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Income Taxes
 12 Months Ended
Jun. 30, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
8. Income Taxes
Earnings/(Loss) before Income Taxes and Provision for/(Benefit From) Income Taxes
The following table summarizes earnings/(loss) before income taxes:
(in millions)202320222021
U.S. operations$291 $(1,000)$(47)
Non-U.S. operations347 231 370 
Earnings/(loss) before income taxes$638 $(769)$323 
The following table summarizes the components of provision for/(benefit from) income taxes:
(in millions)202320222021
Current:
Federal$254 $34 $(989)
State and local69 29 92 
Non-U.S.84 93 112 
Total current$407 $156 $(785)
Deferred:
Federal$(8)$30 $539 
State and local13 (22)(28)
Non-U.S.(36)(1)(15)
Total deferred$(31)$7 $496 
Provision for/(benefit from) income taxes$376 $163 $(289)

Tax Effects of Goodwill Impairment Charges
During fiscal 2023 and 2022, we recognized cumulative pre-tax goodwill impairment charges of $1.2 billion and $2.1 billion, respectively, related to the Medical Unit. The net tax benefits related to these charges were $82 million and $150 million during fiscal 2023 and 2022, respectively.
Tax Effects of Self-Insurance Pre-Tax Loss
During fiscal 2021, 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, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was 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 fiscal 2021 included a $424 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.
In fiscal 2021, we filed for a refund of $974 million and in April 2022, we received a payment for $966 million, which was net of certain adjustments. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 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 $1.17 billion pre-tax charge for the opioid litigation recorded during fiscal 2021, the net tax benefit was approximately $228 million. 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 $219 million.
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
The following table presents a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate:
 202320222021
Provision at Federal statutory rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit6.6 2.2 3.2 
Tax effect of foreign operations(4.2)3.5 0.7 
Nondeductible/nontaxable items(1.1)1.2 1.6 
Impact of Divestitures— (4.9)7.0 
Withholding Taxes1.0 (1.1)9.0 
Change in Valuation Allowances(5.3)3.5 (1.4)
US Taxes on International Income (2)
(0.7)3.2 (6.7)
Impact of Resolutions with IRS and other related matters 5.8 (0.6)(13.6)
Opioid litigation0.1 (0.5)17.7 
Goodwill Impairment36.9 (49.5)— 
Loss Carryback Claims— — (129.9)
Other (1.2)0.8 1.7 
Effective income tax rate58.9 %(21.2)%(89.7)%
(1)    This table reflects fiscal 2023 pretax income with tax expense, fiscal 2022 pretax loss with tax expense and fiscal 2021 pretax income with tax benefit.
(2)    Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.
The income tax rate was 58.9% and (21.2)% in fiscal 2023 and fiscal 2022 compared to an income tax benefit rate of (89.7)% in fiscal 2021. Fluctuations in the effective tax rates are primarily due to the impact of goodwill impairment in fiscal 2023 and 2022, impact of opioid litigation in fiscal 2021, as well as the impact of the carryback claim filed in accordance with the CARES Act provision in fiscal year 2021. Additionally, laws governing insurance coverage vary by state and some state courts have interpreted laws and insurance policies in ways that may impact our self-insurance loss, which could negatively impact our financial position.
Our effective tax rate has benefits from negotiated lower than statutory tax rates in select foreign jurisdictions which individually are not material to our effective tax rate but in aggregate had a favorable tax impact of approximately $27 million during fiscal 2023.
As of June 30, 2023, foreign earnings of approximately $976 million are considered indefinitely reinvested for working capital and other offshore investment needs. The computation of tax required if those earnings are repatriated is not practicable. For amounts not considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our consolidated financial statements in fiscal 2023.
Deferred Income Taxes
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)20232022
Deferred income tax assets:
Receivable basis difference$44 $41 
Accrued liabilities704 675 
Share-based compensation29 34 
Loss and tax credit carryforwards671 778 
Deferred tax assets related to uncertain tax positions39 33 
Other53 23 
Total deferred income tax assets1,540 1,584 
Valuation allowance for deferred income tax assets(421)(468)
Net deferred income tax assets$1,119 $1,116 
Deferred income tax liabilities:
Inventory basis differences$(1,229)$(1,164)
Property-related(336)(288)
Goodwill and other intangibles(624)(683)
Self-Insurance(975)(975)
Total deferred income tax liabilities$(3,164)$(3,110)
Net deferred income tax liability
$(2,045)$(1,994)
Deferred income tax assets and liabilities in the preceding table, after netting by taxing jurisdiction and for uncertain tax positions, are in the following captions in the consolidated balance sheets at June 30:
(in millions)20232022
Noncurrent deferred income tax asset (1)$53 $36 
Noncurrent deferred income tax liability (2)(2,096)(2,030)
Noncurrent deferred income tax liability transferred to held for sale(2)— 
Net deferred income tax liability$(2,045)$(1,994)
(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, 2023 we had gross federal, state and international loss and credit carryforwards of $505 million, $3.4 billion and $2.1 billion, respectively, the tax effect of which is an aggregate deferred tax asset of $671 million. Substantially all of these carryforwards are available for at least three years. Approximately $403 million of the valuation allowance at June 30, 2023 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.
Unrecognized Tax Benefits
We had $1.0 billion, $943 million and $932 million of unrecognized tax benefits at June 30, 2023, 2022 and 2021, respectively. The June 30, 2023, 2022 and 2021 balances include $873 million, $858 million and $849 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)202320222021
Balance at beginning of fiscal year$943 $932 $998 
Additions for tax positions of the current year25 7 121 
Additions for tax positions of prior years133 39 223 
Reductions for tax positions of prior years(16)(19)(138)
Settlements with tax authorities (73)(12)(271)
Expiration of the statute of limitations (2)(4)(1)
Balance at end of fiscal year
$1,010 $943 $932 

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 between zero and a net decrease of up to $50 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, 2023, 2022 and 2021, we had $65 million, $48 million and $49 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. As a result of our IRS audit settlements and carryback claim, an immaterial amount of interest was recorded in fiscal 2023, 2022 and 2021.
Other Tax Matters
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 2015 through the current fiscal year.
Expiring or unusable loss and credit carryforwards and the required valuation allowances are adjusted quarterly based on available information. This information may support either an increase or a decrease in the required valuation allowance. After applying the valuation allowances, we do not anticipate any limitations on our use of any of the other net deferred income tax assets described above. We operate in a complex multinational tax environment and are subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions that are subject to interpretation. Uncertainty in a tax position may arise as tax laws are subject to interpretation.
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 $82 million and $75 million at June 30, 2023 and 2022, respectively, and is included in other assets in the consolidated balance sheets.