McKesson 2009 Annual Report Download - page 94

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
88
The provision for income taxes related to continuing operations consists of the following:
Years Ended March 31,
(In millions) 2009 2008 2007
Current
Federal $ 177 $ 189 $ 71
State and local (111) 59 69
Foreign 35 22 22
Total current 101 270 162
Deferred
Federal 69 178 204
State and local 62 16 (18)
Foreign 9 4 (19)
Total deferred 140 198 167
Income tax provision $ 241 $ 468 $ 329
In 2009, we recorded a total income tax expense of $241 million, which included an income tax benefit of $182
million related to the Average Wholesale Price (“AWP”) Litigation charge described in more detail in Financial
Note 18, “Other Commitments and Contingent Liabilities.” The tax benefit could change in the future depending on
the resolution of the pending and expected claims.
In 2009, current income tax expense included $111 million of net income tax benefits for discrete items, which
primarily relate to the recognition of previously unrecognized tax benefits and related accrued interest. The
recognition of these discrete items is primarily due to the lapsing of the statutes of limitations. Of the $111 million
of net current tax benefits, $87 million represents a non-cash benefit to McKesson. In accordance with SFAS No.
109, “Accounting for Income Taxes,” the net tax benefit is included in our income tax expense from continuing
operations.
In June 2008, the U.S. Internal Revenue Service (“IRS”) began its examination of fiscal years 2003 through
2006. On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (“Stabilization Act”), which
included a retroactive reinstatement of the federal research and development credit, was signed into law. The
Stabilization Act extends the federal research and development credit to December 31, 2009. In 2009, we recorded
a benefit to our income tax provision as a result of these research and development credits. In Canada, we received
an assessment from the Canada Revenue Agency (“CRA”) for a total of $19 million related to transfer pricing for
2004. We plan to appeal the assessment. We believe we have adequately provided for any potential adverse results
for 2004 and future years. In nearly all jurisdictions, the tax years prior to 2003 are no longer subject to
examination. We believe that we have made adequate provision for all remaining income tax uncertainties.
In 2008, the IRS completed an examination of our consolidated income tax returns for 2000 to 2002 resulting in
a signed Revenue Agent Report (“RAR”), which was approved by the Joint Committee on Taxation during the third
quarter of 2008. The IRS and the Company have agreed to certain adjustments, primarily related to transfer pricing
and income tax credits. As a result of the approved RAR, we recognized approximately $25 million of net federal
and state income tax benefits. In Canada, we received an assessment from the CRA for a total of $9 million related
to transfer pricing for 2003. We have filed an appeal with the Tax Court of Canada. We believe we have
adequately provided for any potential adverse results for 2003. During 2008, we also favorably concluded various
foreign examinations, which resulted in the recognition of approximately $4 million of income tax benefits. Income
tax expense for 2008 was also impacted by a non-tax deductible $13 million increase in a legal reserve.