7.	Income Taxes

Deferred income taxes consist of the following:


	Jan. 29, 2011		Jan. 30, 2010
	(In Millions)
	(Restated)
Deferred tax liabilities:
Property and equipment	$	473	$	433
Deferred tax assets:
Merchandise inventories		27		36
Accrued and other liabilities, including stock options		216		175
Accrued step rent liability		27		58
Unrealized loss on auction rate securities		24		23

		294		292

Net deferred tax liability	$	179	$	141

The components of the provision for income taxes are as follows:


	2010		2009		2008
	(In Millions)
	(Restated)
Current federal	$	561	$	480	$	411
Current state		69		59		45
Deferred federal		35		42		60
Deferred state		3		4		6

	$	668	$	585	$	522

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:


	2010			2009			2008
Provision at statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		2.7			2.8			3.0
Tax-exempt interest income		(0.3	)		(0.3	)		(0.2	)

Provision for income taxes		37.4	%		37.5	%		37.8	%

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 2003 through 2010 tax years. State returns subject to examination are generally for the 2003 through 2010 tax years. 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.

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


	2010			2009
	(In Millions)
	(Restated)
Balance at beginning of year	$	89		$	92
Increases due to:
Tax positions taken in prior years		—			5
Tax positions taken in current year		25			20
Decreases due to:
Tax positions taken in prior years		(9	)		(8	)
Settlements with taxing authorities		(4	)		(13	)
Lapse of applicable statute of limitations		(5	)		(7	)

Balance at end of year	$	96		$	89

Not included in the unrecognized tax benefits reconciliation above are gross unrecognized accrued interest and penalties of $24 million at January 29, 2011 and $25 million at January 30, 2010. Interest and penalty expense was $7 million for 2010 and $4 million for 2009.

Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $64 million as of January 29, 2011 and $59 million as of January 30, 2010.

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.