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Income Taxes | 12 Months Ended
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Jun. 30, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes The following table summarizes earnings from continuing operations before income taxes:
(in millions) | 2016 |  | 2015 |  | 2014
U.S. Operations | $ | 2,050 |  |  | $ | 1,733 |  |  | $ | 1,665 |
Non-U.S. Operations | 226 |  |  | 234 |  |  | 133 |
Earnings from continuing operations before income taxes | $ | 2,276 |  |  | $ | 1,967 |  |  | $ | 1,798 |
The following table summarizes the components of provision for income taxes from continuing operations:
(in millions) | 2016 |  | 2015 |  | 2014
Current: |  |  |  |  |
Federal | $ | 611 |  |  | $ | 424 |  |  | $ | 521 |
State and local | 74 |  |  | 83 |  |  | 51 |
Non-U.S. | 73 |  |  | 29 |  |  | 37 |
Total current | $ | 758 |  |  | $ | 536 |  |  | $ | 609 |
Deferred: |  |  |  |  |
Federal | $ | 96 |  |  | $ | 196 |  |  | $ | 24 |
State and local | 12 |  |  | 24 |  |  | 3 |
Non-U.S. | (21 | ) |  | (1 | ) |  | (1 | )
Total deferred | 87 |  |  | 219 |  |  | 26 |
Provision for income taxes | $ | 845 |  |  | $ | 755 |  |  | $ | 635 |
The following table presents a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations:
| 2016 |  | 2015 |  | 2014
Provision at Federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes, net of federal benefit | 1.5 |  |  | 4.1 |  |  | 2.2 |
Foreign tax rate differential | (0.6 | ) |  | (2.4 | ) |  | (1.2 | )
Nondeductible/nontaxable items | 1.0 |  |  | 0.7 |  |  | (0.2 | )
Other | 0.2 |  |  | 1.0 |  |  | (0.5 | )
Effective income tax rate | 37.1 | % |  | 38.4 | % |  | 35.3 | %
The fiscal 2016 effective tax rate was impacted by net favorable discrete items of $29 million, which decreased the rate by 1.3 percentage points. There were no individually significant discrete items. The fiscal 2015 effective tax rate was impacted by net unfavorable discrete items of $15 million, which increased the rate by 0.8 percentage points. There were no individually significant discrete items. The fiscal 2014 effective tax rate was impacted by net favorable discrete items of $37 million, which reduced the rate by 2.1 percentage points. The discrete items include the favorable impact of the settlement of federal and state tax controversies ($80 million) and release of valuation allowances ($12 million) and the unfavorable impact of remeasurement of unrecognized tax benefits ($65 million), primarily as a result of proposed assessments of additional tax. At June 30, 2016, we had $2.1 billion of undistributed earnings from non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the repatriation of these earnings. It is not practicable to estimate the amount of U.S. tax that might be payable on the eventual remittance of such earnings. Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities and operating loss and tax credit carryforwards for tax purposes. The following table presents the components of the deferred income tax assets and liabilities at June 30:
(in millions) | 2016 |  | 2015
Deferred income tax assets: |  |  |
Receivable basis difference | $ | 44 |  |  | $ | 47 |
Accrued liabilities | 133 |  |  | 138 |
Share-based compensation | 56 |  |  | 53 |
Loss and tax credit carryforwards | 193 |  |  | 197 |
Deferred tax assets related to uncertain tax positions | 95 |  |  | 100 |
Other | 46 |  |  | 50 |
Total deferred income tax assets | 567 |  |  | 585 |
Valuation allowance for deferred income tax assets | (93 | ) |  | (87 | )
Net deferred income tax assets | $ | 474 |  |  | $ | 498 |
Deferred income tax liabilities: |  |  |
Inventory basis differences | $ | (1,351 | ) |  | $ | (1,344 | )
Property-related | (172 | ) |  | (155 | )
Goodwill and other intangibles | (607 | ) |  | (352 | )
Other | — |  |  | (2 | )
Total deferred income tax liabilities | $ | (2,130 | ) |  | $ | (1,853 | )
Net deferred income tax liability | $ | (1,656 | ) |  | $ | (1,355 | )
Deferred income tax assets and liabilities in the preceding table, after netting by taxing jurisdiction, are in the following captions in the consolidated balance sheets at June 30:
(in millions) | 2016 (5) |  | 2015
Current deferred income tax asset (1) | $ | — |  |  | $ | 22 |
Noncurrent deferred income tax asset (2) | 42 |  |  | 17 |
Current deferred income tax liability (3) | — |  |  | (1,066 | )
Noncurrent deferred income tax liability (4) | (1,698 | ) |  | (328 | )
Net deferred income tax liability | $ | (1,656 | ) |  | $ | (1,355 | )
(1) | Included in prepaid expenses and other in the consolidated balance sheets.
(2) | Included in other assets in the consolidated balance sheets.
(3) | Included in other accrued liabilities in the consolidated balance sheets.
(4) | Included in deferred income taxes and other liabilities in the consolidated balance sheets.
(5) | In the second quarter of fiscal 2016, we adopted amended accounting guidance that deferred tax assets and liabilities should be classified as noncurrent on the consolidated balance sheet. See Note 1 for further discussion.
At June 30, 2016 we had gross federal, state and international loss and credit carryforwards of $199 million, $1.2 billion and $94 million, respectively, the tax effect of which is an aggregate deferred tax asset of $193 million. Substantially all of these carryforwards are available for at least three years. Approximately $92 million of the valuation allowance at June 30, 2016 applies to certain federal, state and international loss carryforwards that, in our opinion, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance would reduce income tax expense. We had $527 million, $542 million and $510 million of unrecognized tax benefits at June 30, 2016, 2015 and 2014, respectively. The June 30, 2016, 2015 and 2014 balances include $355 million, $357 million and $322 million, respectively, of unrecognized tax benefits that, if recognized, would have an impact on the effective tax rate. The remaining unrecognized tax benefits relate to tax positions for which ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Recognition of these tax benefits would not affect our effective tax rate. We include the full amount of unrecognized tax benefits in deferred income taxes and other liabilities in the consolidated balance sheets. The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits:
(in millions) | 2016 |  | 2015 |  | 2014
Balance at beginning of fiscal year | $ | 542 |  |  | $ | 510 |  |  | $ | 650 |
Additions for tax positions of the current year | 22 |  |  | 15 |  |  | 16 |
Additions for tax positions of prior years | 42 |  |  | 69 |  |  | 94 |
Reductions for tax positions of prior years | (48 | ) |  | (42 | ) |  | (40 | )
Settlements with tax authorities | (30 | ) |  | (10 | ) |  | (210 | )
Expiration of the statute of limitations | (1 | ) |  | — |  |  | — |
Balance at end of fiscal year | $ | 527 |  |  | $ | 542 |  |  | $ | 510 |
It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the next 12 months due to activities of the U.S. Internal Revenue Service or other taxing authorities, possible settlement of audit issues, reassessment of existing unrecognized tax benefits or the expiration of statutes of limitations. We estimate that the range of the possible change in unrecognized tax benefits within the next 12 months is a net decrease of zero to $155 million, exclusive of penalties and interest. We recognize accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. At June 30, 2016, 2015 and 2014, we had $145 million, $169 million and $143 million, respectively, accrued for the payment of interest and penalties. These balances are gross amounts before any tax benefits and are included in deferred income taxes and other liabilities in the consolidated balance sheets. During fiscal 2016 and 2014, we recognized $9 million and $46 million of benefit for interest and penalties in income tax expense, respectively. During fiscal 2015, we recognized $24 million of expense for interest and penalties in income tax expense. We file income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2006 through the current fiscal year. During fiscal 2014, the IRS closed audits of fiscal years 2003 through 2005. The IRS is currently conducting audits of fiscal years 2006 through 2014, and our transfer pricing arrangements continue to be under consideration as part of these audits. While the IRS has made and could make proposed adjustments to our transfer pricing arrangements, or other matters, we are defending our reported tax positions, and have accounted for the unrecognized tax benefits associated with our tax positions. We are a party to a tax matters agreement with CareFusion Corporation ("CareFusion"), which has been acquired by Becton, Dickinson and Company. Under the tax matters agreement, CareFusion is obligated to indemnify us for certain tax exposures and transaction taxes prior to our fiscal 2010 spin-off of CareFusion. The indemnification receivable was $172 million and $219 million at June 30, 2016 and 2015, respectively, and is included in other assets in the consolidated balance sheets.

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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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