Note 12 – Income Taxes

 

The total amount for unrecognized tax benefits as of October 29, 2011 was $135 million compared to $162 million as of January 29, 2011.  The decrease included $27 million for settlements reached with tax authorities. As of the end of the third quarter of 2011, the uncertain tax position balance included $62 million that, if recognized, would lower the effective tax rate and would be reduced upon settlement by $22 million related to the federal tax deduction of state taxes. The remaining amounts reflect 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 approximately $39 million ($1 million of which would impact the effective tax rate) if our tax position is sustained upon audit, the controlling statute of limitations expires or we agree to a disallowance.

 

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.  Our accrued interest was $4 million and $3 million as of October 29, 2011 and January 29, 2011, respectively.  We did not have any penalties accrued as of either date.