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Income Taxes | 12 Months Ended
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Feb. 01, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For financial reporting purposes, components of income (loss) before income taxes are as follows:
|  | Fiscal Year
($ in millions) |  | 2019 |  | 2018 |  | 2017
United States |  | $ | 550 |  |  | $ | 1,183 |  |  | $ | 1,301 |
Foreign |  | (22 | ) |  | 139 |  |  | 123 |
Income before income taxes |  | $ | 528 |  |  | $ | 1,322 |  |  | $ | 1,424 |
The provision for income taxes consists of the following:
|  | Fiscal Year
($ in millions) |  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |
Federal |  | $ | 177 |  |  | $ | 164 |  |  | $ | 415 |
State |  | 37 |  |  | 41 |  |  | 51 |
Foreign |  | 44 |  |  | 49 |  |  | 49 |
Total current |  | 258 |  |  | 254 |  |  | 515 |
Deferred: |  |  |  |  |  |
Federal |  | (58 | ) |  | 55 |  |  | 55 |
State |  | (20 | ) |  | 11 |  |  | (5 | )
Foreign |  | (3 | ) |  | (1 | ) |  | 11 |
Total deferred |  | (81 | ) |  | 65 |  |  | 61 |
Total provision |  | $ | 177 |  |  | $ | 319 |  |  | $ | 576 |
The difference between the effective tax rate and the U.S. federal statutory tax rate is as follows:
|  | Fiscal Year
|  | 2019 |  | 2018 |  | 2017
Federal statutory tax rate |  | 21.0 | % |  | 21.0 | % |  | 33.7 | %
State and local income taxes, net of federal benefit |  | 3.2 |  |  | 4.0 |  |  | 4.0 |
Tax impact of foreign operations |  | 6.0 |  |  | 0.1 |  |  | (1.1 | )
Impact of TCJA of 2017 |  | 5.6 |  |  | (3.2 | ) |  | 4.0 |
Excess foreign tax credits |  | — |  |  | 0.5 |  |  | (0.7 | )
Other |  | (2.3 | ) |  | 1.7 |  |  | 0.5 |
Effective tax rate |  | 33.5 | % |  | 24.1 | % |  | 40.4 | %
On December 22, 2017, the TCJA was enacted into law, which significantly changed existing U.S. tax law and included numerous provisions that affect our business, such as imposing a one-time transition tax on deemed repatriation of deferred foreign income, reducing the U.S. federal statutory tax rate, and adopting a territorial tax system. The TCJA includes a provision to tax GILTI of foreign subsidiaries, a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its subsidiaries, and favorable tax treatment for certain foreign derived intangible income (“FDII”), effective for us beginning fiscal 2018. The Company has made an accounting policy election to treat taxes due on the GILTI inclusion as a current period expense. During fiscal 2019, we recorded a $30 million adjustment to increase our fiscal 2017 tax liability for additional guidance issued by the U.S. Treasury Department regarding the TCJA. In addition, the tax impact of foreign operations includes the effects of restructuring costs in certain foreign subsidiaries for which the Company was not permitted to recognize a tax benefit. During fiscal 2018, we recorded a $33 million measurement period adjustment to reduce our fiscal 2017 provisional estimated net charge related to the transition tax and recorded certain other immaterial measurement period adjustments to reduce our fiscal 2017 provisional estimated impact of the remeasurement of our deferred tax assets and liabilities to reflect the TCJA rate reduction. During fiscal 2017, we recorded a net $57 million charge related to the estimated effects of the TCJA primarily due to the impact of the one-time transition tax on the deemed repatriation of foreign income and the impact of the TCJA on deferred tax assets and liabilities. In addition, our estimate of the transition tax was also impacted by a change in the structure of certain legal entities in fiscal 2017, which resulted in an overall net tax benefit of approximately $23 million. Deferred tax assets (liabilities) consist of the following:
($ in millions) |  | February 1, 2020 |  | February 2, 2019
Gross deferred tax assets: |  |  |  |
Deferred rent |  | $ | — |  |  | $ | 124 |
Operating lease liabilities |  | 1,726 |  |  | — |
Accrued payroll and related benefits |  | 59 |  |  | 51 |
Accruals |  | 132 |  |  | 106 |
Inventory capitalization and other adjustments |  | 38 |  |  | 42 |
Deferred income |  | 34 |  |  | 29 |
Federal, state, and foreign net operating losses |  | 101 |  |  | 70 |
Other |  | 37 |  |  | 40 |
Total gross deferred tax assets |  | 2,127 |  |  | 462 |
Valuation allowance |  | (199 | ) |  | (156 | )
Total deferred tax assets, net of valuation allowance |  | 1,928 |  |  | 306 |
Deferred tax liabilities: |  |  |  |
Depreciation and amortization |  | (246 | ) |  | (180 | )
Operating lease assets |  | (1,448 | ) |  | — |
Unremitted earnings of certain foreign subsidiaries |  | (2 | ) |  | (2 | )
Unrealized net gain on cash flow hedges |  | (2 | ) |  | (3 | )
Other |  | (9 | ) |  | (6 | )
Total deferred tax liabilities |  | (1,707 | ) |  | (191 | )
Net deferred tax assets |  | $ | 221 |  |  | $ | 115 |
As of February 1, 2020, we had approximately $54 million of state and $463 million of foreign loss carryovers in multiple taxing jurisdictions that could be utilized to reduce the tax liabilities of future years. The tax-effected loss carryovers were approximately $4 million for state and $97 million for foreign as of February 1, 2020. We also had approximately $3 million of foreign tax credit carryovers as of February 1, 2020. We provided a valuation allowance of approximately $83 million against the deferred tax assets related to the foreign loss carryovers. We also provided a valuation allowance of approximately $108 million related to other foreign deferred tax assets and $8 million related to other federal deferred tax assets, including foreign tax credit carryovers. The state losses expire between fiscal 2022 and fiscal 2039. Approximately $344 million of the foreign losses expire between fiscal 2020 and fiscal 2039, and $119 million of the foreign losses do not expire. The foreign tax credits expire in fiscal 2029. The activity related to our unrecognized tax benefits is as follows:
|  | Fiscal Year
($ in millions) |  | 2019 |  | 2018 |  | 2017
Balance at beginning of fiscal year |  | $ | 136 |  |  | $ | 118 |  |  | $ | 44 |
Increases related to current year tax positions |  | 12 |  |  | 11 |  |  | 48 |
Prior year tax positions: |  |  |  |  |  |
Increases |  | 11 |  |  | 29 |  |  | 28 |
Decreases |  | (4 | ) |  | (6 | ) |  | (2 | )
Lapse of Statute of Limitations |  | (1 | ) |  | — |  |  | (1 | )
Cash settlements |  | (1 | ) |  | (15 | ) |  | — |
Foreign currency translation |  | (1 | ) |  | (1 | ) |  | 1 |
Balance at end of fiscal year |  | $ | 152 |  |  | $ | 136 |  |  | $ | 118 |
Of the $152 million, $136 million, and $118 million of total unrecognized tax benefits as of February 1, 2020, February 2, 2019, and February 3, 2018, respectively, approximately $137 million, $125 million, and $106 million, respectively, represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. During fiscal 2019, 2018, and 2017, interest expense of $6 million, $5 million, and $4 million, respectively, was recognized on the Consolidated Statements of Income relating to income tax liabilities. As of February 1, 2020 and February 2, 2019, the Company had total accrued interest related to income tax liabilities of $16 million and $10 million, respectively. There were no accrued penalties related to income tax liabilities as of February 1, 2020 or February 2, 2019. The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France, the United Kingdom, China, Hong Kong, Japan, and India. We are no longer subject to U.S. federal income tax examinations for fiscal years before 2009, and with few exceptions, we also are no longer subject to U.S. state, local, or non-U.S. income tax examinations for fiscal years before 2008. The Company engages in continual discussions with taxing authorities regarding tax matters in the various U.S. and foreign jurisdictions in the normal course of business. As of February 1, 2020, it is reasonably possible that we will recognize a decrease in gross unrecognized tax benefits within the next 12 months of up to $3 million, primarily due to the closing of audits. If we do recognize such a decrease, the net impact on the Consolidated Statements of Income would not be material.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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