(11) Income Taxes

Total income tax expense (benefit) for fiscal years 2009, 2010 and 2011 was allocated as follows:


	2009			2010			2011
Income (loss) from continuing operations	$	(1,427	)	$	4,769		$	1,597
Loss from discontinued operations		(879	)		(455	)		182

Total consolidated income tax expense (benefit)	$	(2,306	)	$	4,314		$	1,778

Income tax expense (benefit) from continuing operations consists of the following:


	Current		Deferred			Total
Year ended December 27, 2009
U.S. Federal	$	85	$	(5,019	)	$	(4,934	)
State		870		2,469			3,339
Foreign		168		—			168

	$	1,123	$	(2,550	)	$	(1,427	)

Year ended December 26, 2010
U.S. Federal	$	2,200	$	620		$	2,820
State		1,645		86			1,731
Foreign		218		—			218

	$	4,063	$	706		$	4,769

Year ended December 25, 2011
U.S. Federal	$	2,217	$	(2,015	)	$	201
State		1,279		(126	)		1,153
Foreign		242		—			242

	$	3,738	$	(2,141	)	$	1,597

Income tax expense differs from amounts computed by applying the federal statutory income tax rate to income from continuing operations before income taxes as follows:


	2009			2010			2011
Income tax expense at statutory rates	$	290		$	7,422		$	7,241
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit		2,286			1,279			1,201
Stock compensation expense (benefit)		(462	)		225			150
Employment tax credits		(2,345	)		(2,878	)		(2,924	)
Decrease to valuation allowance		—			(420	)		(4,077	)
Cumulative impact of adjustment to deferred items		(1,194	)		(833	)		—
Other		(2	)		(26	)		7

	$	(1,427	)	$	4,769		$	1,597

The $4.0 million decrease in the valuation allowance recorded in the second quarter of fiscal year 2011 pertains to certain state deferred tax assets, primarily state net operating loss carryforwards. Previously, the Company had recorded a valuation allowance equal to these state deferred tax assets because the Company did not expect to realize the benefit of these state tax loss carryforwards. The Company completed a revision of the corporate structure in the second quarter which makes it probable that these state tax loss carryforwards will be used in the future. Therefore the valuation allowance was reduced to zero. Income tax expense for fiscal year 2010 includes a $0.7 million income tax benefit for the correction of an immaterial error related to certain prior year tax credits.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets are presented below:


	2009			2010			2011
Deferred Tax Assets:
Accounts payable and accrued expenses	$	3,275		$	3,601		$	3,600
Deferred rent		4,457			5,160		$	4,256
Net state operating loss carryforwards		4,603			4,123		$	3,989
Tax credit carryforwards		5,683			6,558		$	5,553
Property and equipment		19,899			20,663		$	22,272
Intangible assets		7,592			4,026		$	1,918
Other		1,344			321		$	336

Total Gross deferred tax assets		46,853			44,452		$	41,924
Less valuation allowance		(7,046	)		(5,793	)	$	(1,203	)

Net deferred tax assets		39,807			38,659		$	40,721
Deferred tax liabilities:
Other		—			(192	)	$	(170	)

Total Gross deferred tax liabilities		—			(192	)	$	(170	)

Net deferred tax assets	$	39,807		$	38,467		$	40,551

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the net deferred tax assets.

As of December 25, 2011, the Company has state net operating loss carry-forwards and tax credit carry-forwards of $106 million and $5.6 million, respectively, which are available to offset federal and state taxable income through 2031.

As of December 25, 2011, the Company's gross unrecognized tax benefits totaled approximately $999, of which $664, if recognized, would impact the effective tax rate. The Company does not anticipate there will be any material changes in the unrecognized tax benefits within the next 12 months. Our continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense.

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


Unrecognized tax benefits balance at December 26, 2010	$	924
Gross increases for tax positions of prior years		251
Settlements		(176	)

Unrecognized tax benefits balance at December 25, 2011	$	999

The Company files consolidated and separate income tax returns in the United States Federal jurisdiction and many state jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal or state and local income tax examinations for years before 2007.