Big Lots 2013 Annual Report Download - page 210

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At the end of 2013 and 2012, the total amount of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate is $11.0 million and $10.8 million, respectively, after considering the federal tax benefit of state and local
income taxes of $5.0 million and $4.6 million respectively. Unrecognized tax benefits of $0.7 million and $0.7 million in 2013
and 2012, respectively, relate to tax positions for which the ultimate deductibility is highly certain but for which there is
uncertainty about the timing of such deductibility. The uncertain timing items could result in the acceleration of the payment of
cash to the taxing authority to an earlier period.
For 2011, unrecognized tax benefits decreased by approximately $9.1 million related to our claims for welfare to work and
work opportunity credits, which claims have either lapsed or are unlikely to be realized due to an unfavorable decision of U.S.
Court of Appeals for the Federal Circuit against a similarly situated taxpayer. Our right to file a refund claim with respect to
approximately $4.9 million of the credits has lapsed and our right to file a refund claim with respect to approximately $2
million of the credits will lapse during fiscal 2014. Our right to file a refund claim with respect to approximately $2.2 million
of the credits may never lapse because the IRS has not issued a statutory notice of disallowance with respect to those claims;
however, because our claims are unlikely to prevail in a different jurisdiction, we have decided not to pursue them. Therefore,
we reduced our unrecognized tax benefits by the entire amount of the claims. Because these benefits were unrecognized, the
decrease had no effect on income tax expense.
We recognized an expense (benefit) associated with interest and penalties on unrecognized tax benefits of approximately $0.5
million, $(0.7) million, and $(0.5) million during 2013, 2012, and 2011, respectively, as a component of income tax expense.
The amount of accrued interest and penalties recorded in the accompanying consolidated balance sheets at February 1, 2014
and February 2, 2013 was $5.7 million and $5.2 million, respectively.
We are subject to U.S. federal income tax, income tax of multiple state and local jurisdictions, and Canadian and provincial
taxes. The statute of limitations for assessments on our federal income tax returns for periods prior to 2009 has lapsed. In
addition, the state income tax returns filed by us are subject to examination generally for periods beginning with 2006, although
state income tax carryforward attributes generated prior to 2006 and non-filing positions may still be adjusted upon
examination. We have various state returns in the process of examination or administrative appeal. Generally, the time limit
for reassessing returns for Canadian and provincial income taxes for periods prior to the year ending October 1, 2006 have
lapsed.
We have estimated the reasonably possible expected net change in unrecognized tax benefits through January 31, 2015, based
on expected cash and noncash settlements or payments of uncertain tax positions and lapses of the applicable statutes of
limitations for unrecognized tax benefits. The estimated net decrease in unrecognized tax benefits for the next 12 months is
approximately $4.0 million. Actual results may differ materially from this estimate.
NOTE 10 – COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
On May 21, May 22 and July 2, 2012, three shareholder derivative lawsuits were filed in the U.S. District Court for the
Southern District of Ohio against us and certain of our current and former outside directors and executive officers (Jeffrey
Berger, David Kollat, Brenda Lauderback, Philip Mallott, Russell Solt, Dennis Tishkoff, Robert Claxton, Joe Cooper, Steven
Fishman, Charles Haubiel, Timothy Johnson, John Martin, Norman Rankin, Paul Schroeder, Robert Segal and Steven Smart).
The lawsuits were consolidated, and, on August 13, 2012, plaintiffs filed a consolidated complaint, which generally alleges that
the individual defendants traded in our common shares based on material, nonpublic information concerning our guidance for
fiscal 2012 and the first quarter of fiscal 2012 and the director defendants failed to suspend our share repurchase program
during such trading activity. The consolidated complaint asserts claims under Ohio law for breach of fiduciary duty, unjust
enrichment, misappropriation of trade secrets and corporate waste and seeks declaratory relief and disgorgement to us of
proceeds from any wrongful sales of our common shares, plus attorneys’ fees and expenses. The defendants have filed a
motion to dismiss the consolidated complaint, and that motion is fully briefed and awaiting a decision.