Income Taxes

The component of the provision for income taxes are as follows (in thousands):



	Successor					Predecessor
	53 Weeks Ended		26 Weeks Ended			26 Weeks Ended		52 Weeks Ended
	January 3, 2017		December 29, 2015			June 30, 2015		December 30, 2014
Current:
Federal	$	4,204	$	—		$	110	$	—
State	270		24			79		(67		)
	4,474		24			189		(67		)
Deferred:
Federal	7,145		(90		)	15		(128		)
State	3,710		178			536		1,293
	10,855		88			551		1,165
Income tax provision	$	15,329	$	112		$	740	$	1,098

The effective tax rates for the fifty-three weeks ended January 3, 2017 (Successor), twenty-six weeks ended December 29, 2015 (Successor), twenty-six weeks ended June 30, 2015 (Predecessor) and fifty-two weeks ended December 30, 2014 (Predecessor) were 42.3%, 4.1%, 26.0% and (13.5)%, respectively. The difference between the effective rates and the statutory federal income tax rate is composed of the following items (dollars in thousands):



	Successor										Predecessor
	53 Weeks Ended					26 Weeks Ended					26 Weeks Ended					52 Weeks Ended
	January 3, 2017					December 29, 2015					June 30, 2015					December 30, 2014
Federal income taxes	$	12,685		35.0	%	$	968		35.0	%	$	995		35.0	%	$	(2,855	)	35.0	%
State and local income taxes, net of federal tax benefit	1,882			5.2	%	280			10.1	%	435			15.3	%	(348		)	4.2	%
Targeted job credits	(448		)	(1.2	)%	(512		)	(18.5	)%	(34		)	(1.2	)%	(289		)	3.5	%
Warrant liability	—			—	%	—			—	%	(12		)	(0.4	)%	496			(6.1	)%
Investment in subsidiary	570			1.6	%	83			3.0	%	383			13.5	%	560			(6.9	)%
Change in valuation allowance	—			—	%	(1,927		)	(69.7	)%	(2,805		)	(98.6	)%	3,097			(38.0	)%
Transaction costs	227			0.6	%	1,194			43.2	%	2,255			79.3	%	—			—	%
Permanent tax differences and other	413			1.1	%	26			1.0	%	(477		)	(16.9	)%	437			(5.2	)%
Income tax provision	$	15,329		42.3	%	$	112		4.1	%	$	740		26.0	%	$	1,098		(13.5	)%

Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):



	Successor
	January 3, 2017			December 29, 2015
Deferred tax assets:
Deferred rent	$	630		$	291
Accrued insurance	4,699			5,094
Reserve for restructuring and closed restaurants	1,252			1,922
Net operating loss carryforwards and tax credits	988			9,755
Deferred income	1,801			2,259
Stock-based compensation	919			597
Accrued compensation	2,897			2,865
Other, net	650			383
Deferred tax assets	13,836			23,166
Less valuation allowance	—			—
Net deferred tax assets	13,836			23,166
Deferred tax liabilities:
Property, equipment and intangibles	(96,929		)	(95,996		)
Investment in subsidiary	(6,045		)	(4,639		)
Prepaid expenses	(2,135		)	(2,054		)
Deferred tax liabilities	(105,109		)	(102,689		)
Net deferred tax liabilities	$	(91,273	)	$	(79,523	)

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, an update to ASC 740, Income Taxes (the "Update"). U.S. GAAP previously required entities to separate deferred income tax liabilities and assets into current and non-current amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. The former requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented in a single amount is not affected by the amendments in this Update.

For public business entities, the amendments in the Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The FASB also decided to permit early application by all entities as of the beginning of any interim or annual reporting period. The FASB further provided that the Update may be applied to all deferred tax liabilities and assets retrospectively to all periods presented. The Company chose to adopt the Update in fiscal year ended December 29, 2015 (Successor) and apply this Update on a retrospective basis. All of the Company’s deferred tax liabilities are presented as non-current deferred tax liabilities on the accompanying consolidated balance sheets as of January 3, 2017 (Successor) and December 29, 2015 (Successor).

The Company maintains deferred tax liabilities related to trademarks and other indefinite lived assets that are not netted against the deferred tax assets as reversal of the taxable temporary difference cannot serve as a source for realization of the deferred tax assets, because the deferred tax liability will not reverse until some indefinite future period when the assets are either sold or written down due to an impairment.

As part of purchase accounting, the Company was required to record all of DTH’s acquired assets and liabilities at their acquisition date fair value, including deferred income taxes. The Company considered the weight of both positive and negative evidence and concluded that it is more likely than not that DTH's deferred tax assets will be realized and that no valuation allowance on DTH's deferred tax asset was required as of the date of acquisition.

As a result, the Company established deferred tax assets as well as deferred tax liabilities related to indefinite-lived intangibles through the purchase price allocation (see Note 3). In addition, after considering the Business Combination, the projected post-combination results and all available evidence, the Company released $1.9 million of valuation allowance that was previously provided against the Company's deferred tax assets. In accordance with ASC 805-740-30-3, the Company recorded this release through income tax benefit during the twenty-six week period ended December 29, 2015 (Successor).

Management believe it is more likely than not that all deferred tax assets will be realized and therefore no valuation allowance as of January 3, 2017 (Successor) and December 29, 2015 (Successor) is required.

The Company did not have any federal net operating loss carryforwards as of January 3, 2017 (Successor) and had state net operating loss carryforwards $10.3 million as of January 3, 2017 which begin to expire in 2027. The Company had no federal tax credit carryfowards as of January 3, 2017. State tax credit carryforwards as of January 3, 2017 (Successor) totaled $0.6 million and begin to expire in 2024.

As of January 3, 2017 (Successor) and December 29, 2015 (Successor), the liability for unrecognized tax positions was $0.2 million, and is included in other non-current liabilities in the consolidated balance sheets. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of January 3, 2017 (Successor), the Company did not have any accrued interest and penalties related to uncertain tax positions. The Company does not expect any significant increases or decreases within the next twelve months to its unrecognized tax positions. The total amount of net unrecognized tax positions that would impact the Company's effective tax rate, if ever recognized, is $0.2 million.

The following table summarizes the changes to unrecognized tax positions (in thousands):



	Successor				Predecessor
	53 Weeks Ended		26 Weeks Ended		26 Weeks Ended		52 Weeks Ended
	January 3, 2017		December 29, 2015		June 30, 2015		December 30, 2014
Balance at beginning of period	$	212	$	212	$	—	$	—
Increases (decreases) related to prior year tax positions	—		—		—		—
Increases (decreases) related to current year tax positions	—		—		212		—
Expiration of the statute of limitations for the assessment of taxes	—		—		—		—
Settlements	—		—		—		—
Balance at end of period	$	212	$	212	$	212	$	—

The Company is subject to U.S. and state income taxes. The Company is no longer subject to federal and state income tax examinations for years before 2013 and 2012, respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses and tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss and tax credit carry forward amounts.

The Protecting Americans From Tax Hikes (PATH) Act was enacted on December 21, 2015. Included within this legislation was the work opportunity credit, and extension of the fifty percent first year bonus depreciation, both of which had previously expired on December 31, 2014. As the legislation was enacted during the fourth quarter of fiscal year 2015, the impact was not previously accounted for in the Company's effective tax rate or income tax payable calculations. The impact to the effective tax rate during the twenty-six weeks ended December 29, 2015 (Successor) was approximately (18.5)%.