18.  Income Taxes 

   

The components of our income tax expense/(benefit) for continuing operations were as follows:

 

A reconciliation of the statutory federal income tax rate to our effective rate for continuing operations is as follows:

Our deferred tax assets and liabilities were as follows:

 

 

We establish a valuation allowance if either it is more likely than not that the deferred tax asset will expire before we are able to realize their benefits, or the future deductibility is uncertain.  The valuation allowance as of February 2, 2013 was related to net operating losses in certain separate filing states.

 

As of the end of fiscal 2012, we have a  U.S. federal net operating loss carryforward of approximately $1.2 billion.  This net operating loss carryforward expires in fiscal 2032.  As of the end of fiscal 2012, we also have state net operating losses of varying amounts, generating a state tax benefit of $115 million (net of federal tax impact), $66 million of which are offset by a valuation allowance due to uncertain recoverability. 

    

Deferred tax assets and liabilities included in our Consolidated Balance Sheets were as follows:

 

A reconciliation of unrecognized tax benefits is as follows:

 

As of the end of 2012, 2011 and 2010 the uncertain tax position balance included $54 million, $61 million and $60 million, respectively, that, if recognized, would lower the effective tax rate and would be reduced upon settlement by $19 million, $21 million and $21 million, respectively, related to the federal tax deduction of state taxes. The remaining amounts reflected tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing. Due to deferred tax accounting, other than any interest or penalties incurred, the disallowance of the shorter deductibility period would not impact the effective tax rate, but would accelerate payment to the taxing authority.

 

Over the next 12 months, it is reasonably possible that the amount of unrecognized tax benefits could be reduced by $2 million if our tax position is sustained upon audit, the controlling statute of limitations expires or we agree to a disallowance.

 

Accrued interest and penalties related to unrecognized tax benefits included in income tax expense as of the end of 2012, 2011 and 2010 was $4 million, $4 million and $3, respectively.

 

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. We are no longer subject to U.S. federal examinations by tax authorities for years before 2011. The 2009 and 2010 examinations were resolved in 2012. We are audited by the taxing authorities of virtually all states and certain foreign countries and are subject to examination by these taxing jurisdictions for years generally after 2007.