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Income Taxes | 12 Months Ended
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Jun. 30, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes The following table summarizes earnings from continuing operations before income taxes:
(in millions) | 2017 |  | 2016 |  | 2015
U.S. operations | $ | 1,772 |  |  | $ | 2,050 |  |  | $ | 1,733 |
Non-U.S. operations | 152 |  |  | 226 |  |  | 234 |
Earnings from continuing operations before income taxes | $ | 1,924 |  |  | $ | 2,276 |  |  | $ | 1,967 |
The following table summarizes the components of provision for income taxes from continuing operations:
(in millions) | 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
Federal | $ | 273 |  |  | $ | 633 |  |  | $ | 424 |
State and local | 10 |  |  | 52 |  |  | 83 |
Non-U.S. | 56 |  |  | 73 |  |  | 29 |
Total current | $ | 339 |  |  | $ | 758 |  |  | $ | 536 |
Deferred: |  |  |  |  |
Federal | $ | 258 |  |  | $ | 96 |  |  | $ | 196 |
State and local | 37 |  |  | 12 |  |  | 24 |
Non-U.S. | (4 | ) |  | (21 | ) |  | (1 | )
Total deferred | 291 |  |  | 87 |  |  | 219 |
Provision for income taxes | $ | 630 |  |  | $ | 845 |  |  | $ | 755 |
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:
| 2017 |  | 2016 |  | 2015
Provision at federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes, net of federal benefit | 1.0 |  |  | 1.5 |  |  | 4.1 |
Foreign tax rate differential | (0.2 | ) |  | (0.6 | ) |  | (2.4 | )
Nondeductible/nontaxable items | 0.2 |  |  | 1.0 |  |  | 0.7 |
Other | (3.3 | ) |  | 0.2 |  |  | 1.0 |
Effective income tax rate | 32.7 | % |  | 37.1 | % |  | 38.4 | %
At June 30, 2017, we had $700 million 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. This amount decreased from the prior year due to the realignment of foreign subsidiaries in anticipation of closing the acquisition of the Patient Recovery Business. 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) | 2017 |  | 2016
Deferred income tax assets: |  |  |
Receivable basis difference | $ | 42 |  |  | $ | 44 |
Accrued liabilities | 125 |  |  | 133 |
Share-based compensation | 53 |  |  | 56 |
Loss and tax credit carryforwards | 378 |  |  | 193 |
Deferred tax assets related to uncertain tax positions | 51 |  |  | 95 |
Other | 43 |  |  | 46 |
Total deferred income tax assets | 692 |  |  | 567 |
Valuation allowance for deferred income tax assets | (237 | ) |  | (93 | )
Net deferred income tax assets | $ | 455 |  |  | $ | 474 |
Deferred income tax liabilities: |  |  |
Inventory basis differences | $ | (1,578 | ) |  | $ | (1,351 | )
Property-related | (183 | ) |  | (172 | )
Goodwill and other intangibles | (570 | ) |  | (607 | )
Total deferred income tax liabilities | $ | (2,331 | ) |  | $ | (2,130 | )
Net deferred income tax liability | $ | (1,876 | ) |  | $ | (1,656 | )
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) | 2017 |  | 2016
Noncurrent deferred income tax asset (1) | 73 |  |  | 42 |
Noncurrent deferred income tax liability (2) | (1,949 | ) |  | (1,698 | )
Net deferred income tax liability | $ | (1,876 | ) |  | $ | (1,656 | )
(1) | Included in other assets in the consolidated balance sheets.
(2) | Included in deferred income taxes and other liabilities in the consolidated balance sheets.
At June 30, 2017 we had gross federal, state and international loss and credit carryforwards of $225 million, $1,406 million and $590 million, respectively, the tax effect of which is an aggregate deferred tax asset of $378 million. Substantially all of these carryforwards are available for at least three years. Approximately $223 million of the valuation allowance at June 30, 2017 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. The increase in international loss carryforwards and valuation allowances are due to the realignment of foreign subsidiaries in anticipation of closing the acquisition of the Patient Recovery Business. We had $417 million, $527 million and $542 million of unrecognized tax benefits at June 30, 2017, 2016 and 2015, respectively. The June 30, 2017, 2016 and 2015 balances include $268 million, $355 million and $357 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) | 2017 |  | 2016 |  | 2015
Balance at beginning of fiscal year | $ | 527 |  |  | $ | 542 |  |  | $ | 510 |
Additions for tax positions of the current year | 29 |  |  | 22 |  |  | 15 |
Additions for tax positions of prior years | 23 |  |  | 42 |  |  | 69 |
Reductions for tax positions of prior years | (8 | ) |  | (48 | ) |  | (42 | )
Settlements with tax authorities | (154 | ) |  | (30 | ) |  | (10 | )
Expiration of the statute of limitations | — |  |  | (1 | ) |  | — |
Balance at end of fiscal year | $ | 417 |  |  | $ | 527 |  |  | $ | 542 |
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 ("IRS") 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 $0 million to $45 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, 2017, 2016 and 2015, we had $99 million, $145 million and $169 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 2017 and 2015, we recognized $12 million and $24 million of expense for interest and penalties in income tax expense, respectively. During fiscal 2016, we recognized $9 million of benefit 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. During the twelve months ended June 30, 2017, the IRS closed audits of fiscal years 2006 and 2007, which is reflected in our consolidated financial statements and in our evaluation of uncertain tax positions. The settlement had an immaterial impact to our provision for income taxes. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2008 through the current fiscal year. 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 $142 million and $172 million at June 30, 2017 and 2016, 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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