23. Income Taxes

Tax Rate Reconciliation (millions)	2012	2011	2010



Federal statutory rate	35.0%	35.0%	35.0%
State income taxes, net of the federal tax benefit	2.0	1.0	1.4
International	(0.6)	(0.7)	(0.6)
Other	(1.5)	(1.0)	(0.7)

Effective tax rate	34.9%	34.3%	35.1%

Certain discrete state income tax items reduced our effective tax rate by 1.0 percentage points, 2.0 percentage points, and 2.4 percentage points in 2012, 2011 and 2010, respectively.

Provision for Income Taxes (millions)	2012			2011			2010



Current:
Federal	$	1,471		$	1,069		$	1,086
State		135			74			40
International		18			13			4

Total current		1,624			1,156			1,130

Deferred:
Federal		124			427			388
State		14			—			57
International		(152	)		(56	)		—

Total deferred		(14	)		371			445

Total provision	$	1,610		$	1,527		$	1,575

Net Deferred Tax Asset/(Liability) (millions)	February 2, 2013			January 28, 2012



Gross deferred tax assets:
Accrued and deferred compensation	$	537		$	489
Allowance for doubtful accounts and lower of cost or fair value adjustment on credit card receivables held for sale		67			157
Accruals and reserves not currently deductible		352			347
Self-insured benefits		249			257
Foreign operating loss carryforward		189			43
Other		123			149

Total gross deferred tax assets		1,517			1,442

Gross deferred tax liabilities:
Property and equipment		(1,995	)		(1,930	)
Deferred credit card income		(91	)		(102	)
Inventory		(210	)		(162	)
Other		(133	)		(109	)

Total gross deferred tax liabilities		(2,429	)		(2,303	)

Total net deferred tax asset/(liability)	$	(912	)	$	(861	)

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date.

At February 2, 2013, we had foreign net operating loss carryforwards of $714 million, which are available to offset future income. We expect substantially all of these carryforwards, which generally expire in 2031 and 2032, to be fully utilized prior to expiration.

We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. These accumulated net earnings relate to ongoing operations and were $52 million ($592 million earnings offset by deficits) at February 2, 2013 and $300 million ($483 million earnings offset by deficits) at January 28, 2012. It is not practicable to determine the income tax liability that would be payable if such earnings were repatriated.

We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. The U.S. Internal Revenue Service has completed exams on the U.S. federal income tax returns for years 2010 and prior. With few exceptions, we are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.

Reconciliation of Liability for Unrecognized Tax Benefits (millions)	2012			2011			2010



Balance at beginning of period	$	236		$	302		$	452
Additions based on tax positions related to the current year		10			12			16
Additions for tax positions of prior years		19			31			68
Reductions for tax positions of prior years		(42	)		(101	)		(222	)
Settlements		(7	)		(8	)		(12	)

Balance at end of period	$	216		$	236		$	302

If we were to prevail on all unrecognized tax benefits recorded, $142 million of the $216 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefits are recorded within income tax expense. During the years ended February 2, 2013, January 28, 2012 and January 29, 2011, we recorded a benefit from the reversal of accrued penalties and interest of $16 million, $12 million and $28 million, respectively. We had accrued for the payment of interest and penalties of $64 million, $82 million and $95 million at February 2, 2013, January 28, 2012 and January 29, 2011, respectively.

It is reasonably possible that the amount of the unrecognized tax benefits with respect to our other unrecognized tax positions will increase or decrease during the next twelve months; however, an estimate of the amount or range of the change cannot be made at this time.