NOTE 5 — INCOME TAXES

The provision for income taxes consists of the following (dollars in millions):


	2012			2011			2010
Current:
Federal	$	604		$	(119	)	$	401
State		58			(12	)		26
Foreign		43			44			33
Deferred:
Federal		167			714			161
State		(8	)		71			17
Foreign		24			21			20

	$	888		$	719		$	658

The provision for income taxes reflects $53 million, $100 million and $69 million ($33 million, $63 million and $44 million net of tax, respectively) reductions in interest related to taxing authority examinations for the years ended December 31, 2012, 2011 and 2010, respectively.

A reconciliation of the federal statutory rate to the effective income tax rate follows:


	2012			2011			2010
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		2.2			2.0			2.7
Change in liability for uncertain tax positions		—			1.0			0.3
Nontaxable gain on acquisition of controlling interest in equity investment		—			(13.8	)		—
Tax exempt interest income		(0.2	)		(0.2	)		(0.4	)
Other items, net		(1.4	)		(1.4	)		(2.3	)

Effective income tax rate on income applicable to HCA Holdings, Inc.		35.6			22.6			35.3
Income attributable to noncontrolling interests from consolidated partnerships		(4.9	)		(2.4	)		(5.8	)

Effective income tax rate on income before income taxes		30.7	%		20.2	%		29.5	%

A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):


	2012				2011
	Assets		Liabilities		Assets		Liabilities
Depreciation and fixed asset basis differences	$	—	$	292	$	—	$	402
Allowances for professional liability and other risks		355		—		337		—
Accounts receivable		405		—		706		—
Compensation		237		—		216		—
Other		744		595		698		511

	$	1,741	$	887	$	1,957	$	913

At December 31, 2012, state net operating loss carryforwards (expiring in years 2013 through 2032) available to offset future taxable income approximated $45 million. Utilization of net operating loss carryforwards in any one year may be limited and, in certain cases, result in an adjustment to intangible assets. Net deferred tax assets related to such carryforwards are not significant.

At December 31, 2012, the IRS Examination Division was conducting an audit of HCA Inc.’s 2007, 2008 and 2009 federal income tax returns. We expect the IRS Examination Division will begin an audit of HCA Holdings, Inc.’s 2010 and 2011 federal income tax returns in 2013.

The following table summarizes the activity related to our unrecognized tax benefits (dollars in millions):


	2012			2011
Balance at January 1	$	445		$	313
Additions based on tax positions related to the current year		16			83
Additions for tax positions of prior years		92			73
Reductions for tax positions of prior years		(19	)		(15	)
Settlements		(103	)		—
Lapse of applicable statutes of limitations		(6	)		(9	)

Balance at December 31	$	425		$	445

During 2012, we finalized settlements with the IRS for our 2005 and 2006 tax years resolving all outstanding issues, including the timing of recognition of certain patient service revenues, the deductibility of certain debt retirement costs and our method for calculating the tax allowance for doubtful accounts. During 2011, we finalized settlements with the IRS resolving all outstanding issues for our 1997 through 2004 tax years.

Our liability for unrecognized tax benefits was $426 million, including accrued interest of $14 million and excluding $13 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2012 ($494 million, $62 million and $13 million, respectively, as of December 31, 2011). Unrecognized tax benefits of $125 million ($173 million as of December 31, 2011) would affect the effective rate, if recognized.

Depending on the resolution of any IRS disputes, the completion of examinations by federal, state or international taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.