Note L. Income Taxes

For financial reporting purposes, components of income before income taxes are as follows:


	Fiscal Year Ended
In thousands	January 31, 2015		February 1, 2014		February 2, 2013
	(53 weeks)
United States	$	2,943,745	$	2,746,925	$	2,517,696
Foreign		606,139		572,564		559,655
Income before provision for income taxes	$	3,549,884	$	3,319,489	$	3,077,351

The provision for income taxes includes the following:


	Fiscal Year Ended
In thousands	January 31, 2015		February 1, 2014			February 2, 2013
	(53 weeks)
Current:
Federal	$	896,672	$	815,811		$	842,149
State		180,616		177,009			162,200
Foreign		155,398		136,626			153,083
Deferred:
Federal		87,057		73,206			22,394
State		14,231		5,928			1,583
Foreign		782		(26,487	)		(10,745	)
Provision for income taxes	$	1,334,756	$	1,182,093		$	1,170,664

TJX had net deferred tax (liabilities) assets as follows:


	Fiscal Year Ended
In thousands	January 31, 2015			February 1, 2014
Deferred tax assets:
Net operating loss carryforward	$	18,305		$	25,711
Reserves for lease obligations and computer intrusion		16,242			29,108
Pension, stock compensation, postretirement and employee benefits		351,171			280,381
Leases		47,464			43,966
Other		74,451			66,984
Total gross deferred tax assets		507,633			446,150
Valuation allowance		(5,122	)		(4,359	)
Net deferred tax asset	$	502,511		$	441,791
Deferred tax liabilities:
Property, plant and equipment	$	474,179		$	432,262
Capitalized inventory		50,536			48,612
Tradename/intangibles		47,443			45,528
Undistributed foreign earnings		181,822			217,916
Other		8,884			10,397
Total deferred tax liabilities	$	762,864		$	754,715
Net deferred tax (liability)	$	(260,353	)	$	(312,924	)
Current asset	$	137,617		$	101,639
Non-current asset		24,546			31,508
Non-current liability		(422,516	)		(446,071	)
Total	$	(260,353	)	$	(312,924	)

TJX has provided for deferred U.S. taxes on all undistributed earnings through January 31, 2015 from its subsidiaries in Canada, Puerto Rico, Italy, India, Hong Kong, and Australia. For all other foreign subsidiaries, no income taxes have been provided on the approximately $566.6 million of undistributed earnings as of January 31, 2015 because such earnings are considered to be indefinitely reinvested in the business. A determination of the amount of unrecognized deferred tax liability related to the undistributed earnings is not practicable because of the complexities associated with the hypothetical calculations.

As of January 31, 2015, TJX had available for state income tax purposes net operating loss carryforwards of $61.5 million which expire, if unused, in the years 2016 through 2034. As of February 1, 2014, TJX had available for state income tax purposes net operating loss carryforwards of $35.9 million. TJX has analyzed the realization of the state net operating loss carryforwards on an individual state basis. For those states where the Company has determined that it is more likely than not that the state net operating loss carryforwards will not be realized, a valuation allowance of $5.1 million has been provided for the deferred tax asset as of January 31, 2015, and $4.4 million as of February 1, 2014.

As of January 31, 2015, TJX had available for foreign income tax purposes (primarily related to Germany and Poland) net operating loss carryforwards of $48.3 million, of which $2.8 million will expire, if unused, in the years 2016 through 2018. The remaining loss carryforwards do not expire. As of February 1, 2014, TJX had available for foreign income tax purposes (primarily related to Germany and Poland) net operating loss carryforwards of $77.1 million.

The difference between the U.S. federal statutory income tax rate and TJX’s worldwide effective income tax rate is reconciled below:


	Fiscal Year Ended
	January 31, 2015			February 1, 2014			February 2, 2013
							(53 weeks)
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Effective state income tax rate		3.6			3.6			3.5
Impact of foreign operations		(0.9	)		(0.8	)		(0.3	)
All other		(0.1	)		(2.2	)		(0.2	)
Worldwide effective income tax rate		37.6	%		35.6	%		38.0	%

TJX’s effective income tax rate increased for fiscal 2015 as compared to fiscal 2014 primarily due to the impact of last year’s tax benefits of approximately $80 million, primarily due to a reduction in our reserve for uncertain tax positions as a result of settlements with state taxing authorities and the reversal of valuation allowances against foreign net operating loss carryforwards.

TJX had net unrecognized tax benefits (net of federal benefit on state issues) of $32.7 million as of January 31, 2015, $26.2 million as of February 1, 2014 and $125.3 million as of February 2, 2013.

A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:


	Fiscal Year Ended
In thousands	January 31, 2015			February 1, 2014			February 2, 2013
Balance at beginning of year	$	48,680		$	148,777		$	144,505
Additions for uncertain tax positions taken in current year		4,771			4,212			1,949
Additions for uncertain tax positions taken in prior years		5,278			5,096			3,009
Reductions for uncertain tax positions taken in prior years		(2,747	)		(69,292	)		—
Reductions resulting from lapse of statute of limitations		—			(317	)		(129	)
Settlements with tax authorities		(363	)		(39,796	)		(557	)
Balance at end of year	$	55,619		$	48,680		$	148,777

Included in the gross amount of unrecognized tax benefits are items that will impact future effective tax rates upon recognition. These items amounted to $34.8 million as of January 31, 2015, $27.8 million as of February 1, 2014 and $129.0 million as of February 2, 2013.

TJX is subject to U.S. federal income tax as well as income tax in multiple state, local and foreign jurisdictions. In the U.S., fiscal years through 2010 are no longer subject to examination. In Canada, the fiscal years through 2006 are no longer subject to examination. In all other jurisdictions, the tax years through fiscal 2006 are no longer subject to examination.

TJX’s accounting policy is to classify interest and penalties related to income tax matters as part of income tax expense. The amount of interest and penalties expensed was $1.9 million for the year ended January 31, 2015, $4.0 million for the year ended February 1, 2014 and $4.7 million for the year ended February 2, 2013. The accrued amounts for interest and penalties are $10.1 million as of January 31, 2015, $8.1 million as of February 1, 2014 and $38.6 million as of February 2, 2013.

Based on the final resolution of tax examinations, judicial or administrative proceedings, changes in facts or law, expirations of statute of limitations in specific jurisdictions or other resolutions of, or changes in, tax positions, it is reasonably possible that unrecognized tax benefits for certain tax positions taken on previously filed tax returns may change materially from those represented on the financial statements as of January 31, 2015. During the next twelve months, it is reasonably possible that such circumstances may occur that would have a material effect on previously unrecognized tax benefits. As a result, the total net amount of unrecognized tax benefits may decrease, which would reduce the provision for taxes on earnings by a range estimated at $0 million to $14.4 million.