NOTE 15—INCOME TAXES

Income Tax Provision (Benefit)

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



	2018			2017			2016
Current
Federal	$	(8	)	$	(15	)	$	7
State	(2		)	8			(4		)
Total current	(10		)	(7		)	3
Deferred	38			(8		)	1
Income tax provision (benefit)	$	28		$	(15	)	$	4

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:



	2018			2017			2016
Federal taxes based on statutory rate	$	25		$	7		$	18
State income taxes, net of federal benefit	1			(1		)	—
Tax contingency	(12		)	(1		)	(8		)
Change in valuation allowance	(21		)	2			—
Pension	(5		)	(9		)	(4		)
Deferred tax adjustment	—			(10		)	—
U.S. tax reform	31			—			—
Stock Compensation	7			—			—
Other	2			(3		)	(2		)
Income tax provision (benefit)	$	28		$	(15	)	$	4

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. Our deferred tax assets and liabilities consisted of the following:



	2018			2017
Deferred tax assets:
Compensation and benefits	$	105		$	162
Self-insurance	12			17
Property, plant and equipment and capitalized lease assets	30			35
Loss on sale of discontinued operations	795			1,174
Net operating loss carryforwards	50			15
Other	42			75
Gross deferred tax assets	1,034			1,478
Valuation allowance	(787		)	(1,196		)
Total deferred tax assets	247			282
Deferred tax liabilities:
Property, plant and equipment and capitalized lease assets	(160		)	(91		)
Inventories	(11		)	(13		)
Intangible assets	(5		)	(7		)
Other	(8		)	(8		)
Total deferred tax liabilities	(184		)	(119		)
Net deferred tax assets	$	63		$	163

We have valuation allowances to reduce deferred tax assets to the amount that is more-likely-than-not to be realized. We currently have federal (“NOL”) carryforwards of $122 and state NOL carryforwards of $350 for tax purposes. Federal NOL carryforwards of $84 have no expiration date and federal NOL carryforwards of $38 expire beginning in 2033 and continuing through 2037. There is no valuation allowance recorded for the federal NOL carryforwards. The state NOL carryforwards expire beginning in fiscal 2019 and continuing through fiscal 2036 and have a $15 valuation allowance.

In fiscal 2014, the sale of NAI resulted in a capital loss due to the additional tax basis on the sale of the shares. In fiscal 2017, we utilized a portion of the capital loss carryforward offset by a matching release of the valuation allowance on the capital loss. We estimated additional utilization of the capital loss carryforward in fiscal 2018 and recorded an offsetting release of the valuation allowance. At this time, a valuation allowance has been recognized for the remaining capital loss carryforward of $771 as it is more likely than not that the capital loss will not be used prior to its expiration in fiscal 2019.

U.S. Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation under the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

As a result of the Tax Act, we recorded a discrete income tax expense of $31 in fiscal 2018 associated with the remeasurement of deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate tax rate. We have not completed our accounting for the income tax effects of certain elements of the Tax Act, but recorded provisional adjustments based on reasonable estimates. These estimates may be impacted by the need for further analysis and future clarification and guidance regarding available tax accounting methods and elections, state tax conformity to federal tax changes, and expected changes to U.S. Treasury regulations. We do not anticipate material changes to these estimates and will record any changes in the quarter in which we complete our analysis, not to exceed one year from the period of enactment.

Uncertain Tax Positions

Changes in our unrecognized tax positions consisted of the following:



	2018			2017			2016
Beginning balance	$	59		$	70		$	94
Increase based on tax positions related to the current year	2			7			5
Increase based on tax positions related to prior years	2			—			—
Decrease based on tax positions related to prior years	—			(15		)	(23		)
Decrease related to settlements with taxing authorities	—			1			—
Decrease due to lapse of statute of limitations	(23		)	(4		)	(6		)
Ending balance	$	40		$	59		$	70

Included in the balance of unrecognized tax benefits as of the fiscal year end 2018, 2017 and 2016 are tax positions, net of tax, of $23, $33 and $34, respectively, which would reduce our effective tax rate if recognized in future periods.

Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits over the next 12 months, and since we are 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, we do not expect the change, if any, to have a material effect on our Consolidated Balance Sheets, Statement of Operations, or Statement Cash Flows within the next 12 months.

We recognized interest expense (income) of $0, $3 and $(1) in fiscal 2018, 2017 and 2016, respectively, from continuing operations within Interest expense, net in the Consolidated Statements of Operations. No penalty expense has been recognized from continuing operations within Selling and administrative expenses in fiscal 2018, 2017 and 2016 in the Consolidated Statements of Operations.

At February 24, 2018 and February 25, 2017, we accrued interest of $11 and $11, respectively, related to uncertain tax positions recorded in Other current liabilities, and Long-term tax liabilities in the Consolidated Balance Sheets. At February 24, 2018 and February 25, 2017, we have accrued penalties of $1 and $2, respectively, related to uncertain tax positions recorded in Long-term tax liabilities in the Consolidated Balance Sheets.

We are currently under examination or other methods of review in several tax jurisdictions and remain 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 24, 2018, we are no longer subject to federal income tax examinations for fiscal years before 2015 and in most states is no longer subject to state income tax examinations for fiscal years before 2008.