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Income Taxes | 12 Months Ended
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May 31, 2024
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):
|  | 2024 |  |  | 2023 |  |  | 2022 |
Current provision |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |
Federal |  | $ | 1,184 |  |  | $ | 579 |  |  | $ | 311 |
State and local |  |  | 218 |  |  |  | 157 |  |  |  | 120 |
Foreign |  |  | 265 |  |  |  | 209 |  |  |  | 317 |
|  |  | 1,667 |  |  |  | 945 |  |  |  | 748 |
Deferred provision |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |
Federal |  |  | (82 | ) |  |  | 369 |  |  |  | 267 |
State and local |  |  | 60 |  |  |  | 37 |  |  |  | 21 |
Foreign |  |  | (140 | ) |  |  | 40 |  |  |  | 34 |
|  |  | (162 | ) |  |  | 446 |  |  |  | 322 |
|  | $ | 1,505 |  |  | $ | 1,391 |  |  | $ | 1,070 |
Pre-tax earnings of foreign operations for 2024, 2023, and 2022 were $0.5 billion, $0.6 billion, and $1.4 billion, 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 to income before income taxes for the years ended May 31 is as follows (dollars in millions):
|  | 2024 |  |  | 2023 |  |  | 2022 |
Taxes computed at federal statutory rate |  | $ | 1,226 |  |  | $ | 1,126 |  |  | $ | 1,028 |
Increases (decreases) in income tax from: |  |  |  |  |  |  |  |  |
U.S. and foreign return-to-provision adjustments |  |  | 11 |  |  |  | (44 | ) |  |  | (142 | )
State and local income taxes, net of federal benefit |  | 177 |  |  |  | 152 |  |  |  | 116 |
Foreign operations |  |  | 65 |  |  |  | 96 |  |  |  | 115 |
Non-deductible expenses |  |  | 48 |  |  |  | 40 |  |  |  | 48 |
Uncertain tax positions |  |  | (21 | ) |  |  | 60 |  |  |  | (18 | )
Benefits from share-based payments |  |  | (26 | ) |  |  | (18 | ) |  |  | (13 | )
Valuation allowance |  |  | 59 |  |  |  | 59 |  |  |  | 33 |
Foreign tax rate enactments |  |  | — |  |  |  | 3 |  |  |  | (30 | )
State deferred tax remeasurement |  |  | 54 |  |  |  | — |  |  |  | — |
Goodwill impairment charges |  |  | — |  |  |  | 8 |  |  |  | — |
Other, net |  |  | (88 | ) |  |  | (91 | ) |  |  | (67 | )
Provision for income taxes |  | $ | 1,505 |  |  | $ | 1,391 |  |  | $ | 1,070 |
Effective Tax Rate |  |  | 25.8 | % |  |  | 25.9 | % |  |  | 21.9 | %
The 2024 tax provision includes an unfavorable income tax expense of $54 million from the remeasurement of U.S. state deferred tax balances to reflect aggregate temporary differences at the expected applicable tax rates after the merger of FedEx Ground and FedEx Services into Federal Express Corporation. The 2023 tax provision was negatively impacted by an expense of $46 million related to a write-down and valuation allowance on certain foreign tax credit carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset. The 2023 tax provision was also negatively impacted by lower earnings in certain non-U.S. jurisdictions. The 2022 tax provision includes a benefit of $142 million related to revisions of prior year tax estimates for actual tax return results. The 2022 tax provision was also favorably impacted by changes in our corporate legal entity structure. We regularly assess the need for cash in the U.S., as well as in our foreign subsidiaries, and will occasionally repatriate back to the U.S. excess earnings above working capital needs that can be repatriated with an immaterial tax cost. We assert all other earnings, both historical and current in our foreign subsidiaries, are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided, including deferred taxes on any additional outside basis difference (e.g., stock basis differences attributable to acquisition or other permanent differences). Determination of the amount of unrecognized deferred income tax liability related to any remaining undistributed foreign earnings and additional outside basis differences is not practicable. The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
|  | 2024 |  |  | 2023 |
|  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |  |  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |
Property, equipment, leases, and intangibles |  | $ | 4,597 |  |  | $ | 10,815 |  |  | $ | 4,608 |  |  | $ | 10,965 |
Employee benefits |  |  | 744 |  |  |  | 68 |  |  |  | 876 |  |  |  | — |
Self-insurance accruals |  |  | 1,183 |  |  |  | — |  |  |  | 1,085 |  |  |  | — |
Other |  |  | 561 |  |  |  | 140 |  |  |  | 454 |  |  |  | 62 |
Net operating loss/credit carryforwards |  |  | 1,306 |  |  |  | — |  |  |  | 1,149 |  |  |  | — |
Valuation allowances |  |  | (537 | ) |  |  | — |  |  |  | (471 | ) |  |  | — |
|  | $ | 7,854 |  |  | $ | 11,023 |  |  | $ | 7,701 |  |  | $ | 11,027 |
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
|  | 2024 |  |  | 2023 |
Noncurrent deferred tax assets(1) |  | $ | 1,313 |  |  | $ | 1,163 |
Noncurrent deferred tax liabilities |  |  | (4,482 | ) |  |  | (4,489 | )
|  | $ | (3,169 | ) |  | $ | (3,326 | )
(1) Noncurrent deferred tax assets are included in the line item “Other Assets” in our accompanying consolidated balance sheets. We have approximately $3.7 billion of net operating loss carryovers in various foreign jurisdictions, $1.7 billion of state operating loss carryovers, and $157 million of U.S. federal operating loss and capital loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss carryforwards, which expire over varying periods starting in 2025. Therefore, we establish valuation allowances if it is more likely than not that deferred income tax assets will not be realized. 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 sheets. The increase in the valuation allowance balance during 2024 includes $36 million related to foreign net operating losses, $19 million for state income tax credits, and $4 million for a capital loss. See Note 1 for more information on our policy for assessing the recoverability of deferred tax assets and valuation allowances. We are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2021 tax years. 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. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur. During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $226 million attributable to our interpretation of the TCJA and the Internal Revenue Code. In March 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. We continue to work towards obtaining a final judgment for the applicable refund amounts due to the regulation being invalid. Once the District Court enters a final judgment, the U.S. government could file an appeal with the U.S. Court of Appeals for the Sixth Circuit. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended May 31 is as follows (in millions):
|  | 2024 |  |  | 2023 |  |  | 2022 |
Balance at beginning of year |  | $ | 212 |  |  | $ | 169 |  |  | $ | 192 |
Increases for tax positions taken in the current year |  |  | 5 |  |  |  | 3 |  |  |  | 14 |
Increases for tax positions taken in prior years |  |  | 4 |  |  |  | 68 |  |  |  | 8 |
Decreases for tax positions taken in prior years |  |  | (3 | ) |  |  | (7 | ) |  |  | (15 | )
Settlements |  |  | (31 | ) |  |  | (15 | ) |  |  | (32 | )
Changes due to currency translation |  |  | (1 | ) |  |  | (6 | ) |  |  | 2 |
Balance at end of year |  | $ | 186 |  |  | $ | 212 |  |  | $ | 169 |
Our liabilities recorded for uncertain tax positions include $184 million at May 31, 2024 and $211 million at May 31, 2023 associated with positions that, if favorably resolved, would provide a benefit to our income tax expense. 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 $59 million at May 31, 2024 and $54 million at May 31, 2023. 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. 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. However, estimates of the amounts or ranges for individual matters where a material change is reasonably possible cannot be made. We believe we have recorded adequate amounts of tax reserves, including interest and penalties, for any adjustments that may occur.

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