Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Tax Disclosure [Text Block]

Income Taxes

Income tax expense was as follows (in millions):

	Successor						Predecessor
	Year Ended		Year Ended		February 13 – December 31, 2010		January 1 – February 12, 2010
	December 31, 2012		December 31, 2011
Current:
Federal	$	1,204	$	220	$	593	$	23
State	141		40		73		3
Total current	1,345		260		666		26
Deferred:
Federal	591		1,375		626		113
State	69		134		84		14
Total deferred	660		1,509		710		127
Total	$	2,005	$	1,769	$	1,376	$	153

Reconciliation of the U.S. federal statutory income tax rate to the effective tax rate was as follows:

	Successor						Predecessor
	Year Ended		Year Ended		February 13 – December 31, 2010		January 1 – February 12, 2010
	December 31, 2012		December 31, 2011
U.S. Federal statutory income tax rate	35.0	%	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.5		2.4		3.1		3.1
Tax law change (Medicare Part D)	—		—		0.5		—
Other, net	(0.2	)	(0.1	)	(0.5	)	2.5
Effective tax rate	37.3	%	37.3	%	38.1	%	40.6	%

The components of deferred tax assets and liabilities were as follows (in millions):

	Successor
	December 31, 2012			December 31, 2011
Deferred tax liabilities:
Property and equipment	$	(17,330	)	$	(16,864	)
Hedging	(10		)	(18		)
Other	(336		)	(304		)
Total deferred tax liabilities	(17,676		)	(17,186		)
Deferred tax assets:
Intangible assets and liabilities	275			372
Casualty and environmental	303			370
Compensation and benefits	358			374
Long-term debt fair value adjustment under acquisition method accounting	173			209
Pension and retiree health and welfare benefits	332			305
Other	257			214
Total deferred tax assets	1,698			1,844
Net deferred tax liability	$	(15,978	)	$	(15,342	)
Non-current deferred income tax liability	$	(16,319	)	$	(15,637	)
Current portion of deferred income taxes	341			295
Net deferred tax liability	$	(15,978	)	$	(15,342	)

BNSF is included in the consolidated U.S. federal income tax return of Berkshire beginning as of February 13, 2010. BNSF’s tax expense and liabilities have been computed on a stand alone basis, and substantially all of its currently payable income taxes are remitted each quarter to Berkshire. See Note 16 to the Consolidated Financial Statements for information related to income taxes paid to Berkshire during 2012.

All U.S. federal income tax returns of BNSF are closed through 2007. Internal Revenue Service (IRS) examination of the years 2008 and 2009 and short tax year January 1 - February 12, 2010 (Predecessor) for BNSF is complete, and final agreement for federal income tax issues has been reached. BNSF is currently under examination for the period February 13 - December 31, 2010 (Successor) and the year 2011 (Successor).

BNSF and its subsidiaries have various state income tax returns in the process of examination, administrative appeal or litigation. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

A significant portion of the audit issues relate to state income tax issues with various taxing authorities and with the IRS related to whether certain valuations of donated property are appropriate. A provision for taxes resulting from ongoing and future federal and state audits is based on an estimation of aggregate adjustments that may be required as a result of the audits.

Uncertain Tax Positions

The amount of unrecognized tax benefits for the year ended December 31, 2012 (Successor), the year ended December 31, 2011 (Successor), the period February 13 - December 31, 2010 (Successor) and the period January 1 - February 12, 2010 (Predecessor), was $48 million, $110 million, $112 million and $167 million, respectively. The amount of unrecognized tax benefits at December 31, 2012, that would affect the Company’s effective tax rate if recognized was $32 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):

	Successor									Predecessor
	Year Ended			Year Ended			February 13 – December 31, 2010			January 1  –  February 12, 2010
	December 31, 2012			December 31, 2011
Beginning balance	$	110		$	112		$	167		$	166
Additions for tax positions related to current year	12			47			24			1
Reductions for tax positions taken in prior years	(2		)	(40		)	(58		)	—
(Reductions) additions for tax positions as a result of:
Settlements	(53		)	8			(10		)	—
Lapse of statute of limitations	(19		)	(17		)	(11		)	—
Ending balance	$	48		$	110		$	112		$	167

It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however, BNSF does not expect the change to have a significant impact on the results of operations, the financial position or the cash flows of the Company.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in income tax expense in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. The Company had recorded a liability of approximately $7 million and $17 million for the payment of interest and penalties for the years ended December 31, 2012 and 2011, respectively. For the year ended December 31, 2012 (Successor), the year ended December 31, 2011 (Successor) and the period February 13 – December 31, 2010 (Successor), the Company recognized a reduction of approximately $8 million, $4 million and $9 million in interest and penalty expense, respectively. For the period January 1 – February 12, 2010 (Predecessor), the Company recognized an increase of approximately $1 million in interest and penalty expense.