Income Taxes (Unaudited)

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

2.  Income Taxes

During the second quarter of 2011, the Internal Revenue Service (IRS) completed its examination of NS' 2008 tax return and review of certain claims for refund for prior years that resulted in a decrease in income tax expense of $40 million. Also during the second quarter, three states enacted tax law changes that, as required by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, "Income Taxes," decreased deferred income tax expense by $19 million.

NS' balance of unrecognized tax benefits reported at December 31, 2010 has decreased by $76 million, primarily because of the timing of deductibility of a tax position that became certain during the first quarter and the completion of the IRS examination and review of certain claims for refund during the second quarter.  NS' consolidated income tax return for 2009 is undergoing routine audit by the IRS.

During the first quarter of 2010, the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act of 2010 were signed into law.  Provisions of the Acts eliminated, after 2012, the tax deduction available for reimbursed prescription drug expenses under the Medicare Part D retiree drug subsidy program.  As required by ASC 740, NS recorded a $27 million charge to deferred tax expense in the first quarter of 2010.