Income Tax Provision

The income tax (benefit) provision consisted of the following:



	2017			2016			2015
Current
Federal	$	(25	)	$	25		$	(22	)
State	6			—			(6		)
Total current	(19		)	25			(28		)
Deferred	(1		)	(1		)	15
Total income tax (benefit) provision	$	(20	)	$	24		$	(13	)

The difference between the actual tax provision and the tax provision computed by applying the statutory federal income tax rate to Earnings from continuing operations before income taxes is attributable to the following:



	2017			2016			2015
Federal taxes based on statutory rate	$	3		$	38		$	4
State income taxes, net of federal benefit	(1		)	2			(3		)
Tax contingency	(1		)	(9		)	(2		)
Change in valuation allowance	1			4			—
Pension	(9		)	(4		)	(7		)
Deferred tax adjustment	(9		)	—			—
Other	(4		)	(7		)	(5		)
Total income tax (benefit) provision	$	(20	)	$	24		$	(13	)

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the basis in assets and liabilities for financial reporting and income tax purposes. Supervalu’s deferred tax assets and liabilities consisted of the following:



	2017			2016
Deferred tax assets:
Compensation and benefits	$	163		$	235
Self-insurance	16			27
Property, plant and equipment and capitalized lease assets	39			47
Loss on sale of discontinued operations	1,174			1,388
Net operating loss carryforwards	15			15
Other	76			83
Gross deferred tax assets	1,483			1,795
Valuation allowance	(1,196		)	(1,408		)
Total deferred tax assets	287			387
Deferred tax liabilities:
Property, plant and equipment and capitalized lease assets	(92		)	(108		)
Inventories	(15		)	(6		)
Intangible assets	(7		)	(24		)
Other	(8		)	(21		)
Total deferred tax liabilities	(122		)	(159		)
Net deferred tax assets	$	165		$	228

Net deferred tax assets are recorded in the Consolidated Balance Sheet as follows:



	2017		2016
Deferred tax assets	$	165	$	238
Long-term assets of discontinued operations	—		(10		)
Net deferred tax assets	165		228

Supervalu has valuation allowances to reduce deferred tax assets to the amount that is more-likely-than-not to be realized. Supervalu currently has state net operating loss (“NOL”) carryforwards of $276 for tax purposes. The NOL carryforwards expire beginning in fiscal 2018 and continuing through fiscal 2035 and have a $10 valuation allowance.

In fiscal 2014, the sale of NAI resulted in an allocation of tax expense between continuing and discontinued operations and the recognition of the additional tax basis in the shares of NAI offset by a valuation allowance on the capital loss that resulted from the sale of shares. In fiscal 2017, Supervalu utilized a portion of the capital loss offset by a matching release of the valuation allowance on the capital loss. Supervalu has recorded a valuation allowance against the remaining capital loss as there is no evidence that the capital loss will be used prior to its expiration in fiscal 2019.

Uncertain Tax Positions

Changes in Supervalu’s unrecognized tax positions consisted of the following:



	2017			2016			2015
Beginning balance	$	70		$	94		$	76
Increase based on tax positions related to the current year	7			5			15
Decrease based on tax positions related to the current year	—			—			—
Increase based on tax positions related to prior years	—			—			15
Decrease based on tax positions related to prior years	(15		)	(23		)	(4		)
Decrease related to settlements with taxing authorities	1			—			(3		)
Decrease due to lapse of statute of limitations	(4		)	(6		)	(5		)
Ending balance	$	59		$	70		$	94

Included in the balance of unrecognized tax benefits as of February 25, 2017, February 27, 2016 and February 28, 2015 are tax positions, net of tax, of $33, $34 and $36, respectively, which would reduce Supervalu’s effective tax rate if recognized in future periods.

Because existing tax positions will continue to generate increased liabilities for Supervalu for unrecognized tax benefits over the next 12 months, and since Supervalu is routinely under audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months. An estimate of the amount or range of such change cannot be made at this time. However, Supervalu does not expect the change, if any, to have a material effect on Supervalu’s Consolidated Balance Sheets, Operations, or Cash Flows within the next 12 months.

Supervalu recognized interest income of $3, $9 and $7 in fiscal 2017, 2016 and 2015 in Income from discontinued operations, net of tax and Interest expense, respectively, and penalty (income) expense of $(2), $5, and $0 in fiscal 2017, 2016 and 2015 in Income from discontinued operations, net of tax and Selling and administrative expenses, respectively, in the Consolidated Statements of Operations. At February 25, 2017 and February 27, 2016, Supervalu had accrued interest of $11 and $16, respectively, related to uncertain tax positions recorded in Other current liabilities, and Long-term tax liabilities in the Consolidated Balance Sheets. At February 25, 2017 and February 27, 2016, Supervalu had accrued penalties of $2 and $5, respectively, related to uncertain tax positions recorded in Long-term tax liabilities in the Consolidated Balance Sheets.

Supervalu is currently under examination or other methods of review in several tax jurisdictions and remains subject to examination until the statute of limitations expires for the respective taxing jurisdiction or an agreement is reached between the taxing jurisdiction and Supervalu. As of February 25, 2017, Supervalu is no longer subject to federal income tax examinations for fiscal years before 2014 and in most states is no longer subject to state income tax examinations for fiscal years before 2007.