Income Taxes

3 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

During the three months ended June 30, 2022 and 2021, the Company recorded income tax expense of $199 million and $26 million, respectively. The Company’s reported income tax expense rate was 19.8% and 4.6% for the three months ended June 30, 2022 and 2021, respectively. Fluctuations in the Company’s reported income tax rates are primarily due to discrete benefits recognized in the quarter. During the three months ended June 30, 2022, the Company recognized a net discrete tax benefit of $45 million primarily related to the tax impact of share-based compensation. During the three months ended June 30, 2021, the Company recognized a net discrete tax benefit of $97 million primarily related to statute of limitation expirations in various taxing jurisdictions.

As of June 30, 2022, the Company had $1.5 billion of unrecognized tax benefits, of which $1.3 billion would reduce income tax expense and the effective tax rate if recognized. During the next twelve months, it is reasonably possible that our unrecognized tax benefits may decrease by as much as $150 million to $190 million due to settlements of tax examinations and statute of limitation expirations based on the information currently available. However, this may change as the Company continues to have ongoing discussions with various taxing authorities throughout the year or statute of limitations expire, and if the ultimate resolution of unrecognized tax benefits differs from this estimated range, the Company will record any additional income tax expense or benefit as necessary in the appropriate period. The unrecognized tax benefit may also increase or decrease due to future developments in opioid-related litigation and claims, as discussed in Financial Note 12, “Commitments and Contingent Liabilities.”

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Internal Revenue Service (“IRS”) is currently examining the Company’s U.S. corporation income tax returns for 2018 and 2019. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal years 2014 through the current fiscal year.