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Income Taxes
 12 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Provision for Income Taxes
The provision (benefit) for income taxes the years ended September 30 consisted of:
(Millions of dollars)202220212020
Current:
Federal$17 $72 $(68)
State and local, including Puerto Rico32 42 43 
Foreign228 254 372 
$277 $368 $347 
Deferred:
Domestic$(96)$(284)$(182)
Foreign(33)4 (103)
(129)(280)(285)
Income tax provision$148 $88 $62 
The components of Income from Continuing Operations Before Income Taxes for the years ended September 30 consisted of:
(Millions of dollars)202220212020
Domestic, including Puerto Rico$496 $70 $(579)
Foreign1,287 1,623 993 
Income from Continuing Operations Before Income Taxes$1,783 $1,692 $414 
Unrecognized Tax Benefits
The table below summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. The Company believes it is reasonably possible that the amount of unrecognized benefits will change due to one or more of the following events in the next twelve months: expiring statutes, audit activity, tax payments, other
activity, or final decisions in matters that are the subject of controversy in various taxing jurisdictions in which we operate.
(Millions of dollars)202220212020
Balance at October 1$354 $611 $568 
Increase due to acquisitions2 2 1 
Increase due to current year tax positions40 23 35 
Increase due to prior year tax positions60 5 76 
Decreases due to prior year tax positions— (4)(49)
Decrease due to settlements with tax authorities (77)(183)(4)
Decrease due to lapse of statute of limitations(112)(100)(16)
Balance at September 30$267 $354 $611 
Unrecognized tax benefits that would affect the effective tax rate if recognized$348 $447 $719 
Upon the Company's acquisition of CareFusion in 2015, the Company became a party to a tax matters agreement with Cardinal Health resulting from Cardinal Health's spin-off of CareFusion in fiscal year 2010. Under the tax matters agreement, the Company is obligated to indemnify Cardinal Health for certain tax exposures and transaction taxes prior to CareFusion’s spin-off from Cardinal Health. The indemnification payable is approximately $124 million at September 30, 2022 and is included in Deferred Income Taxes and Other Liabilities on the consolidated balance sheet.
The following were included for the years ended September 30 as a component of Income tax provision (benefit) on the consolidated statements of income.
(Millions of dollars)202220212020
Interest and penalties associated with unrecognized tax benefits
$(6)$5 $1 
The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress in a number of tax jurisdictions. The IRS has completed its audit for the BD legacy fiscal year 2014, BD combined company fiscal years 2015 and 2017 and CareFusion legacy fiscal years 2010 through short period 2015. With regard to Bard, all examinations have been completed through short period 2017. The IRS has commenced its review of BD’s fiscal years 2018 through 2020. For the other major tax jurisdictions where the Company conducts business, tax years are generally open after 2015.
Deferred Income Taxes
Deferred income taxes at September 30 consisted of:
 20222021
(Millions of dollars)AssetsLiabilitiesAssetsLiabilities
Compensation and benefits$430 $— $524 $— 
Property and equipment— 412 — 400 
Intangibles— 2,002 — 2,161 
Loss and credit carryforwards2,185 — 2,107 — 
Product recall and liability reserves133 — 191 — 
Other524 260 549 123 
3,271 2,674 3,370 2,684 
Valuation allowance(2,093)— (2,036)— 
Net (a)$1,178 $2,674 $1,334 $2,684 
(a)Net deferred tax assets are included in Other Assets and net deferred tax liabilities are included in Deferred Income Taxes and Other Liabilities on the consolidated balance sheets.
Deferred tax assets and liabilities are netted on the balance sheet by separate tax jurisdictions. The Company asserts indefinite reinvestment for all historical unremitted foreign earnings as of September 30, 2022. Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries as of September 30, 2022 since the determination of the total amount of unrecognized deferred tax liability is not practicable.
Generally, deferred tax assets have been established as a result of net operating losses and credit carryforwards with expiration dates from 2023 to an unlimited expiration date. Valuation allowances have been established as a result of an evaluation of the uncertainty associated with the realization of certain deferred tax assets on these losses and credit carryforwards. The valuation allowance at September 30, 2022 is primarily the result of foreign losses due to the Company’s global re-organization of its foreign entities and these generally have no expiration date. Valuation allowances are also maintained with respect to deferred tax assets for certain state carryforwards that may not be realized.
Tax Rate Reconciliation
A reconciliation of the federal statutory tax rate to the Company’s effective income tax rate for continuing operations was as follows:
202220212020
Federal statutory tax rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal tax benefit(1.1)(2.7)(5.3)
Foreign income tax at rates other than 21%(7.3)(6.4)(17.6)
Effect of foreign operations5.6 (1.0)44.5 
Effect of Research Credits and FDII/Domestic Production Activities(2.2)(2.0)(11.1)
Effect of share-based compensation(1.7)0.1 (10.7)
Effect of gain on divestitures— — (10.6)
Effect of valuation allowance release(5.5)(2.2)2.2 
Other, net(0.5)(1.6)2.5 
Effective income tax rate8.3 %5.2 %14.9 %
The fluctuations in the Company’s reported tax rates are primarily due to the geographical mix of income attributable to foreign countries that have income tax rates that vary from the U.S. tax rate.
Tax Holidays and Payments
The approximate tax impacts related to tax holidays in various countries in which the Company does business are provided below. The tax holidays expire at various dates through 2028. The Company’s income tax payments, net of refunds are also provided below.
(Millions of dollars, except per share amounts)202220212020
Tax impact related to tax holidays$284 $243 $132 
Impact of tax holiday on diluted earnings per share0.99 0.83 0.47 
Income tax payments, net of refunds532 671 523