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Income Taxes | 12 Months Ended
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Mar. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes
| Years Ended March 31,
(In millions) | 2025 |  | 2024 |  | 2023
Income from continuing operations before income taxes |  |  |  |  |
U.S. | $ | 3,735 |  |  | $ | 2,597 |  |  | $ | 3,308 |
Foreign | 624 |  |  | 1,192 |  |  | 1,322 |
Income from continuing operations before income taxes | $ | 4,359 |  |  | $ | 3,789 |  |  | $ | 4,630 |
Income tax expense related to continuing operations consists of the following:
| Years Ended March 31,
(In millions, except percentages) | 2025 |  | 2024 |  | 2023
Current |  |  |  |  |
Federal | $ | 552 |  |  | $ | 867 |  |  | $ | 619 |
State | 182 |  |  | 231 |  |  | 126 |
Foreign | 254 |  |  | 134 |  |  | 180 |
Total current | 988 |  |  | 1,232 |  |  | 925 |
Deferred |  |  |  |  |
Federal | 102 |  |  | (360) |  |  | (46) |
State | 5 |  |  | (133) |  |  | 36 |
Foreign | (217) |  |  | (110) |  |  | (10) |
Total deferred | (110) |  |  | (603) |  |  | (20) |
Income tax expense | $ | 878 |  |  | $ | 629 |  |  | $ | 905 |
Reported income tax rate | 20.1 | % |  | 16.6 | % |  | 19.5 | %
Fluctuations in the Company’s reported income tax rates are primarily due to changes in the business mix of earnings between various taxing jurisdictions, including the impact of non-cash pre-tax charges related to the remeasurement of the Canadian retail disposal group to fair value less costs to sell as described in Financial Note 2, "Business Acquisitions and Divestitures," and recognized discrete tax items. The reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate of 21.0% to income before income taxes was as follows:
| Years Ended March 31,
(In millions) | 2025 |  | 2024 |  | 2023
Income tax expense at federal statutory rate | $ | 915 |  |  | $ | 796 |  |  | $ | 972 |
State income taxes, net of federal tax benefit | 145 |  |  | 104 |  |  | 134 |
Tax effect of foreign operations | (25) |  |  | (16) |  |  | (85) |
Foreign-derived intangible income | (83) |  |  | (67) |  |  | (60) |
Unrecognized tax benefits and settlements | 91 |  |  | 116 |  |  | 6 |
Net tax benefit on intellectual property repatriation and sales | (258) |  |  | (104) |  |  | — |
Canadian disposal transaction loss | 140 |  |  | — |  |  | — |
Valuation allowance release | — |  |  | (157) |  |  | — |
Share-based compensation | (42) |  |  | (37) |  |  | (58) |
Other, net | (5) |  |  | (6) |  |  | (4) |
Income tax expense | $ | 878 |  |  | $ | 629 |  |  | $ | 905 |
During the year ended March 31, 2025, the Company recognized a net discrete tax benefit of $258 million related to the sales of certain intellectual property between McKesson wholly-owned legal entities based in foreign tax jurisdictions. The transferor entities of the intellectual property were not subject to income tax on their transaction. The recipient entities of the intellectual property are entitled to amortize the fair value of the assets for tax purposes. As a result of these transactions, and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, net discrete tax benefits of $44 million and $214 million were recognized in the second and fourth quarters of fiscal 2025, respectively. During the year ended March 31, 2024, the Company recognized a net discrete tax benefit of $157 million related to the release of a valuation allowance based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. During the year ended March 31, 2024, the Company also repatriated certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. The transferor entity of the intellectual property was not subject to income tax on this transaction. The recipient entity of the intellectual property is entitled to amortize the fair value of the assets for tax purposes. As a result of this repatriation and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, a net discrete tax benefit of $147 million was recognized in the first quarter of fiscal 2024. In addition, the Company sold certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions, where the transferor entity was subject to income tax and the recipient entity is entitled to amortize the fair value of the assets for tax purposes. As a result of this sale, a net discrete tax expense of $43 million was recognized in the fourth quarter of fiscal 2024. During the year ended March 31, 2023, the Company recognized discrete tax benefits primarily consisting of $115 million related to statute of limitation expirations and tax settlements in various taxing jurisdictions and $58 million related to the tax impact of share-based compensation. Deferred tax balances consisted of the following:
| March 31,
(In millions) | 2025 |  | 2024
Assets |  |  |
Receivable allowances | $ | 136 |  |  | $ | 244 |
Opioid-related litigation and claims | 680 |  |  | 680 |
Compensation and benefit-related accruals | 287 |  |  | 277 |
Net operating loss and credit carryforwards | 847 |  |  | 751 |
Lease obligations | 423 |  |  | 438 |
Capitalized research and development cost | 68 |  |  | 60 |
Intangibles | 66 |  |  | 5 |
Other | 170 |  |  | 147 |
Subtotal | 2,677 |  |  | 2,602 |
Less: valuation allowance | (644) |  |  | (653) |
Total assets | 2,033 |  |  | 1,949 |
Liabilities |  |  |
Inventory valuation and other assets | (2,139) |  |  | (2,092) |
Fixed assets | (72) |  |  | (16) |
Lease right-of-use assets | (434) |  |  | (431) |
Other | (50) |  |  | (10) |
Total liabilities | (2,695) |  |  | (2,549) |
Net deferred tax liability | $ | (662) |  |  | $ | (600) |
Long-term deferred tax asset | $ | 367 |  |  | $ | 317 |
Long-term deferred tax liability | (1,029) |  |  | (917) |
Net deferred tax liability | $ | (662) |  |  | $ | (600) |
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 $644 million and $653 million in fiscal 2025 and fiscal 2024, respectively, and primarily relate to net operating and capital losses. The Company has federal, state, and foreign net operating loss carryforwards of $40 million, $4.1 billion, and $1.3 billion at March 31, 2025, respectively. Federal and state net operating losses will expire at various dates from 2026 through 2045. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has foreign capital loss carryforwards of $1.3 billion with indefinite lives. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the last three fiscal years:
| Years Ended March 31,
(In millions) | 2025 |  | 2024 |  | 2023
Unrecognized tax benefits at beginning of period | $ | 1,463 |  |  | $ | 1,399 |  |  | $ | 1,523 |
Additions based on tax positions related to prior years | 33 |  |  | 10 |  |  | — |
Reductions based on tax positions related to prior years | (43) |  |  | (2) |  |  | (26) |
Additions based on tax positions related to current year | 97 |  |  | 64 |  |  | 21 |
Reductions based on settlements | (13) |  |  | (8) |  |  | (96) |
Reductions based on the lapse of the applicable statutes of limitations | (7) |  |  | (2) |  |  | (16) |
Exchange rate fluctuations | 2 |  |  | 2 |  |  | (7) |
Unrecognized tax benefits at end of period | $ | 1,532 |  |  | $ | 1,463 |  |  | $ | 1,399 |
As of March 31, 2025, the Company had $1.5 billion in unrecognized tax benefits, of which $1.4 billion would reduce income tax expense and the effective tax rate, if recognized. The increases in unrecognized tax benefits in both fiscal 2025 and fiscal 2024 primarily relate to additions associated with recurring items. During the next twelve months, the Company does not anticipate any material reduction in its unrecognized tax benefits based on the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year. During the fourth quarter of fiscal 2023, the Internal Revenue Service (“IRS”) communicated proposed adjustments to taxable income reported in the Company’s fiscal 2018 and fiscal 2019 U.S. Federal Corporate Income Tax returns. The adjustments would increase the Company’s federal income tax liability in the range of $600 million to $700 million. The Company disagrees with the proposed adjustments and intends to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. During the first quarter of fiscal 2024, the Company filed a formal protest with the IRS. The Company does not anticipate a final resolution of these matters in the next twelve months. Although the final resolution of these matters is uncertain, the Company believes in the merits of its tax positions and believes that it has adequately reserved for any adjustments to the provision of income taxes that may ultimately result. However, if the IRS prevails in these matters, the assessed tax and interest could have a material adverse effect on the Company’s financial position, results of operations, and cash flows in future periods. The Company reports interest and penalties on income taxes as income tax expense. It recognized income tax expense of $80 million, $84 million, and $31 million in fiscal 2025, fiscal 2024, and fiscal 2023, respectively, representing interest and penalties, in its Consolidated Statements of Operations. As of March 31, 2025 and 2024, the Company accrued cumulatively $302 million and $222 million, respectively, in interest and penalties on unrecognized tax benefits in its Consolidated Balance Sheets. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal 2016 through the current fiscal year. Undistributed earnings of the Company’s foreign operations of approximately $4.0 billion were considered indefinitely reinvested on March 31, 2025. Following the 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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