidiaries as of the end of fiscal 2024. We intend to reinvest these earnings indefinitely in such foreign subsidiaries. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we could be subject to additional income and withholding taxes. The amount of potential unrecognized deferred income tax liability related to these earnings is approximately $681 million. Unrecognized Tax Benefits The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in millions):
Years Ended | July 27, 2024 |  | July 29, 2023 |  | July 30, 2022
Beginning balance | $ | 2,137 |  |  | $ | 3,101 |  |  | $ | 3,106 |
Additions based on tax positions related to the current year | 205 |  |  | 159 |  |  | 157 |
Additions for tax positions of prior years | 256 |  |  | 261 |  |  | 74 |
Reductions for tax positions of prior years | (344) |  |  | (265) |  |  | (81) |
Settlements | (53) |  |  | (1,063) |  |  | (69) |
Lapse of statute of limitations | (45) |  |  | (56) |  |  | (86) |
Ending balance | $ | 2,156 |  |  | $ | 2,137 |  |  | $ | 3,101 |
As a result of the resolution of the IRS audit of our federal tax income tax returns for the fiscal years ended July 26, 2014 through July 30, 2016, the amount of gross unrecognized tax benefits was reduced by approximately $1.1 billion in fiscal 2023 and $245 million in fiscal 2024. As of July 27, 2024, $1.5 billion of the unrecognized tax benefits would affect the effective tax rate if realized. We recognized net interest expense of $21 million, $27 million and $33 million during fiscal 2024, 2023, and 2022, respectively. Our net penalty expense for fiscal 2024, 2023, and 2022 was not material. Our total accrual for interest and penalties was $401 million, $523 million, and $486 million as of the end of fiscal 2024, 2023, and 2022, respectively. We are no longer subject to U.S. federal income tax audit for returns covering tax years through fiscal 2016. We are no longer subject to foreign or state income tax audits for returns covering tax years through fiscal 2003 and fiscal 2008, respectively. We regularly engage in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. We believe it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months. Specific positions that may be resolved include issues involving transfer pricing and various other matters. We estimate that the unrecognized tax benefits at July 27, 2024 could be reduced by $100 million in the next 12 months. (b)Deferred Tax Assets and Liabilities The following table presents the breakdown for net deferred tax assets (in millions):
| July 27, 2024 |  | July 29, 2023
Deferred tax assets | $ | 6,262 |  |  | $ | 6,576 |
Deferred tax liabilities | (76) |  |  | (62) |
Total net deferred tax assets | $ | 6,186 |  |  | $ | 6,514 |
The following table presents the components of the deferred tax assets and liabilities (in millions):
| July 27, 2024 |  | July 29, 2023
ASSETS |  |  |
Allowance for accounts receivable and returns | $ | 94 |  |  | $ | 81 |
Sales-type and direct-financing leases | 23 |  |  | 22 |
Inventory write-downs and capitalization | 530 |  |  | 452 |
Deferred foreign income | 277 |  |  | 218 |
IPR&D and purchased intangible assets | 1,039 |  |  | 1,082 |
Depreciation | 184 |  |  | 16 |
Deferred revenue | 2,034 |  |  | 1,801 |
Credits and net operating loss carryforwards | 1,863 |  |  | 1,218 |
Share-based compensation expense | 297 |  |  | 198 |
Accrued compensation | 275 |  |  | 328 |
Lease liabilities | 308 |  |  | 246 |
Capitalized research expenditures | 3,030 |  |  | 2,042 |
Other | 442 |  |  | 484 |
Gross deferred tax assets | 10,396 |  |  | 8,188 |
Valuation allowance | (1,024) |  |  | (754) |
Total deferred tax assets | 9,372 |  |  | 7,434 |
LIABILITIES |  |  |
Goodwill and purchased intangible assets | (2,808) |  |  | (602) |
ROU lease assets | (259) |  |  | (234) |
Other | (119) |  |  | (84) |
Total deferred tax liabilities | (3,186) |  |  | (920) |
Total net deferred tax assets | $ | 6,186 |  |  | $ | 6,514 |
The changes in the valuation allowance for deferred tax assets are summarized as follows (in millions):
|  | July 27, 2024 |  | July 29, 2023 |  | July 30, 2022
Balance at beginning of fiscal year |  | $ | 754 |  |  | $ | 834 |  |  | $ | 771 |
Additions |  | 148 |  |  | 35 |  |  | 84 |
Additions from Splunk |  | 147 |  |  | — |  |  | — |
Deductions |  | (4) |  |  | (18) |  |  | (10) |
Write-offs |  | (20) |  |  | (93) |  |  | (12) |
Foreign exchange and other |  | (1) |  |  | (4) |  |  | 1 |
Balance at end of fiscal year |  | $ | 1,024 |  |  | $ | 754 |  |  | $ | 834 |
As of July 27, 2024, our federal, state, and foreign net operating loss carryforwards before valuation allowance for income tax purposes were $1.4 billion, $1.9 billion, and $531 million, respectively. A significant amount of the net operating loss carryforwards relates to acquisitions and, as a result, is limited in the amount that can be recognized in any one year. If not utilized, the federal, state, and foreign net operating loss carryforwards will begin to expire in fiscal 2025. We have provided a valuation allowance of $86 million and $10 million for deferred tax assets related to foreign and state net operating losses respectively that are not expected to be realized. As of July 27, 2024, our federal, state, and foreign tax credit carryforwards for income tax purposes before valuation allowance were approximately $309 million, $1.9 billion, and $11 million, respectively. The federal tax credit carryforwards will begin to expire in fiscal 2026. The majority of state and foreign tax credits can be carried forward indefinitely. We have provided a valuation allowance of $878 million for deferred tax assets related to state and foreign tax credits carryforwards that are not expected to be realized.

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