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Income Taxes | 12 Months Ended
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May 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 12: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current provision |  |  |  |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 269 |  |  | $ | 513 |  |  | $ | 795 |
State and local |  |  | 88 |  |  |  | 72 |  |  |  | 102 |
Foreign |  |  | 285 |  |  |  | 200 |  |  |  | 214 |
|  |  | 642 |  |  |  | 785 |  |  |  | 1,111 |
Deferred provision (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 989 |  |  |  | 155 |  |  |  | (474 | )
State and local |  |  | 59 |  |  |  | (18 | ) |  |  | (47 | )
Foreign |  |  | (108 | ) |  |  | (2 | ) |  |  | (13 | )
|  |  | 940 |  |  |  | 135 |  |  |  | (534 | )
|  | $ | 1,582 |  |  | $ | 920 |  |  | $ | 577 |
Pre-tax earnings of foreign operations for 2017, 2016 and 2015 were $919 million, $905 million and $773 million, respectively. These amounts represent only a portion of total results associated with international shipments and do not represent our international results of operations. A reconciliation of total income tax expense and the amount computed by applying the statutory federal income tax rate (35%) to income before taxes for the years ended May 31 is as follows (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Taxes computed at federal statutory rate |  | $ | 1,603 |  |  | $ | 959 |  |  | $ | 569 |
Increases (decreases) in income tax from: |  |  |  |  |  |  |  |  |  |  |  |
State and local income taxes, net of federal benefit |  |  | 99 |  |  |  | 33 |  |  |  | 36 |
Foreign operations |  |  | (87 | ) |  |  | (50 | ) |  |  | (43 | )
Legal entity restructuring |  |  | — |  |  |  | (76 | ) |  |  | — |
TNT Express integration/acquisition costs |  |  | 25 |  |  |  | 40 |  |  |  | — |
Other, net |  |  | (58 | ) |  |  | 14 |  |  |  | 15 |
|  | $ | 1,582 |  |  | $ | 920 |  |  | $ | 577 |
Effective Tax Rate |  |  | 34.6 | % |  |  | 33.6 | % |  |  | 35.5 | %
Our 2017 tax rate was favorably impacted by $62 million as a result of the implementation of new U.S. foreign currency tax regulations and by $55 million from the adoption of the Accounting Standards Update on share-based payments. Our 2016 tax rate was favorably impacted by $76 million from an internal corporate legal entity restructuring done in anticipation of the integration of the foreign operations of FedEx Express and TNT Express. A lower state tax rate primarily due to the resolution of a state tax matter also provided a benefit to our 2016 tax rate. The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
|  | 2017 |  |  | 2016 |
|  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |  |  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |
Property, equipment, leases and intangibles |  | $ | 124 |  |  | $ | 4,993 |  |  | $ | 129 |  |  | $ | 4,767 |
Employee benefits |  |  | 1,951 |  |  |  | — |  |  |  | 2,453 |  |  |  | — |
Self-insurance accruals |  |  | 745 |  |  |  | — |  |  |  | 681 |  |  |  | — |
Other |  |  | 692 |  |  |  | 660 |  |  |  | 528 |  |  |  | 343 |
Net operating loss/credit carryforwards |  |  | 1,069 |  |  |  | — |  |  |  | 925 |  |  |  | — |
Valuation allowances |  |  | (738 | ) |  |  | — |  |  |  | (738 | ) |  |  | — |
|  | $ | 3,843 |  |  | $ | 5,653 |  |  | $ | 3,978 |  |  | $ | 5,110 |
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
|  | 2017 |  |  | 2016 |
Noncurrent deferred tax assets(1) |  | $ | 675 |  |  | $ | 435 |
Noncurrent deferred tax liabilities |  |  | (2,485 | ) |  |  | (1,567 | )
|  | $ | (1,810 | ) |  | $ | (1,132 | )
(1) | Noncurrent deferred tax assets are included in the line item “Other Assets” in our consolidated balance sheets.
We have approximately $3.6 billion of net operating loss carryovers in various foreign jurisdictions and $663 million of state operating loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss and tax credit carryforwards, which expire over varying periods starting in 2018. The ending valuation allowance balance includes a decrease for changes in forecasted earnings for the foreign branches of FedEx Express which did not impact current year tax expense because they were offset by related U.S. deferred income tax liabilities. This valuation allowance decrease was fully offset by purchase accounting adjustments related to the acquisition of TNT Express and current year activity. We believe that a substantial portion of these deferred tax assets may not be realized. Therefore, we establish valuation allowances if it is more likely than not that deferred income tax assets will not be realized. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our future projections of sustained profitability, deferred income tax liabilities, the overall business environment, our historical financial results and potential current and future tax planning strategies. If we were to identify and implement tax planning strategies to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it could lead to the reversal of these valuation allowances and a reduction of income tax expense. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheet. Permanently reinvested earnings of our foreign subsidiaries amounted to $2.1 billion at the end of 2017 and $1.6 billion at the end of 2016. We have not recognized deferred taxes for U.S. federal income tax purposes on those earnings. Were the earnings to be distributed, in the form of dividends or otherwise, these earnings could be subject to U.S. federal income tax and non-U.S. withholding taxes. Unrecognized foreign tax credits potentially could be available to reduce a portion of any U.S. tax liability. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to uncertainties related to the timing and source of any potential distribution of such funds, along with other important factors such as the amount of associated foreign tax credits. Cash in offshore jurisdictions associated with our permanent reinvestment strategy totaled $1.2 billion at the end of 2017 and $522 million at the end of 2016. In 2017, approximately 90% of our total enterprise-wide income was earned in U.S. companies of FedEx that are taxable in the United States. As a U.S. airline, our FedEx Express unit is required by Federal Aviation Administration and other rules to conduct its air operations, domestic and international, through a U.S. company. However, we serve more than 220 countries and territories around the world, and are required to establish legal entities in many of them. Most of our entities in those countries are operating entities, engaged in picking up and delivering packages and performing other transportation services. We are continually expanding our global network to meet our customers’ needs, which requires increasing investment outside the U.S. In 2017, we established a new legal entity structure for the integration and operation of FedEx Express and TNT Express. We are subject to taxation in the U.S. and various U.S. state, local and foreign jurisdictions. The Internal Revenue Service is currently auditing our 2014 and 2015 tax returns. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Balance at beginning of year |  | $ | 49 |  |  | $ | 36 |  |  | $ | 38 |
Increases for tax positions taken in the current year |  |  | — |  |  |  | 3 |  |  |  | 1 |
Increases for tax positions taken in prior years |  |  | 8 |  |  |  | 3 |  |  |  | 6 |
Increase for business acquisition |  |  | 17 |  |  |  | 25 |  |  |  | — |
Decreases for tax positions taken in prior years |  |  | (1 | ) |  |  | (5 | ) |  |  | (2 | )
Settlements |  |  | (4 | ) |  |  | (4 | ) |  |  | (2 | )
Decreases from lapse of statute of limitations |  |  | (2 | ) |  |  | (7 | ) |  |  | — |
Changes due to currency translation |  |  | — |  |  |  | (2 | ) |  |  | (5 | )
Balance at end of year |  | $ | 67 |  |  | $ | 49 |  |  | $ | 36 |
Our liabilities recorded for uncertain tax positions include $63 million at May 31, 2017 and $45 million at May 31, 2016 associated with positions that, if favorably resolved, would provide a benefit to our effective tax rate. We classify interest related to income tax liabilities as interest expense and, if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties was $11 million on May 31, 2017 and May 31, 2016. Total interest and penalties included in our consolidated statements of income are immaterial. It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal and foreign tax jurisdictions, or from the resolution of various proceedings between U.S. and foreign tax authorities. Our liability for uncertain tax positions includes no matters that are individually or collectively material to us. It is reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months, but an estimate of the range of the reasonably possible changes cannot be made. However, we do not expect that the resolution of any of our uncertain tax positions will have a material effect on us.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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