INCOME TAXES

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



For the Years Ended	December 25, 2019		December 26, 2018			December 27, 2017
Current income taxes:
Federal	$	—	$	—		$	—
State	104		220			250
Total current	104		220			250
Deferred income taxes:
Federal	5,991		(3,526		)	1,495
State	3,587		98			192
Total deferred	9,578		(3,428		)	1,687
Adjustment to deferred taxes for tax rate change	—		—			(1,440		)
Tax provision (benefit) for income taxes	$	9,682	$	(3,208	)	$	497

On December 22, 2017 the U.S. government enacted the Tax Cuts and Jobs Act (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 In addition, under the new tax law, the corporate alternative minimum tax (“AMT”) is repealed effective for tax years beginning January 1, 2018.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 both fiscal 2019 and 2018 and 35.0% for fiscal 2017 as follows:



For the Years Ended	December 25, 2019		December 26, 2018		December 27, 2017
Statutory federal income tax rate applied to earnings before income taxes and extraordinary items	21.0	%	21.0	%	35.0	%
State tax benefit (net of federal benefit)	6.0		5.0		0.6
Change in valuation allowance	2.4		(6.9	)	10.9
TRA expense	—		1.3		(21.4	)
Revaluation of deferred taxes	—		—		(15.8	)
WOTC Credit	(0.8	)	3.3		(2.5	)
Stock option exercises	(1.0	)	2.1		—
Other	0.3		0.5		(1.3	)
Total	27.9	%	26.3	%	5.5	%

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. In fiscal 2018 and 2017, the Company recorded a valuation allowance of approximately $5.1 million and $4.3 million, respectively, against its deferred tax asset resulting from certain tax credits that may not be realizable prior to the time the credits expire. In fiscal 2019, the Company recorded an additional $0.9 million to the valuation allowance. As of December 25, 2019, the total valuation allowance was $6.0 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 expense (benefit) is a permanent add-back to the Company’s taxable income. TRA resulted in approximately $0.1 million of expense in fiscal 2019 as a result of changes to future forecasted results, $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 and $5.6 million benefit in fiscal 2017 as a result of reduction in the federal corporate income tax rate related to tax reform. In fiscal 2019, we paid $5.8 million to our pre-IPO stockholders under the TRA.

As of December 25, 2019 and December 26, 2018, the deferred tax assets related to California Enterprise Zone credits, net of valuation allowances are $3.3 million and $4.4 million, respectively.

The Company’s deferred tax assets and liabilities as of December 25, 2019 and December 26, 2018 are summarized below. The balances reflect the revaluation for the reduction in the Federal corporate rate to 21.0%.



	December 25, 2019			December 26, 2018
Deferred assets:
Capital leases	$	31		$	53
Accrued vacation	454			456
Accrued legal	4,434			10,343
Deferred rent	—			3,788
Accrued workers’ compensation	1,090			1,660
Enterprise zone and other credits	10,442			13,001
Net operating losses	1,814			6,260
Fixed assets	2,955			3,374
ROU assets	57,931			—
Other	4,698			5,239
Total deferred tax assets	83,849			44,174
Valuation allowance	(5,993		)	(5,149		)
Net deferred tax assets	77,856			39,025
Deferred liabilities:
Goodwill	(6,060		)	(6,229		)
Trademark	(16,745		)	(17,654		)
Prepaid expense	(791		)	(528		)
ROU liabilities	(52,056		)	—
Other	(167		)	(2,905		)
Deferred tax liabilities	(75,819		)	(27,316		)
Net deferred tax asset	$	2,037		$	11,709

The net deferred tax asset amounts above as of December 25, 2019 and December 26, 2018 have been classified in the accompanying consolidated balance sheets as noncurrent assets.

As of December 25, 2019, the Company has federal and state NOL carryforwards of approximately $8.6 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 $10.6 million, which expire in 2023, and federal Work Opportunity Credits of approximately $1.7 million, which will expire in 2038. 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 25, 2019, December 26, 2018, and December 27, 2017, 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 2015 by the federal taxing authority, and for years before 2014 by state taxing authorities. The Company is currently under IRS examination for tax year ending December 28, 2016 and December 27, 2017. As of December 25, 2019, no proposed adjustments were issued by the IRS. During the first quarter of 2020, the Company has had new discussions with the IRS regarding a potential timing difference adjustment that would not result in a significant impact to the financial statements, if agreed to by the Company.