Annual report pursuant to Section 13 and 15(d)

Taxes

v2.4.0.6
Taxes
12 Months Ended
Jan. 28, 2012
Taxes Payable [Abstract]  
Taxes
Taxes
Income tax expense is as follows:
 
 
2011
 
2010
 
2009
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
Current
 
Deferred
 
Total
 
(millions)
Federal
$
519

 
$
144

 
$
663

 
$
217

 
$
234

 
$
451

 
$
48

 
$
84

 
$
132

State and local
43

 
6

 
49

 
12

 
10

 
22

 
9

 
37

 
46

 
$
562

 
$
150

 
$
712

 
$
229

 
$
244

 
$
473

 
$
57

 
$
121

 
$
178



The income tax expense reported differs from the expected tax computed by applying the federal income tax statutory rate of 35% for 2011, 2010 and 2009 to income before income taxes. The reasons for this difference and their tax effects are as follows:
 
 
2011
 
2010
 
2009
 
(millions)
Expected tax
$
689

 
$
462

 
$
177

State and local income taxes, net of federal income tax benefit
31

 
14

 
30

Settlement of federal tax examinations

 

 
(21
)
Other
(8
)
 
(3
)
 
(8
)
 
$
712

 
$
473

 
$
178



The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program ("CAP"). As part of the CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of the 2010, 2009 and 2008 tax years. During the fourth quarter of 2009, the Company settled IRS examinations for fiscal years 2007 and 2006. As a result of the settlement, the Company recognized previously unrecognized tax benefits and related accrued interest, primarily attributable to the disposition of former subsidiaries.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
 
 
January 28,
2012
 
January 29,
2011
 
(millions)
Deferred tax assets:
 
 
 
Post employment and postretirement benefits
$
559

 
$
473

Accrued liabilities accounted for on a cash basis for tax purposes
227

 
195

Long-term debt
109

 
117

Unrecognized state tax benefits and accrued interest
77

 
91

State operating loss carryforwards
52

 
61

Other
155

 
144

Valuation allowance
(34
)
 
(35
)
Total deferred tax assets
1,145

 
1,046

Deferred tax liabilities:
 
 
 
Excess of book basis over tax basis of property and equipment
(1,733
)
 
(1,793
)
Merchandise inventories
(531
)
 
(483
)
Intangible assets
(195
)
 
(162
)
Other
(235
)
 
(217
)
Total deferred tax liabilities
(2,694
)
 
(2,655
)
Net deferred tax liability
$
(1,549
)
 
$
(1,609
)


The valuation allowance at January 28, 2012 and January 29, 2011 relates to net deferred tax assets for state net operating loss carryforwards. The net change in the valuation allowance amounted to a decrease of $1 million for 2011 and an increase of $2 million for 2010.
As of January 28, 2012, the Company had no federal net operating loss carryforwards and state net operating loss carryforwards of approximately $1,079 million, which will expire between 2012 and 2031.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 
 
January 28,
2012
 
January 29,
2011
 
(millions)
Balance, beginning of period
$
205

 
$
207

Additions based on tax positions related to the current year
23

 
19

Additions for tax positions of prior years

 

Reductions for tax positions of prior years
(21
)
 
(8
)
Settlements
(15
)
 
(4
)
Statute expirations
(13
)
 
(9
)
Balance, end of period
$
179

 
$
205

Amounts recognized in the Consolidated Balance Sheets at
   January 28, 2012 and January 29, 2011
 
 
 
Current income taxes
$
18

 
$
11

Long-term deferred income taxes
27

 
24

Other liabilities
134

 
170

 
$
179

 
$
205



As of January 28, 2012 and January 29, 2011, the amount of unrecognized tax benefits, net of deferred tax assets, that, if recognized would affect the effective income tax rate, was $116 million and $133 million, respectively.
The Company classifies unrecognized tax benefits not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets.
The Company classifies federal, state and local interest and penalties not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets and follows a policy of recognizing all interest and penalties related to unrecognized tax benefits in income tax expense. Federal, state and local interest and penalties, which amounted to a credit of $2 million for 2011, a charge of $5 million for 2010, and a charge of $4 million for 2009, are reflected in income tax expense.
The Company had approximately $69 million and $80 million accrued for the payment of federal, state and local interest and penalties at January 28, 2012 and January 29, 2011, respectively. The accrued federal, state and local interest and penalties primarily relates to state tax issues and the amount of penalties paid in prior periods, and the amount of penalties accrued at January 28, 2012 and January 29, 2011 are insignificant. At January 28, 2012, approximately $60 million of federal, state and local interest and penalties is included in other liabilities and $9 million is included in current income taxes on the Consolidated Balance Sheets.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2008. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years before 2002. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been accrued for any adjustments that are expected to result from the years still subject to examination.