INCOME TAXES

The provision for income taxes is based on the following components (in thousands):



For the Years Ended	December 26, 2018			December 27, 2017			December 28, 2016
Current income taxes:
Federal	$	—		$	—		$	—
State	220			250			224
Total current	220			250			224
Deferred income taxes:
Federal	(3,526		)	1,495			9,660
State	98			192			2,730
Total deferred	(3,428		)	1,687			12,390
Charge in lieu of tax (attributable to stock options)	—			—			169
Adjustment to deferred taxes for tax rate change	—			(1,440		)	—
Tax provision for income taxes	$	(3,208	)	$	497		$	12,783

On December 22, 2017 the U.S government enacted the Tax Act. The Tax Act reduces the corporate tax rate to from 35% to 21%, effective for tax years beginning January 1, 2018. The Company is subject to the provisions of ASC 740, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The enacted reduction in the corporate federal income tax rate resulted in a re-measurement of the Company’s net deferred tax assets and liabilities with a one-time, non-cash increase to income tax benefit. Consequently, we recorded a decrease related to deferred tax assets and deferred tax liabilities of $12.1 million and $13.5 million, respectively, with a net benefit to deferred income tax expense of $1.4 million for the year ended December 27, 2017. In addition, under the new tax law, the corporate alternative minimum tax (“AMT”) is repealed effective for tax years beginning January 1, 2018. For tax years beginning in 2018, 2019 and 2020, to the extent AMT credit carryovers exceed regular tax liability, 50% of the excess of AMT credit carryovers would be refundable. Any remaining AMT credits would be fully refundable in 2021.

The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0% for fiscal 2018 and 35.0% for both fiscal 2017 and fiscal 2016 as follows:



For the Years Ended	December 26, 2018		December 27, 2017		December 28, 2016
Statutory federal income tax rate applied to earnings before income taxes and extraordinary items	21.0	%	35.0	%	35.0	%
TRA expense	1.3		(21.4	)	0.4
Revaluation of deferred taxes	—		(15.8	)	—
Change in valuation allowance	(6.9	)	10.9		1.3
WOTC Credit	3.3		(2.5	)	(0.8	)
State tax benefit (net of federal benefit)	5.0		0.6		5.0
Stock option exercises	2.1		—		—
Other	0.5		(1.3	)	0.2
Total	26.3	%	5.5	%	41.1	%

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets. After evaluating all of the positive and negative evidence, including the Company’s continued income from operations, the Company concluded that it is more likely than not that its deferred tax assets will be realized. Beginning in fiscal 2015 and 2016, the Company recorded a valuation allowance against its deferred tax assets resulting from certain tax credits that may not be realizable prior to the time the credits expire. As of December 28, 2016, the Company's total valuation allowance was $3.3 million. In fiscal 2017 and 2018, the Company recorded an additional $1.0 million and $0.8 million, respectively to the valuation allowance. As of December 26, 2018 the total valuation allowance was $5.1 million.

On July 30, 2014, the Company entered into the TRA. The TRA calls for the Company to pay its pre-IPO stockholders 85% of the cash savings that the Company realizes in its taxes as a result of utilizing its NOLs and other tax attributes attributable to preceding periods. The TRA charge (benefit) expense is a permanent add-back to the Company’s taxable income. TRA resulted in approximately $0.8 million of benefit in fiscal 2018 as a result of changes to future forecasted results and timing of deductibility of certain temporary differences including the current year settlement accrual, $5.6 million of benefit in fiscal 2017 as a result of a reduction in the federal corporate income tax rate related to tax reforms discussed further below, and $0.4 million of tax expense in fiscal 2016. In fiscal 2018, we paid $7.3 million to our pre-IPO stockholders under the TRA.

As of December 26, 2018 and December 27, 2017, the deferred tax assets related to California Enterprise Zone credits, net of valuation allowances are $4.4 million and $5.4 million, respectively.

The Company’s deferred tax assets and liabilities as of December 26, 2018 and December 27, 2017 are summarized below. The balances reflect the revaluation for the reduction in the Federal corporate rate to 21.0%.



	December 26, 2018			December 27, 2017
Deferred assets:
Capital leases	$	53		$	90
Accrued vacation	456			428
Accrued legal	10,343			—
Deferred rent	3,788			3,516
Accrued workers’ compensation	1,660			1,450
Enterprise zone and other credits	13,001			12,722
Net operating losses	6,260			13,488
Fixed assets	3,374			4,176
Other	5,239			2,261
Total deferred tax assets	44,174			38,131
Valuation allowance	(5,149		)	(4,306		)
Net deferred tax assets	39,025			33,825
Deferred liabilities:
Goodwill	(6,229		)	(6,037		)
Trademark	(17,654		)	(17,613		)
Prepaid expense	(528		)	(380		)
Fixed asset	—			—
Other	(2,905		)	(2,628		)
Deferred tax liabilities	(27,316		)	(26,658		)
Net deferred tax asset	$	11,709		$	7,167

The net deferred tax asset amounts above as of December 26, 2018 and December 27, 2017 have been classified in the accompanying consolidated balance sheets as noncurrent assets.

As of December 26, 2018, the Company has federal and state NOL carryforwards of approximately $29.8 million and less than $0.1 million, respectively, which expire beginning in 2032 and 2027, respectively. The Company also has state enterprise zone credits of approximately $10.9 million, which expire in 2023, federal Work Opportunity Credits of approximately $1.4 million, which will expire in 2038 and federal and state AMT credits of approximately $0.5 million, which carry forward indefinitely. The utilization of NOL carryforwards may be subject to limitation under section 382 of the Internal Revenue Code of 1986 (the “Code”) and similar state law provisions.

As of December 26, 2018, December 27, 2017, and December 28, 2016, the Company had no accrual for unrecognized tax benefits. Consequently, no interest or penalties have been accrued by the Company. The Company believes that no significant changes to the amount of unrecognized tax benefits will occur within the next twelve months.

The Company is subject to taxation in the United States and in various state jurisdictions. The Company is no longer subject to U.S. examination for years before 2014 by the federal taxing authority, and for years before 2013 by state taxing authorities.