McKesson 2013 Annual Report Download - page 81

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McKESSON CORPORATION
FINANCIAL NOTES (Continued)
The provision for income taxes related to continuing operations consists of the following:
Years Ended March 31,
(In millions) 2013 2012 2011
Current
Federal $ (85) $ 271 $ 283
State and local 14 52 40
Foreign 46 28 54
Total current (25) 351 377
Deferred
Federal 542 129 121
State and local 80 29 1
Foreign (16) 7 6
Total deferred 606 165 128
Income tax provision $ 581 $ 516 $ 505
In 2013, 2012 and 2011, income tax expense included $29 million, $66 million and $34 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. The 2013 federal, state and local current provisions decreased substantially
from prior years due to utilizing alternative minimum tax credit carryforwards.
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. We have also received assessments from the Canada Revenue
Agency (“CRA”) for a total of $199 million related to transfer pricing for 2003 through 2008. 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 and are in the process of filing a notice of
objection for 2008. 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 a significant 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.