Unrecognized tax benefits that, if recognized, would affect the effective tax rate

[Table of Contents](#i16ebb68f4bd84ff99a771b20ec27c3fc_7)Deferred Income TaxesDeferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  
Significant components of our net deferred tax assets (liabilities) follow:

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| (in millions) |  | January 29,2022 |  | January 30,2021 |
| Deferred tax assets: |  |   |  |   |
| Operating lease liabilities |  | $ | 1,647.3  |  |  | $ | 1,658.4  |  |
| Net operating losses, interest expense and credit carryforwards |  | 91.5  |  |  | 95.5  |  |
| Accrued expenses |  | 50.7  |  |  | 72.9  |  |
| Accrued compensation expense |  | 34.9  |  |  | 47.2  |  |
| Inventory |  | 24.4  |  |  | —  |  |
| State tax election |  | 15.8  |  |  | 17.4  |  |
| Other |  | 2.4  |  |  | 3.2  |  |
| Total deferred tax assets |  | 1,867.0  |  |  | 1,894.6  |  |
| Valuation allowance |  | (13.0) |  |  | (16.8) |  |
| Deferred tax assets, net |  | 1,854.0  |  |  | 1,877.8  |  |
| Deferred tax liabilities: |  |   |  |   |
| Operating lease right-of-use assets |  | (1,578.4) |  |  | (1,587.2) |  |
| Other intangibles |  | (780.9) |  |  | (840.4) |  |
| Property and equipment |  | (435.6) |  |  | (410.5) |  |
| Prepaids |  | (26.0) |  |  | (25.2) |  |
| Inventory |  | —  |  |  | (4.8) |  |
|  |  |  |  |  |
| Total deferred tax liabilities |  | (2,820.9) |  |  | (2,868.1) |  |
| Deferred income taxes, net |  | $ | (966.9) |  |  | $ | (990.3) |  |

At January 29, 2022, we had certain state tax credit carryforwards, net operating loss carryforwards and capital loss carryforwards totaling $91.5 million. Some of these carryforwards will expire, if not utilized, beginning in 2022 through 2041.A valuation allowance of $13.0 million, net of federal tax benefits, has been provided principally for certain state credit carryforwards and net operating loss carryforwards. Since January 30, 2021, the valuation allowance has been decreased to reflect state credits and net operating losses expected to be utilized over the carryforward period. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred taxes will not be realized. Based upon the availability of carrybacks of future deductible amounts and our projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not the remaining existing deductible temporary differences will reverse during periods in which carrybacks are available or in which we generate net taxable income. Uncertain Tax PositionsWe are participating in the IRS Compliance Assurance Program (“CAP”) for fiscal 2021 and we have been accepted into the program for fiscal 2022. This program accelerates the examination of key transactions with the goal of resolving any issues before the tax return is filed. Our federal tax returns have been examined and all issues have been settled through the fiscal 2019 tax year. Several states completed their examinations during fiscal 2021. In general, fiscal 2018 and forward are within the statute of limitations for state tax purposes. The statute of limitations is still open prior to fiscal 2018 for some states. In fiscal 2020, we participated in the CAP under the IRS’s bridge year program and as a result, the IRS will not be completing an audit on the 2020 tax return. The balance for unrecognized tax benefits at January 29, 2022 was $20.9 million. The total amount of unrecognized tax benefits at January 29, 2022 that, if recognized, would affect the effective tax rate was $16.5 million (net of the federal tax benefit).  
  
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