Sears 2010 Annual Report Download - page 84

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our
belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an
ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits,
developments in case law, and closing of statute of limitations. Such adjustments are reflected in the tax
provision as appropriate. We are generally not able to reliably estimate the ultimate settlement amounts until the
close of the audit. While we do not expect material changes, it is possible that the amount of unrecognized
benefit with respect to our uncertain tax positions will significantly increase or decrease within the next 12
months related to the audits described above. At this time, we are not able to make a reasonable estimate of the
range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these
items. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as
follows:
Federal, State, and Foreign Tax
millions
January 29,
2011
January 30,
2010
January 31,
2009
Gross UTB Balance at Beginning of Period .......................... $310 $360 $ 454
Tax positions related to the current period:
Gross increases ............................................ 25 50 66
Gross decreases ............................................ (10) (17) (39)
Tax positions related to prior periods:
Gross increases ............................................ 51 57 136
Gross decreases ............................................ (161) (59) (238)
Settlements ................................................... (13) (29) (6)
Lapse of statute of limitations .................................... (10) (52) (13)
Gross UTB Balance at End of Period ............................... $192 $310 $ 360
At the end of 2010, we had gross unrecognized tax benefits of $192 million. Of this amount, $98 million
would, if recognized, impact our effective tax rate, with the remaining amount being comprised of unrecognized
tax benefits related to gross temporary differences or any other indirect benefits. We expect that our
unrecognized tax benefits could decrease up to $26 million over the next 12 months for tax audit settlements and
the expiration of the statute of limitations for certain jurisdictions.
We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax
overpayments as components of income tax expense. At January 29, 2011, the total amount of interest and
penalties recognized on our consolidated balance sheet was $54 million ($35 million net of federal benefit). The
total amount of net interest income recognized in our consolidated statement of income for 2010 was $11 million.
We file income tax returns in both the United States and various foreign jurisdictions. The U.S. Internal Revenue
Service (“IRS”) has completed its examination of Holdings’ 2006 and 2007 federal income tax returns, and we
are currently working with the IRS appeals division to resolve certain matters arising from this exam. We have
resolved all matters arising from prior IRS exams. In addition, Holdings and Sears are under examination by
various state, local and foreign income tax jurisdictions for the years 2002-2008, and Kmart is under examination
by such jurisdictions for the years 2003-2008.
NOTE 12—REAL ESTATE TRANSACTIONS
Gain on Sale of Assets
We recognized $67 million, $74 million, and $51 million in gains on sales of assets during 2010, 2009, and
2008, respectively. These gains were primarily a function of several large real estate transactions. During 2010,
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