Income Taxes

Deferred income taxes consist of the following:



	Feb 1, 2014		Feb 2, 2013
	(Dollars In Millions)
Deferred tax liabilities:
Property and equipment	$	1,416	$	1,405
Deferred tax assets:
Merchandise inventories	24		23
Accrued and other liabilities, including stock options	223		217
Capital lease and financing obligations	813		810
Accrued step rent liability	94		86
Unrealized loss on investments	7		12
Unrealized loss on interest rate swap	15		17
	1,176		1,165
Net deferred tax liability	$	240	$	240

On September 13, 2013, Treasury and the Internal Revenue Service issued final regulations regarding the deduction and capitalization of expenditures related to tangible property. We are currently analyzing the expected impact of the new regulations and we do not believe the impact will be material to our financial position or results of operations.

The components of the provision for income taxes as follows:



	2013			2012			2011
	(Dollars In Millions)
Current federal	$	469		$	590		$	497
Current state	45			60			60
Deferred federal	10			(66		)	124
Deferred state	(9		)	(9		)	11
	$	515		$	575		$	692

The provision for income taxes differs from the amount that would be provided by applying the statutory U.S. corporate tax rate due to the following items:



	2013		2012		2011
Provision at statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	2.2		2.2		2.7
Tax-exempt interest income	(0.2	)	(0.1	)	—
Federal HIRE Act tax credit	—		—		(0.4	)
Other Federal tax credits	(0.3	)	(0.3	)	(0.1	)
Provision for income taxes	36.7	%	36.8	%	37.2	%

We have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The only federal returns subject to examination are for the 2008 through 2013 tax years. State returns subject to examination vary depending upon the state. Generally, the 2010 through 2013 tax years are subject to state examination; however, in some instances, earlier periods are presently being audited. The earliest open period is 2003. Certain states have proposed adjustments which we are currently appealing. If we do not prevail on our appeals, we do not anticipate that the adjustments would result in a material change in our financial position.

6. Income Taxes (continued)

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



	2013			2012
	(Dollars In Millions)
Balance at beginning of year	$	108		$	101
Increases due to:
Tax positions taken in prior years	6			1
Tax positions taken in current year	21			22
Decreases due to:
Tax positions taken in prior years	(4		)	(9		)
Settlements with taxing authorities	(3		)	(1		)
Lapse of applicable statute of limitations	(3		)	(6		)
Balance at end of year	$	125		$	108

Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest and penalties of $21 million at February 1, 2014 and $18 million at February 2, 2013. Interest and penalty expense was $3 million for 2013 and $1 million for 2012.

Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $88 million as of February 1, 2014 and $75 million as of February 2, 2013.

It is reasonably possible that our unrecognized tax positions may change within the next 12 months, primarily as a result of ongoing audits. While it is possible that one or more of these examinations may be resolved in the next year, it is not anticipated that a significant impact to the unrecognized tax benefit balance will occur.