Deferred tax assets are evaluated for future

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in income in the period that includes the enactment date. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent that a portion is not more likely than not to be realized. Many factors are considered when assessing whether it is more likely than not that the deferred tax assets will be realized, including recent cumulative earnings, expectations of future taxable income, carryforward periods, and other relevant quantitative and qualitative factors. The recoverability of the deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. In determining the provision for income taxes, an annual effective income tax rate is used based on annual income, permanent differences between book and tax income, and statutory income tax rates. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company records interest and penalties related to unrecognized tax benefits in interest expense and operating, selling, general and adminis- trative expenses, respectively, in the Company’s Consolidated Statements of Income. Refer to Note 9 for additional income tax disclosures. Revenue Recognition Sales The Company recognizes sales revenue, net of sales taxes and estimated sales returns, at the time it sells merchandise to the customer. Digital retail sales include shipping revenue and are recorded upon delivery to the customer. Membership Fee Revenue The Company recognizes membership fee revenue both in the U.S. and internationally over the term of the membership, which is typically 12 months. The following table summarizes membership fee activity for fiscal 2016, 2015 and 2014: Fiscal Years Ended January 31, (Amounts in millions) 2016 2015 2014 Deferred membership fee revenue, beginning of year $ 759 $ 641 $ 575 Cash received from members 1,333 1,410 1,249 Membership fee revenue recognized (1,348) (1,292) (1,183) Deferred membership fee revenue, end of year $ 744 $ 759 $ 641 Membership fee revenue is included in membership and other income in the Company’s Consolidated Statements of Income. The deferred membership fee is included in accrued liabilities in the Company’s Consolidated Balance Sheets. Shopping Cards Customer purchases of shopping cards are not recognized as revenue until the card is redeemed and the customer purchases merchandise using the shopping card. Shopping cards in the U.S. do not carry an expiration date; therefore, customers and members can redeem their shopping cards for merchandise indefinitely. Shopping cards in certain foreign countries where the Company does business may have expiration dates. A certain number of shopping cards, both with and without expiration dates, will not be fully redeemed. Management estimates
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