NOTE 11: Income Taxes

The following is a reconciliation of the federal statutory tax rate to the effective tax rate:



	2014		2013		2012
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.3		2.9		3.1
Other, net	(1.4	)	(0.1	)	(0.5	)
Effective tax rate	36.9	%	37.8	%	37.6	%

The components of the income tax provision are as follows:



(In millions)	2014			2013			2012
Current:
Federal	$	1,475		$	1,342		$	1,162
State	221			203			155
Total current	1,696			1,545			1,317
Deferred:
Federal	(112		)	(133		)	(133		)
State	(6		)	(25		)	(6		)
Total deferred	(118		)	(158		)	(139		)
Total income tax provision	$	1,578		$	1,387		$	1,178

The tax effects of cumulative temporary differences that gave rise to the deferred tax assets and liabilities were as follows:



(In millions)	January 30, 2015			January 31, 2014
Deferred tax assets:
Self-insurance	$	378		$	384
Share-based payment expense	81			70
Deferred rent	88			80
Foreign currency translation	62			8
Net operating losses	152			148
Other, net	131			130
Total deferred tax assets	892			820
Valuation allowance	(170		)	(164		)
Net deferred tax assets	722			656

Deferred tax liabilities:
Property	(534		)	(646		)
Other, net	(55		)	(49		)
Total deferred tax liabilities	(589		)	(695		)

Net deferred tax asset (liability)	$	133		$	(39	)

The Company operates as a branch in various foreign jurisdictions and cumulatively has incurred net operating losses of $557 million and $547 million as of January 30, 2015, and January 31, 2014, respectively. These net operating losses are subject to expiration in 2017 through 2034. Deferred tax assets have been established for these foreign net operating losses in the accompanying consolidated balance sheets. Given the uncertainty regarding the realization of the foreign net deferred tax assets, including these foreign net operating losses, the Company recorded cumulative valuation allowances of $170 million and $164 million as of January 30, 2015, and January 31, 2014, respectively.

The Company has not provided for deferred income taxes on accumulated but undistributed earnings of the Company's foreign operations of approximately $112 million and $51 million as of January 30, 2015, and January 31, 2014, respectively, due to its intention to permanently reinvest these earnings outside the U.S. It is not practicable to determine the income tax liability that would be payable on these earnings. The Company will provide for deferred or current income taxes on such earnings in the period it determines requisite to remit those earnings.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:



(In millions)	2014			2013			2012
Unrecognized tax benefits, beginning of year	$	62		$	63		$	146
Additions for tax positions of prior years	2			—			20
Reductions for tax positions of prior years	(57		)	—			(3		)
Settlements	—			(1		)	(100		)
Unrecognized tax benefits, end of year	$	7		$	62		$	63

The amounts of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate were $4 million and $62 million as of January 30, 2015, and January 31, 2014, respectively.

During 2014, the Company recognized $1 million of interest income and an insignificant decrease in penalties related to uncertain tax positions. As of January 30, 2015, the Company had $2 million of accrued interest and an insignificant amount of accrued penalties. During 2013, the Company recognized $6 million of interest expense and an insignificant decrease in penalties related to uncertain tax positions. As of January 31, 2014, the Company had $6 million of accrued interest and an insignificant amount of accrued penalties. During 2012, the Company recognized $27 million of interest income and an insignificant decrease in penalties related to uncertain tax positions.

The Company is subject to examination by various foreign and domestic taxing authorities. During 2014, the Company was notified by the Internal Revenue Service (IRS) that its 2012 Federal tax return would be subjected to a limited scope audit. In addition, the Company was accepted into the IRS's Compliance Assistance Program for the 2014 tax year; this program enables the Company to work with the IRS in an effort to resolve issues relating to the Company's federal tax liability prior to the filing of the Company's federal tax return. It is reasonably possible that the Company will resolve $7 million in state related audit items within the next 12 months. There are ongoing U.S. state audits covering tax years 2007 to 2013. The Company’s Canadian operations are currently under audit by the Canada Revenue Agency for fiscal years 2009 and 2010. The Company remains subject to income tax examinations for international income taxes for fiscal years 2007 through 2013. The Company believes appropriate provisions for all outstanding issues have been made for all jurisdictions and all open years.