Income Taxes

9 Months Ended

May 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table details the categories of total income tax assets and liabilities resulting from the cumulative tax effects of temporary differences: 

	May 31, 2022		August 25, 2021
	(In thousands)
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims	$	219	$	402
Deferred compensation	—		80
Net operating losses	36		10,603
General business and foreign tax credits	10,823		12,105
Depreciation, amortization and impairments	2,772		2,291
Interest expense	—		1,953
Lease liabilities	987		1,551
Straight-line rent, dining cards, accruals, and other	395		416
Subtotal	15,232		29,401
Valuation allowance	(14,985)		(28,506)
Total deferred income tax assets	247		895
Deferred income tax liabilities:
Property taxes and other	763		680
Lease assets	588		924
Total deferred income tax liabilities	1,351		1,604
Net deferred income tax asset	$	(1,104)	$	(709)

At May 31, 2022, we recognized a net deferred tax liability of $1.1 million after valuation allowance as a result of anticipated taxable gains to be generated from future property sales as part of our Plan of Liquidation and our ability to utilize our deferred tax assets. The most significant deferred tax asset prior to valuation allowance is our general business tax credits carryovers to future years of $10.8 million. This item may be carried forward up to twenty years for possible utilization in the future. The

carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2039, if not utilized by then. The utilization of general business credits is subject to limitations based on the federal income tax liability before applying the general business credits within a tax year. Deferred tax assets available to be utilized against state taxable gains generated on future property sales will differ per state jurisdiction. The net deferred tax liability is included in other liabilities on our consolidated statement of net assets in liquidation at May 31, 2022.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including the Plan of Liquidation. In the third quarter of fiscal 2018, we concluded that a full valuation allowance on our net deferred tax assets was necessary. As of May 31, 2022, we recognized a net deferred tax liability due to our expectation that we will be able to utilize our deferred tax assets as a result of implementing our Plan of Liquidation.

An analysis of the provision for income taxes for continuing operations under the going concern basis of accounting was as follows.

	12 Week Period Ended
	November 18, 2020
	(In thousands)
Current federal and state income tax expense	$	54
Current foreign income tax expense	4
Provision for income taxes	$	58

Under the going concern basis of accounting and relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense, computed using the statutory tax rate, was as follows.

 

	12 Week Period Ended
	November 18, 2020
	Amount		%
	(in thousands, except percentages)
Income tax benefit from continuing operations at the federal rate	$	(618)	21.0	%
Permanent and other differences:
Stock options and restricted stock	4		(0.1)
Other permanent differences	1		—
State income tax, net of federal benefit	53		(1.8)
Other	70		(2.4)
Change in valuation allowance	548		(18.7)
Provision for income taxes from continuing operations	$	58	(2.0)	%

For the fiscal period ended May 31, 2022, the Company is estimated to report a federal taxable income of $8.1 million. For the fiscal year ended August 25, 2021, the Company generated a federal taxable loss of $3.4 million.

Our income tax filings are periodically examined by various federal and state jurisdictions. There are no open examinations by federal and state income tax jurisdictions. The Company's U.S. federal income tax return remains open to examination for fiscal 2019 through fiscal period ended May 31, 2022.

There were no payments of federal income taxes in fiscal 2022 or fiscal 2021. The Company has had income tax filing requirements in over 30 states. State income tax payments were $0.3 million and $0.3 million in fiscal period ending May 31, 2022 and fiscal year 2021, respectively.

The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal year 2021 and the fiscal period ended May 31, 2022.

Balance as of August 26, 2020	$	25
Decrease based on prior year tax positions	—
Interest Expense	—
Balance as of August 25, 2021	$	25
Decrease based on prior year tax positions	—
Interest Expense	—
Balance as of May 31, 2022	$	25

The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of May 31, 2022. Under the going concern basis of accounting, the Company had included interest or penalties related to income tax matters as part of income tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of May 31, 2022.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements.