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Income Taxes | 6 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | 7. Income Taxes Fluctuations in our benefit from income taxes as a percentage of pretax earnings/(loss) (“effective tax rate”) are due to changes in international and U.S. state effective tax rates resulting from our business mix and discrete items. Tax Effects of Goodwill Impairment Charge During the six months ended December 31, 2021, we recognized a $1.3 billion pre-tax charge for goodwill impairment related to the Medical Unit. The net tax benefit related to this charge is $92 million for fiscal 2022. Unless an item is considered discrete because it is unusual or infrequent, the tax impact of the item is included in our estimated annual effective tax rate. When items are recognized through our estimated annual effective tax rate, we apply our estimated annual effective tax rate to the earnings/(loss) before income taxes for the year-to-date period to compute our benefit from income taxes for the current quarter and year-to-date period. The tax impacts of discrete items are recognized in their entirety in the period in which they occur. The tax effect of the goodwill impairment charge during the three months ended December 31, 2021 was included in our estimated annual effective tax rate because it was not considered unusual or infrequent, given that we recorded goodwill impairment in prior fiscal years. The impact of the non-deductible goodwill significantly increased the estimated annual effective tax rate for fiscal 2022. Applying the higher tax rate to the current quarter loss resulted in recognizing an interim tax benefit of approximately $1.0 billion, which impacted the benefit from income taxes in the condensed consolidated statements of earnings during the three months and six months ended December 31, 2021 and prepaid expenses and other assets in the condensed consolidated balance sheets at December 31, 2021. This interim tax benefit will reverse in future quarters of fiscal 2022. Cordis Divestiture During the six months ended December 31, 2021, we completed the divestiture of the Cordis business. In connection with the closing, we recorded net tax expense of $10 million and $19 million during the three and six months ended December 31, 2021, respectively. The tax effects of these matters during the six months ended December 31, 2021 were included in our full year effective tax rate forecast. We currently estimate the tax expense associated with this matter for the full fiscal 2022 will be $38 million. Tax Effects of Self-Insurance Pre-tax Loss During the three months ended December 31, 2020, our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, is currently deductible on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss is being carried back and applied to adjust our taxable income for fiscal 2015, 2016, 2017, and 2018 as permitted under the Coronavirus Aid, Relief and Economic Security ("CARES") Act enacted by the United States Congress in March 2020. Accordingly, our provision for income taxes during the three months ended December 31, 2020 included a $420 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent. We have filed for a U.S. federal income tax refund of $974 million as a result of the net operating loss carryback under the CARES Act, which we expect to receive within 12 months, and accordingly have a current asset on our condensed consolidated balance sheets at December 31, 2021. We also increased our non-current deferred tax liability by approximately $700 million during the six months ended December 31, 2020 related to this matter. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of tax law; however, it is possible that the tax authorities could challenge these tax benefits. The actual amount of the tax benefit may differ materially from these estimates. Tax Effects of Opioid Litigation Charges In connection with the $1.02 billion pre-tax charges for the opioid litigation recorded during the six months ended December 31, 2020, the net tax benefits were approximately $300 million for the six months ended December 31, 2020 and $228 million for fiscal 2021. Our tax benefits are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $34 million during the six months ended December 31, 2020, and $219 million for fiscal 2021. We have recognized no tax benefit associated with Opioid accruals made in fiscal 2022. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the U.S. Tax Cuts and Jobs Act ("Tax Act"); however, these estimates require significant judgment since the U.S. tax law governing deductibility was changed by the Tax Act. Further, it is possible Congress or the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit may differ materially from these estimates. Effective Tax Rate During the three months ended December 31, 2021 and 2020, the effective tax rate was 105.0 percent and (47.6) percent, respectively. The effective tax rate for the three months ended December 31, 2021 reflects the impact of the tax effect of the goodwill impairment charge being included in our estimated annual effective tax rate. The estimated annual effective tax rate for the three months ended December 31, 2020 included the benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss, partially offset by the treatment of the tax impacts of the opioid litigation accrual recorded in the prior year. During the six months ended December 31, 2021 and 2020, the effective tax rate was 153.1 percent and 259.7 percent. The effective tax rate for the six months ended December 31, 2021 reflects the impact of the tax effect of the goodwill impairment charge being included in our estimated annual effective tax rate. The effective tax rate for the six months ended December 31, 2020 included the benefit from a net operating loss carryback primarily related to a self-insurance pre-tax loss and net tax benefit related to the treatment of the tax impacts of opioid litigation charges. Unrecognized Tax Benefits We had $937 million and $932 million of unrecognized tax benefits, at December 31, 2021 and June 30, 2021 respectively. The December 31, 2021 and June 30, 2021 balances include $854 million and $849 million of unrecognized tax benefits, respectively, that if recognized, would have an impact on the effective tax rate. At December 31, 2021 and June 30, 2021, we had $45 million and $49 million, respectively, accrued for the payment of interest and penalties related to unrecognized tax benefits, which we recognize in the provision for/(benefit from) income taxes in the condensed consolidated statements of earnings. These balances are gross amounts before any tax benefits and are included in deferred income taxes and other liabilities in the condensed consolidated balance sheets. 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 IRS and other 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 between zero and a net decrease of up to $20 million, exclusive of penalties and interest. Other Tax Matters We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2015 through 2020. We are a party to a tax matters agreement with CareFusion Corporation ("CareFusion"), a subsidiary of 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 $72 million at both December 31, 2021 and June 30, 2021, and is included in other assets in the condensed consolidated balance sheets. As a result of the acquisition of the Patient Recovery Business, Medtronic plc is obligated to indemnify us for certain tax exposures and transaction taxes related to periods prior to the acquisition under the purchase agreement. The indemnification receivable was $3 million at December 31, 2021 and $12 million at June 30, 2021, respectively, and is included in other assets in the condensed 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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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