Home Depot 2007 Annual Report Download - page 69

of disposition of HD Supply, $139 million of net deferred tax liabilities were transferred to the purchaser.
At February 3, 2008, the Company had state and foreign net operating loss carryforwards available to reduce future taxable income, expiring at
various dates from 2010 to 2027. Management has concluded that it is more likely than not that the tax benefits related to the net operating losses
will be realized. However, certain foreign net operating losses are in jurisdictions where the expiration period is too short to be assured of
utilization. Therefore, a $7 million valuation allowance has been provided to reduce the deferred tax asset related to net operating losses to an
amount that is more likely than not to be realized. Total valuation allowances at February 3, 2008 were $7 million.
As a result of its sale of HD Supply, the Company incurred a tax loss, resulting in a net capital loss carryover of approximately $159 million. The
tax loss on sale resulted primarily from the Company's tax basis in excess of its book investment in HD Supply. The net capital loss carryover
will expire in 2012. However, the Company has concluded that it is more likely than not that the tax benefits related to the capital loss carryover
will be realized based on its ability to generate adequate capital gain income during the carryover period. Therefore, no valuation allowance has
been provided.
The Company has not provided for U.S. deferred income taxes on approximately $1.3 billion of undistributed earnings of international
subsidiaries because of its intention to indefinitely reinvest these earnings outside the U.S. The determination of the amount of the unrecognized
deferred U.S. income tax liability related to the undistributed earnings is not practicable; however, unrecognized foreign income tax credits
would be available to reduce a portion of this liability.
The Company's income tax returns are routinely under audit by domestic and foreign tax authorities. These audits generally include questions
regarding the timing and amount of depreciation deductions and the allocation of income among various tax jurisdictions. In 2005, the U.S.
Internal Revenue Service ("IRS") completed its examination of the Company's U.S. federal income tax returns for fiscal years 2001 and 2002.
During 2007, the IRS also completed its examination of the Company's fiscal 2003 and 2004 income tax returns. Certain issues relating to the
examinations of fiscal years 2001 through 2004 are under appeal, but only years after fiscal 2004 remain subject to future examination. The
Mexican government is currently auditing the Mexican operating subsidiaries' fiscal year 2005 returns, although years after 2001 remain subject
to audit. The Canadian governments, including various provinces, are currently auditing income tax returns for the years 2001 through 2005.
There are also U.S. state and local audits covering tax years 2001 to 2005. At this time, the Company does not expect the results from any
income tax audit to have a material impact on the Company's financial statements.
On January 29, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes – an Interpretation of
FASB Statement No. 109" ("FIN 48"). Among other things, FIN 48 requires application of a "more likely than not" threshold to the recognition
and derecognition of tax positions. It further requires that a change in judgment related to prior years' tax positions be recognized in the quarter
of such change. The adoption of FIN 48 reduced the Company's Retained Earnings by $111 million. As a result of the implementation, the gross
amount of unrecognized tax benefits at January 29, 2007 for continuing operations totaled $667 million. A reconciliation of the
52