10. INCOME TAXES

The provision for income taxes consisted of the following for the years ended December 31, 2011, 2010 and 2009:


	2011		2010			2009
	(in millions)
Current provision:
Federal	$	732	$	786		$	533
States and Puerto Rico		62		63			56

Total current provision		794		849			589
Deferred provision (benefit)		22		(199	)		(27	)

Provision for income taxes	$	816	$	650		$	562

The provision for income taxes was different from the amount computed using the federal statutory rate for the years ended December 31, 2011, 2010 and 2009 due to the following:


	2011			2010			2009
	(in millions)
Income tax provision at federal statutory rate	$	782		$	612		$	561
States, net of federal benefit and Puerto Rico		35			31			29
Tax exempt investment income		(25	)		(24	)		(21	)
Nondeductible executive compensation		11			13			0
Contingent tax benefits		0			0			(17	)
Other, net		13			18			10

Provision for income taxes	$	816		$	650		$	562

The provision for income taxes for 2011 and 2010 reflects an $11 million and $13 million, respectively, estimated impact from limitations on the deductibility of annual compensation in excess of $500,000 per employee as mandated by the Health Insurance Reform Legislation.

The liability for unrecognized tax benefits was $17 million at December 31, 2008. This liability, which was released in 2009 as a result of settlements associated with the completion of the audit of our U.S. income tax returns for 2005 and 2006, reduced tax expense $17 million in 2009. As of December 31, 2011, we do not have material uncertain tax positions reflected in our consolidated balance sheet.

Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or liabilities and their reported amounts in our consolidated financial statements, and are stated at enacted tax rates expected to be in effect when the reported amounts are actually recovered or settled. Principal components of our net deferred tax balances at December 31, 2011 and 2010 were as follows:


	Assets (Liabilities)
	2011			2010
	(in millions)
Net operating loss carryforward	$	181		$	137
Future policy benefits payable		179			153
Benefits payable		111			89
Compensation and other accrued expenses		95			127
Deferred acquisition costs		35			34
Capital loss carryforward		13			13
Unearned premiums		11			10
Other		20			19

Total deferred income tax assets		645			582

Valuation allowance		(28	)		(28	)

Total deferred income tax assets, net of valuation allowance		617			554

Depreciable property and intangible assets		(347	)		(276	)
Investment securities		(191	)		(66	)
Prepaid expenses		(49	)		(47	)

Total deferred income tax liabilities		(587	)		(389	)

Total net deferred income tax assets	$	30		$	165

Amounts recognized in the consolidated balance sheets:
Other current assets	$	0		$	76
Other long-term assets		46			89
Trade accounts payable and accrued expenses		(16	)		0

Total net deferred income tax assets	$	30		$	165

At December 31, 2011, we had approximately $494 million of net operating losses to carry forward related to prior acquisitions. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2012 through 2031. A significant portion of these losses are in a subsidiary that will not be included in the Humana Inc. consolidated tax return until 2013, and, therefore, may not be used until that point. Due to limitations and uncertainty regarding our ability to use some of the carryforwards, a valuation allowance was established on $77 million of net operating loss carryforwards related to prior acquisitions. For the remainder of the net operating loss carryforwards, based on our historical record of producing taxable income and profitability, we have concluded that future operating income will be sufficient to give rise to tax expense to recover all deferred tax assets.

We file income tax returns in the United States and certain foreign jurisdictions. The U.S. Internal Revenue Service, or IRS, has completed its examinations of our consolidated income tax returns for 2010 and prior years. Our 2011 tax returns are under advance review by the IRS under its Compliance Assurance Process, or CAP. With few exceptions, which are immaterial in the aggregate, we no longer are subject to state, local and foreign tax examinations for years before 2008. As of December 31, 2011, we are not aware of any material adjustments that may be proposed.