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Income Taxes | 12 Months Ended
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Mar. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes
| Years Ended March 31,
(In millions) | 2021 |  | 2020 |  | 2019
Income (loss) from continuing operations before income taxes |  |  |  |  |
U.S. | $ | (6,019) |  |  | $ | 216 |  |  | $ | 1,512 |
Foreign | 985 |  |  | 928 |  |  | (902) |
Income (loss) from continuing operations before income taxes | $ | (5,034) |  |  | $ | 1,144 |  |  | $ | 610 |
Income tax expense (benefit) related to continuing operations consists of the following:
| Years Ended March 31,
(In millions) | 2021 |  | 2020 |  | 2019
Current |  |  |  |  |
Federal | $ | (15) |  |  | $ | 170 |  |  | $ | (20) |
State | 47 |  |  | 48 |  |  | 35 |
Foreign | 181 |  |  | 142 |  |  | 152 |
Total current | 213 |  |  | 360 |  |  | 167 |
Deferred |  |  |  |  |
Federal | (562) |  |  | (204) |  |  | 223 |
State | (204) |  |  | (105) |  |  | 44 |
Foreign | (142) |  |  | (33) |  |  | (78) |
Total deferred | (908) |  |  | (342) |  |  | 189 |
Income tax expense (benefit) | $ | (695) |  |  | $ | 18 |  |  | $ | 356 |
The Company reported an income tax benefit rate of 13.8% in 2021. Income tax expense rates were 1.6% and 58.4% in 2020 and 2019, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to the impact of opioid-related claims of $8.1 billion ($6.8 billion after-tax) in 2021, the impact of the Change Healthcare joint venture divestiture in 2020, the impact of nondeductible impairment charges in 2019, and varying proportions of income attributable to foreign countries that have income tax rates different from the U.S. rate. The reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% to income before income taxes is as follows:
| Years Ended March 31,
(In millions) | 2021 |  | 2020 |  | 2019
Income tax expense (benefit) at federal statutory rate | $ | (1,057) |  |  | $ | 240 |  |  | $ | 128 |
State income taxes, net of federal tax benefit | (206) |  |  | (41) |  |  | 70 |
Tax effect of foreign operations | (77) |  |  | (81) |  |  | (86) |
Unrecognized tax benefits and settlements | 41 |  |  | (7) |  |  | 20 |
Non-deductible goodwill | 14 |  |  | 7 |  |  | 357 |
Opioid-related litigation and claims | 715 |  |  | — |  |  | — |
Net tax benefit on intellectual property transfer | (105) |  |  | — |  |  | (42) |
Tax-free gain on investment exit (1) | — |  |  | (87) |  |  | — |
Impact of change in U.S. tax rate on temporary differences | — |  |  | — |  |  | (81) |
Capital loss carryback | — |  |  | (19) |  |  | — |
Other, net (2) | (20) |  |  | 6 |  |  | (10) |
Income tax expense (benefit) | $ | (695) |  |  | $ | 18 |  |  | $ | 356 |
(1)Refer to Financial Note 2, “Investment in Change Healthcare Joint Venture,” for additional information regarding the separation of the Change Healthcare JV. (2)The Company’s effective tax rates were impacted by other favorable U.S. federal permanent differences including research and development credits of $5 million in 2021 and $7 million in each of 2020 and 2019. The Company’s reported income tax rate for 2021 was impacted by the charge for pending and future opioid-related claims of $8.1 billion ($6.8 billion after-tax), as described further in Financial Note 19, “Commitments and Contingent Liabilities.” The Company recorded a deferred tax benefit of $1.3 billion, which is net of certain non-deductible expenses and an unrecognized tax benefit of $455 million. During 2021 and 2019, the Company sold intellectual property between wholly-owned legal entities within McKesson that are based in different tax jurisdictions. In both instances, the transferor entity recognized a gain on the sale of assets which was not subject to income tax in its local jurisdiction; such gains were eliminated upon consolidation. The acquiring entities of the intellectual property were entitled to amortize the purchase price of the assets for tax purposes. In accordance with ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” discrete tax benefits of $105 million and $42 million were recognized for 2021 and 2019, respectively, with a corresponding increase to a deferred tax assets for the temporary difference arising from the buyer’s excess tax basis. On March 10, 2020, the Company completed the previously announced separation of its interest in the Change Healthcare JV as described in Financial Note 2, “Investment in Change Healthcare Joint Venture.” The Company’s reported income tax expense rate for 2020 was favorably impacted by this transaction given that it was intended to generally be a tax-free split-off for U.S. federal income tax purposes. In the fourth quarter of 2020, the Company recognized a net gain for financial reporting purposes of $414 million related to the separation transaction. The Company’s reported income tax expense rate for 2020 was unfavorably impacted by non-cash charges of $275 million to remeasure the carrying value of assets and liabilities held for sale related to the formation of a new German wholesale joint venture within the Company’s International segment. Refer to Financial Note 3, “Held for Sale,” for more information on this transaction which closed in the third quarter of 2021. The Company’s reported income tax expense rate for 2019 was unfavorably impacted by non-cash charges of $1.8 billion to impair the carrying value of goodwill for its International segment, given that these charges are generally not deductible for tax purposes. Refer to Financial Note 12, “Goodwill and Intangible Assets, Net,” for more information. Deferred tax balances consisted of the following:
| March 31,
(In millions) | 2021 |  | 2020
Assets |  |  |
Receivable allowances | $ | 69 |  |  | $ | 72 |
Opioid-related litigation and claims | 724 |  |  | — |
Compensation and benefit related accruals | 305 |  |  | 331 |
Net operating loss and credit carryforwards | 974 |  |  | 828 |
Lease obligations | 539 |  |  | 482 |
Other | 115 |  |  | 109 |
Subtotal | 2,726 |  |  | 1,822 |
Less: valuation allowance | (864) |  |  | (833) |
Total assets | 1,862 |  |  | 989 |
Liabilities |  |  |
Inventory valuation and other assets | (1,939) |  |  | (1,947) |
Fixed assets and systems development costs | (196) |  |  | (202) |
Intangibles | (411) |  |  | (531) |
Lease right-of-use assets | (505) |  |  | (449) |
Other | (37) |  |  | (56) |
Total liabilities | (3,088) |  |  | (3,185) |
Net deferred tax liability | $ | (1,226) |  |  | $ | (2,196) |
Long-term deferred tax asset | $ | 185 |  |  | $ | 59 |
Long-term deferred tax liability | (1,411) |  |  | (2,255) |
Net deferred tax liability | $ | (1,226) |  |  | $ | (2,196) |
The Company assesses the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets in various tax jurisdictions. The valuation allowances were approximately $864 million and $833 million in 2021 and 2020, respectively, and primarily relate to net operating and capital losses incurred in certain tax jurisdictions for which no tax benefit was recognized. The increase in the valuation allowance of $31 million in the current year relates primarily to net operating losses incurred and deferred tax movements in certain tax jurisdictions for which no tax benefit was recognized. The Company has federal, state, and foreign net operating loss carryforwards of $2.4 billion, $3.9 billion, and $2.2 billion at March 31, 2021. Federal and state net operating losses will expire at various dates from 2022 through 2041. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has foreign capital loss carryforwards of $783 million with indefinite lives. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the last three years:
| Years Ended March 31,
(In millions) | 2021 |  | 2020 |  | 2019
Unrecognized tax benefits at beginning of period | $ | 958 |  |  | $ | 1,052 |  |  | $ | 1,183 |
Additions based on tax positions related to prior years | 53 |  |  | 20 |  |  | 78 |
Reductions based on tax positions related to prior years | (5) |  |  | (168) |  |  | (234) |
Additions based on tax positions related to current year | 755 |  |  | 82 |  |  | 68 |
Reductions based on settlements | (8) |  |  | (8) |  |  | (13) |
Reductions based on the lapse of the applicable statutes of limitations | (12) |  |  | (13) |  |  | (25) |
Exchange rate fluctuations | 13 |  |  | (7) |  |  | (5) |
Unrecognized tax benefits at end of period | $ | 1,754 |  |  | $ | 958 |  |  | $ | 1,052 |
As of March 31, 2021, the Company had $1.8 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate, if recognized. The increase in unrecognized tax benefits in 2021 compared to 2020 is primarily attributable to uncertainty in connection with the deductibility of Opioid-related litigation and claims. Because many uncertainties associated with any potential settlement arrangements or other resolutions of opioid claims including provisions related to deductibility have not been finalized, the actual amount of the tax benefit related to uncertain tax positions may differ from these estimates. Refer to Financial Note 19, “Commitments and Contingent Liabilities,” for more information. The decrease in unrecognized tax benefits in 2020 compared to 2019 is primarily attributable to the favorable resolution of an outstanding California tax refund claim which decreased unrecognized tax benefits by $91 million. During the next twelve months, it is reasonably possible that the Company’s unrecognized tax benefit may decrease by as much as $93 million due to settlements of tax examinations and statute of limitations expirations in the U.S. federal and state jurisdictions and in foreign jurisdictions. However, this amount may change as the Company continues to have ongoing negotiations with various taxing authorities throughout the year. The Company reports interest and penalties on income taxes as income tax expense. It recognized income tax expense of $9 million, $23 million, and $33 million in 2021, 2020, and 2019, respectively, representing interest and penalties, in its Consolidated Statements of Operations. As of March 31, 2021 and 2020, it accrued $101 million and $91 million cumulatively in interest and penalties on unrecognized tax benefits. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2013 through the current fiscal year. Undistributed earnings of the Company’s foreign operations of approximately $6.0 billion were considered indefinitely reinvested. Following enactment of the 2017 Tax Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the U.S. could be subject to applicable foreign withholding taxes and state income taxes. The Company may remit foreign earnings to the U.S. to the extent it is tax efficient to do so. It does not expect the tax impact from remitting these earnings to be material.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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