INCOME TAXES

Our (provision for)/benefit from income taxes consists of:



($ in millions)		2011			2010			2009
Current	-U.S. Federal	$	53		$	117		$	(169	)
	-U.S. State	—			(7		)	(12		)
	-Non-U.S.	(55		)	(51		)	(61		)
		(2		)	59			(242		)

Deferred	-U.S. Federal	(116		)	(150		)	234
	-U.S. State	(10		)	(14		)	28
	-Non-U.S.	(30		)	12			45
		(156		)	(152		)	307
		$	(158	)	$	(93	)	$	65

Our current tax provision does not reflect the benefits or costs attributable to us for the exercise or vesting of employee share-based awards of benefits of $55 million in 2011, benefits of $51 million in 2010, and costs of $8 million in 2009. The preceding table includes tax credits of $4 million in 2011, $2 million in 2010, and $2 million in 2009. The taxes applicable to other comprehensive income are $14 million in 2011 and were not material for 2010 and 2009.

We have made no provision for U.S. income taxes or additional non-U.S. taxes on the cumulative unremitted earnings of non-U.S. subsidiaries ($451 million as of year-end 2011) because we consider these earnings to be indefinitely reinvested. These earnings could become subject to additional taxes if remitted as dividends, loaned to us or a U.S. affiliate or if we sold our interests in the affiliates. We cannot practically estimate the amount of additional taxes that might be payable on the unremitted earnings.

We conduct business in countries that grant “holidays” from income taxes for 5 to 30 year periods. These holidays expire through 2034. Without these tax “holidays,” we would have incurred the following aggregate income taxes and related earnings per share impacts: $1 million (less than $0.01 per diluted share) in 2011; $7 million ($0.02 per diluted share) in 2010; and $4 million ($0.01 per diluted share) in 2009.

We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. We filed an IRS refund claim relating to 2000 and 2001 for certain software development costs. The IRS disallowed the claims, and in July 2009, we protested the disallowance. We settled this issue with the IRS in the 2011 second quarter resulting in a refund of $3 million relating to 2000 and $5 million relating to 2001.

In 2011, we recorded an income tax expense of $34 million to write-off certain deferred tax assets that we transferred to MVW in conjunction with the spin-off of our timeshare operations and timeshare development business. We impaired these assets because we considered it "more likely than not" that MVW will be unable to realize the value of those deferred tax assets. Please see Footnote No. 17, “Spin-off” for additional information regarding the transaction.

In the 2010 fourth quarter, we reached a settlement with the IRS Appeals Division resolving all issues that arose in the audit of tax years 2005 through 2008. This settlement resulted in an $85 million decrease in our tax expense for 2010 due to the release of tax liabilities we had previously established for the treatment of funds we received from non-U.S. subsidiaries. Additionally, our 2010 income tax expense reflected a $12 million benefit we recorded primarily associated with revisions to estimates of prior years’ foreign income tax expenses.

In 2009, we recorded an income tax expense of $52 million primarily related to the treatment of funds received from non-U.S. subsidiaries. This issue has been settled as noted above.

The IRS has examined our federal income tax returns, and we have settled all issues for tax years through 2009. We participated in the IRS Compliance Assurance Program (“CAP”) for the 2011 and 2010 tax years and also expect to participate for 2012. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Various income tax returns are also under examination by foreign, state and local taxing authorities.

We had total unrecognized tax benefits of $39 million at year-end 2011, $39 million at year-end 2010, and $249 million at year-end 2009. These unrecognized tax benefits reflect the following year-over-year changes: (1) no net change in 2011, although 2011 included increases such as positions related to the spin-off of our timeshare operations, and decreases such as the closing of the 2005 - 2008 IRS audits, the re-measurement of existing positions, and the lapse of statutes of limitations; (2) a $210 million decrease in 2010, primarily reflecting the settlement with IRS Appeals of the 2005-2008 tax years; and (3) a $108 million increase in 2009, primarily representing an increase for the treatment of funds received from non-U.S. subsidiaries due to our then current exposure.

As a large taxpayer, the IRS and other taxing authorities continually audit us. Although we do not anticipate that a significant impact to our unrecognized tax benefit balance will occur during the next 52 weeks as a result of these audits, it remains possible that the amount of our liability for unrecognized tax benefits could change over that time period.

Our unrecognized tax benefit balances included $24 million at year-end 2011, $26 million at year-end 2010, and $136 million at year-end 2009 of tax positions that, if recognized, would impact our effective tax rate.

The following table reconciles our unrecognized tax benefit balance for each year from the beginning of 2009 to the end of 2011:



($ in millions)	Amount
Unrecognized tax benefit at beginning of 2009	$	141
Change attributable to tax positions taken during a prior period	99
Change attributable to tax positions taken during the current period	22
Decrease attributable to settlements with taxing authorities	(10		)
Decrease attributable to lapse of statute of limitations	(3		)
Unrecognized tax benefit at end of 2009	249
Change attributable to tax positions taken during a prior period	(187		)
Change attributable to tax positions taken during the current period	25
Decrease attributable to settlements with taxing authorities	(47		)
Decrease attributable to lapse of statute of limitations	(1		)
Unrecognized tax benefit at end of 2010	39
Change attributable to tax positions taken during a prior period	(10		)
Change attributable to withdrawal of tax positions previously taken or expected to be taken	(6		)
Change attributable to tax positions taken during the current period	19
Decrease attributable to settlements with taxing authorities	—
Decrease attributable to lapse of statute of limitations	(3		)
Unrecognized tax benefit at end of 2011	$	39

In accordance with our accounting policies, we recognize accrued interest and penalties related to our unrecognized tax benefits as a component of tax expense. Related interest expense totaled $1 million in 2011, $2 million in 2010, and $2 million in 2009. Accrued interest expense totaled $3 million in 2011, $4 million in 2010 and $28 million in 2009.

Deferred Income Taxes

Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases, as well as from net operating loss and tax credit carry-forwards. We state those balances at the enacted tax rates we expect will be in effect when we actually pay or recover the taxes. Deferred income tax assets represent amounts available to reduce income taxes we will pay on taxable income in future years. We evaluate our ability to realize these future tax deductions and credits by assessing whether we expect to have sufficient future taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies to utilize these future deductions and credits. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized.

Total deferred tax assets and liabilities as of year-end 2011 and year-end 2010, were as follows:



($ in millions)	2011			2010
Deferred tax assets	$	1,145		$	1,236
Deferred tax liabilities	(18		)	(100		)
Net deferred taxes	$	1,127		$	1,136

The following table details the composition of the net deferred tax balances at year-end 2011 and 2010.



($ in millions) Balance Sheet Caption	At Year-End 2011			At Year-End 2010
Current deferred taxes, net	$	282		$	246
Long-term deferred taxes, net	873			932
Current liabilities, other	(13		)	(19		)
Long-term liabilities, other	(15		)	(23		)
Net deferred taxes	$	1,127		$	1,136

The tax effect of each type of temporary difference and carry-forward that gives rise to a significant portion of our deferred tax assets and liabilities as of year-end 2011 and year-end 2010, were as follows:



($ in millions)	2011			2010
Self-insurance	$	20		$	22
Employee benefits	295			296
Deferred income	15			18
Reserves	64			213
Frequent guest program	42			104
Joint venture interests	(8		)	99
ASC 740 deferred taxes	5			5
Tax credits	281			235
Net operating loss carry-forwards	467			204
Timeshare financing	—			—
Property, equipment, and intangible assets	(10		)	18
Other, net	28			(16		)
Deferred taxes	1,199			1,198
Less: valuation allowance	(72		)	(62		)
Net deferred taxes	$	1,127		$	1,136

At year-end 2011, we had approximately $48 million of tax credits that expire through 2031 and $232 million of tax credits that do not expire. We recorded $332 million of net operating loss benefits in 2011 and $21 million in 2010. At year-end 2011, we had approximately $3.3 billion of net operating losses, of which $2.8 billion expire through 2031.

Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate

The following table reconciles the U.S. statutory tax rate to our effective income tax rate:



	2011		2010		2009
U.S. statutory tax rate	35.0	%	35.0	%	(35.0	)%
U.S. state income taxes, net of U.S. federal tax benefit	2.3		2.4		(2.1	)
Nondeductible expenses	1.8		0.5		0.5
Non-U.S. income	(0.9	)	(3.7	)	5.2
Audit activity ⁽¹⁾	0.0		(15.6	)	13.7
Company owned life insurance	0.0		0.0		(2.0	)
Change in valuation allowance ⁽²⁾	8.9		0.9		2.2
Tax credits	(1.0	)	(0.4	)	(0.4	)
Other, net	(1.7	)	(2.3	)	2.3
Effective rate	44.4	%	16.8	%	(15.6	)%


⁽¹⁾	Primarily related to the treatment of funds received from certain non-U.S. subsidiaries, as discussed earlier in this footnote.


⁽²⁾	Primarily related to additional impairment of certain deferred tax assets transferred to MVW, as discussed earlier in this footnote.

Cash paid for income taxes, net of refunds, was $45 million in 2011, $68 million in 2010, and $110 million in 2009.