Income Taxes

12 Months Ended

Dec. 29, 2020

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

Income tax (benefit) expense for the last three fiscal years consists of the following (in thousands):

	Fiscal Year
	2020			2019			2018
Current:
Federal	$	(5,360	)	$	1,907		$	2,031
State		(314	)		1,922			1,968
		(5,674	)		3,829			3,999
Deferred:
Federal		(21,403	)		(2,652	)		(3,142	)
State		(4,988	)		(121	)		330
		(26,391	)		(2,773	)		(2,812	)
Income tax expense (benefit)	$	(32,065	)	$	1,056		$	1,187

Income tax (benefit) expense for the last three fiscal years differs from the amount that would result from applying the federal statutory rate as follows:

	Fiscal Year
	2020			2019			2018
Income tax at statutory rates		(21.0	)%		21.0	%		21.0	%
State income taxes, net of federal benefit		(5.2	)		3.0			3.3
Permanent differences		0.3			(0.6	)		(5.1	)
Income tax credits		(5.1	)		(20.1	)		(16.0	)
Prior year tax credit true-up		(0.4	)		(0.7	)		(0.8	)
Benefit from net operating loss carryback		(5.2	)		—			—
Other, net		1.0			(0.3	)		(0.1	)
		(35.6	)%		2.3	%		2.3	%

The components of the deferred income tax asset (liability) consist of the following (in thousands):

	December 29, 2020			December 31, 2019
Deferred income tax asset:
Gift cards	$	2,192		$	1,730
Accrued expenses		11,235			9,912
Other		3,656			4,516
Deferred revenues		5			20
Stock-based compensation		4,323			3,976
Deferred rent		130,116			126,882
Income tax credits		27,506			12,949
Net operating losses		4,305			1,744
State tax		55			473
Gross deferred income tax asset		183,393			162,202
Valuation allowance		(802	)		(282	)
Deferred income tax asset, net of valuation allowance		182,591			161,920
Deferred income tax liability:
Property and equipment		(57,249	)		(59,872	)
Intangible assets		(1,605	)		(1,529	)
Operating lease assets		(113,083	)		(116,298	)
Smallwares		(4,427	)		(4,385	)
Deferred income tax liability		(176,364	)		(182,084	)
Net deferred income tax asset (liability)	$	6,227		$	(20,164	)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, allowing for the carryback of net operating losses generated in 2018, 2019 and 2020, refunds of alternative minimum tax credits, temporary modification to the limitations placed on the tax deductibility of net interest expense, and technical amendments regarding the expensing of qualified improvement property (“QIP”). As a result of the CARES Act, the Company is able to carryback losses generated in 2020 and reduce taxes payable for accelerated depreciation on qualified improvements property in 2018 and 2019.

At December 29, 2020, we had federal and California income tax credit carryforwards of approximately $27.6 million and $0.8 million, respectively, consisting primarily of the credit for FICA taxes paid on reported employee tip income and California enterprise zone credits. The FICA tax credits will begin to expire in 2035 and the California enterprise zone credits will begin to expire in 2023.

At December 29, 2020, we have federal net operating losses (“NOLs”) of approximately $33.2 million that will be carried back to taxable income year of 2015. In addition, we have state NOLs of approximately $89.4 million that will expire over various periods beginning 2021 through 2040.

As of December 29, 2020, and December 31, 2019, we have recorded a valuation allowance against certain state net operating loss and tax credit carryforwards of $0.8 million and $0.3 million, respectively, net of the federal benefit which are not more likely than not to be realized prior to expiration. We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 29, 2020 and December 31, 2019, we had accrued $0.1 million for interest and penalties with respect to uncertain tax positions.

As of December 29, 2020, our accrual for unrecognized tax benefits was approximately $1.3 million, of which approximately $1.0 million, if reversed would impact our effective tax rate. We anticipate no change in our liability for unrecognized tax benefits within the next twelve-month period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Fiscal Year
	2020			2019			2018
Gross unrecognized tax benefits at beginning of year	$	1,345		$	1,532		$	1,516
Increases for tax positions taken in prior years		190			10			69
Decreases for tax positions taken in prior years		(291	)		(5	)		(49	)
Increases for tax positions taken in the current year		89			130			87
Lapse in statute of limitations		—			(322	)		(91	)
Gross unrecognized tax benefits at end of year	$	1,333		$	1,345		$	1,532

Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of December 29, 2020, the earliest tax year still subject to examination by the Internal Revenue Service is 2015. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2015.