Income Taxes

12 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 16. INCOME TAXES

For purposes of the Company’s Financial Statements for the periods prior to the Distribution, the income tax provision in the Statements of Operations was calculated as if FOX filed a separate tax return and was operating as a standalone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of FOX’s actual tax balances prior to or subsequent to the Distribution.

Income before income tax (expense) benefit was attributable to the U.S. jurisdiction. Significant components of the Company’s provision for income taxes were as follows:

	For the years ended June 30,
	2020		2019		2018
	(in millions)
U.S.
Federal	$	110	$	127	$	481
State, local and other		9		68		64
Total current		119		195		545
Deferred		283		386		(603	)
Provision for income taxes	$	402	$	581	$	(58	)

The reconciliation of income tax computed at the statutory rate to income tax (expense) benefit was:

	For the years ended June 30,
	2020				2019			2018
U.S. federal income tax rate		21		%		21	%		28		%
Impact of U.S. tax reform(a)		-				-			(28	)
State and local taxes		4				4			4
Nondeductible compensation		2				-			-
Valuation allowance movements		1				-			(3	)
Adjustments for tax matters, net		(1	)			-			(1	)
Domestic production activities deduction		-				-			(2	)
Other		-				1			(1	)
Effective tax rate		27		%		26	%		(3	)	%

^(a) On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) which, among other things, lowered the U.S corporate income tax rates. Since the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for fiscal 2018, and 21% for subsequent fiscal years. As of June 30, 2018, the Company recorded a provisional net tax benefit of $607 million to adjust its net deferred tax liability position to reflect the new federal statutory rate of 21% (35% prior to the Tax Act). In fiscal 2019, in accordance with SEC guidance, the Company finalized its analysis and did not materially modify the provisional amounts previously recorded in the financial statements.

The following is a summary of the components of the deferred tax accounts:

	As of June 30,
	2020			2019
	(in millions)
Deferred tax assets
Basis difference(a)	$	4,176		$	4,574
Operating lease liabilities		140			-
Pension benefit obligations		93			50
Equity-based compensation		31			17
Accrued liabilities		31			5
Net operating loss carryforwards		28			107
Other		120			68
Total deferred tax assets		4,619			4,821
Deferred tax liabilities
Operating lease ROU assets		(133	)		-
Sports rights contracts		(110	)		(164	)
Total deferred tax liabilities		(243	)		(164	)
Net deferred tax asset before valuation allowance		4,376			4,657
Less: valuation allowance		(20	)		(6	)
Total net deferred tax assets(b)	$	4,356		$	4,651

^(a) As a result of the Separation and the Distribution, which was a taxable transaction for which the estimated tax liability of $5.8 billion was included in the Transaction Tax paid by the Company, FOX obtained a tax basis in its assets equal to their respective fair market values. This amount includes the additional estimated deferred tax asset recorded as a result of the increased tax basis (See Note 1—Description of Business and Basis of Presentation under the heading “Basis of Presentation”).

^(b) Includes a $2 million deferred tax liability recorded in Other liabilities on the Consolidated Balance Sheet as of June 30, 2020.

As of June 30, 2020, the Company had $28 million of tax attributes from net operating loss carryforwards available to offset future taxable income. A substantial portion of these losses can be carried forward indefinitely. The Company also had $10 million of tax attributes from capital loss carry forwards available to offset future capital gains. These capital losses can be carried forward five years.

The net increase in the valuation allowance to $20 million as of June 30, 2020 was primarily due to the capital loss generated by the sale of the Company’s investment in Roku in March 2020.

The following table sets forth the change in the uncertain tax positions, excluding interest and penalties:

	For the years ended June 30,
	2020				2019			2018
	(in millions)
Balance, beginning of year	$	94			$	91		$	110
Additions for prior year tax positions		1				7			1
Additions for current year tax positions		2				9			-
Reduction for prior year tax positions		(24	)	(a)		(13	)		(20	)
Balance, end of year	$	73			$	94		$	91

^(a) The reduction for prior year tax positions in fiscal 2020 includes $21 million from the expiration of statutes of limitations.

The Company recognizes interest and penalty charges related to uncertain tax positions as income tax (expense) benefit. The Company recorded liabilities for accrued interest of $22 million and $26 million as of June 30, 2020 and 2019, respectively, and the amounts of interest income/expense recorded in each of the three fiscal years 2020, 2019 and 2018 were not material.

The Company is subject to tax in various domestic jurisdictions and, as a matter of ordinary course, the Company is regularly audited by federal and state tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not anticipate that the resolution of these pending tax matters will have a material adverse effect on its combined financial condition, future results of operations or liquidity. The net decrease to the balance of uncertain tax positions in fiscal 2020 is primarily attributable to state matters. The Company does not expect significant changes to these positions over the next 12 months. As of June 30, 2020 and 2019, $58 million and $74 million, respectively, would affect the Company’s effective income tax rate if the Company’s position with respect to the uncertainties is sustained.