McKesson 2012 Annual Report Download - page 77

McKESSON CORPORATION
FINANCIAL NOTES (Continued)
73
6. Income Taxes
Years Ended March 31,
(In millions) 2012 2011 2010
Income from continuing operations before income taxes
U.S. $ 1,316 $ 1,161 $ 1,340
Foreign 603 474 524
Total income from continuing operations before
income taxes $ 1,919 $ 1,635 $ 1,864
The provision for income taxes related to continuing operations consists of the following:
Years Ended March 31,
(In millions) 2012 2011 2010
Current
Federal $ 271 $ 283 $ 255
State and local 52 40 25
Foreign 28 54 44
Total current 351 377 324
Deferred
Federal 129 121 269
State and local 29 1 13
Foreign 7 6 (5)
Total deferred 165 128 277
Income tax provision $ 516 $ 505 $ 601
In 2012, 2011 and 2010, income tax expense included $66 million, $34 million and $7 million of net income tax
benefits for discrete items, which primarily relate to the recognition of previously unrecognized tax benefits and
accrued interest. Included in the 2012 discrete tax benefit, is a $31 million credit to income tax expense as a result
of the reversal of an income tax reserve relating to our AWP litigation.
We have received tax assessments of $98 million from the U.S. Internal Revenue Service (“IRS”) relating to
2003 through 2006. We disagree with a substantial portion of the tax assessments primarily relating to transfer
pricing. We are pursuing administrative relief through the appeals process and an opening conference has been
scheduled for May 15, 2012. We have also received assessments from the Canada Revenue Agency (“CRA”) for a
total of $169 million related to transfer pricing for 2003 through 2007. Payments of most of the assessments to the
CRA have been made to stop the accrual of interest. We have appealed the assessment for 2003 to the Tax Court of
Canada and have filed a notice of objection for 2004 through 2007. The trial between McKesson Canada
Corporation and the CRA, argued in the Tax Court of Canada, concluded in early February 2012, and we are waiting
for the decision. We continue to believe in the merits of our tax positions and that we have adequately provided for
any potential adverse results relating to these examinations in our financial statements. However, the final
resolution of these issues could result in an increase or decrease to income tax expense.
In November 2011, the IRS began its examination of 2007 through 2009. We anticipate the audit fieldwork will
last more than two years. In nearly all jurisdictions, the tax years prior to 2003 are no longer subject to examination.
Significant judgments and estimates are required in determining the consolidated income tax provision and
evaluating income tax uncertainties. Although our major taxing jurisdictions are the U.S. and Canada, we are
subject to income taxes in numerous foreign jurisdictions. Our income tax expense, deferred tax assets and
liabilities and uncertain tax liabilities reflect management’s best assessment of estimated current and future taxes to
be paid. We believe that we have made adequate provision for all income tax uncertainties.