Home Depot 2013 Annual Report Download - page 50

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The Company believes that the realization of the deferred tax assets is more likely than not, based upon the expectation that it
will generate the necessary taxable income in future periods, and except for certain net operating losses discussed below, no
valuation reserves have been provided.
At February 2, 2014, the Company had state and foreign net operating loss carryforwards available to reduce future taxable
income, expiring at various dates beginning 2014 to 2033. Management has concluded that it is more likely than not that the
tax benefits related to the state net operating losses will be realized. However, it is unlikely that the Company will be able to
utilize certain foreign net operating losses. Therefore, a valuation allowance has been provided to reduce the deferred tax
asset related to foreign net operating losses to an amount that is more likely than not to be realized. Total valuation
allowances related to net operating losses at February 2, 2014 and February 3, 2013 were $26 million and $27 million,
respectively.
In fiscal 2011, the Company was able to utilize a portion of its capital loss carryforward. This utilization combined with other
available tax planning strategies enabled the Company to release its $45 million valuation allowance associated with the
capital loss carryforward.
The Company has not provided for deferred income taxes on approximately $3.1 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 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 examined by domestic and foreign tax authorities. The Company is currently
appealing certain proposed Internal Revenue Service examination adjustments for fiscal years 2005 through 2007. The
Company's U.S. federal tax returns for fiscal years 2008 through 2011 are currently under examination by the IRS. There are
also ongoing U.S. state and local and other foreign audits covering tax years 2005 through 2012. The Company does not
expect the results from any income tax audit to have a material impact on the Company’s financial statements.
Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations could reduce
the Company's unrecognized tax benefits by $82 million. Final settlement of these audit issues may result in payments that
are more or less than this amount, but the Company does not anticipate the resolution of these matters will result in a material
change to its consolidated financial position or results of operations.
Reconciliations of the beginning and ending amount of gross unrecognized tax benefits for fiscal 2013, 2012 and 2011 were
as follows (amounts in millions):
February 2,
2014 February 3, 2013 January 29, 2012
Unrecognized tax benefits balance at beginning of fiscal year $ 638 $ 621 $ 662
Additions based on tax positions related to the current year 160 37 37
Additions for tax positions of prior years 52 92 56
Reductions for tax positions of prior years (41)(15)(123)
Reductions due to settlements (12)(94)(4)
Reductions due to lapse of statute of limitations (7)(3)(7)
Unrecognized tax benefits balance at end of fiscal year $ 790 $ 638 $ 621
The amount of unrecognized tax benefits that if recognized would affect the annual effective income tax rate on Net Earnings
was $344 million, $314 million and $246 million as of February 2, 2014, February 3, 2013 and January 29, 2012,
respectively.
Net adjustments to accruals for interest and penalties associated with uncertain tax positions resulted in expense of $7 million
and $15 million in fiscal 2013 and 2012, respectively, and provided income of $2 million in fiscal 2011. Total accrued interest
and penalties as of February 2, 2014 and February 3, 2013 were $101 million and $97 million, respectively. Interest and
penalties are included in Interest Expense and SG&A, respectively, in the accompanying Consolidated Statements of
Earnings.