20.	INCOME TAXES

The Income tax (benefit) provision for the last three fiscal years consisted of the following (in thousands):

	2016			2015		2014
Current:
Federal	$	1,110		$	5,307	$	(146	)
State		639			1,722		311
Current Income tax provision		1,749			7,029		165
Deferred:
Federal		(15,095	)		15,117		34,168
State		(65,339	)		2,489		1,635
Deferred Income tax (benefit) provision		(80,434	)		17,606		35,803
Total Income tax (benefit) provision	$	(78,685	)	$	24,635	$	35,968

The Company’s effective income tax rates for the fiscal years ended December 31, 2016, January 2, 2016 and December 27, 2014 were (60)%, 13% and 97%, respectively. The determination of the Company’s overall effective tax rate requires the use of estimates. The effective tax rate reflects the income earned and taxed in U.S. federal and various state jurisdictions based on enacted tax law, permanent differences between book and tax items, tax credits and the Company’s change in relative contribution to income for each jurisdiction.

The reconciliation of the provisions for income taxes from continuing operations at the U.S. federal statutory income tax rate of 35% to the Company’s income taxes for the last three fiscal is shown below (in thousands).

	2016			2015			2014
Federal income taxes computed at statutory rate	$	45,888		$	67,254		$	(12,931	)
State income taxes—net of federal income tax benefit		1,886			2,776			(1,532	)
Stock-based compensation		(2,873	)		438			131
Non-deductible expenses		4,700			2,911			2,592
Change in the valuation allowance for deferred tax assets		(127,518	)		(47,531	)		54,571
Net operating loss expirations		1,563			1,860			2,019
Tax credits		(3,217	)		—			(8,179	)
Change in unrecognized tax benefits		647			(1,946	)		(1,003	)
Other		239			(1,127	)		300
Total Income tax (benefit) provision	$	(78,685	)	$	24,635		$	35,968

Temporary differences and carryforwards that created significant deferred tax assets and liabilities were as follows (in thousands):

	December 31,			January 2,
	2016			2016
Deferred tax assets:
Allowance for doubtful accounts	$	10,552		$	9,368
Accrued employee benefits		35,020			33,232
Restructuring reserves		14,885			52,548
Workers’ compensation, general and fleet liabilities		61,118			64,936
Deferred income		470			211
Deferred financing costs		5,379			7,751
Pension liability		51,618			33,576
Net operating loss carryforwards		162,511			129,973
Other accrued expenses		30,429			25,941
Total gross deferred tax assets		371,982			357,536
Less valuation allowance		(24,274	)		(151,792	)
Total net deferred tax assets		347,708			205,744
Deferred tax liabilities:
Property and equipment		(216,556	)		(152,181	)
Inventories		(41,765	)		(22,057	)
Intangibles		(435,817	)		(487,300	)
Total deferred tax liabilities		(694,138	)		(661,538	)
Net deferred tax liability	$	(346,430	)	$	(455,794	)

The net deferred tax liability presented in the Consolidated Balance Sheets was as follows (in thousands).

	December 31, 2016			January 2, 2016
Noncurrent deferred tax assets	$	34,405		$	—
Noncurrent deferred tax liability		(380,835	)		(455,794	)
Net deferred tax liability	$	(346,430	)	$	(455,794	)

As of December 31, 2016, the Company had tax affected U.S. federal and state net operating loss carryforwards of $80 million and $82 million, respectively, which will expire at various dates from 2017 to 2036. The Company’s net operating loss carryforwards expire as follows (in millions):

	Federal		State		Total
2017-2021	$	—	$	22	$	22
2022-2026		—		42		42
2027-2031		33		11		44
2032-2036		47		7		54
	$	80	$	82	$	162

The Company also has U.S. federal minimum tax credit carryforwards of approximately $9 million, research and development credit carryforwards of $4 million and other state credit carryforwards of $8 million.

The U.S. federal and state net operating loss carryforwards in the income tax returns filed included unrecognized tax benefits taken in prior years. The net operating losses for which a deferred tax asset is recognized for financial statement purposes in accordance with ASC 740 are presented net of these unrecognized tax benefits.

Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the Company’s domestic net operating losses and tax credit carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

We released the valuation allowance against our U.S. federal net deferred tax assets and certain of our state net deferred tax assets in fiscal year 2016 as we determined it was more likely than not that the deferred tax assets would be realized. We maintained a valuation allowance on certain state net operating loss and tax credit carryforwards expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or the utilization of which is subject to limitation. The decision to release the valuation allowance was made after management considered all available evidence, both positive and negative, including but not limited to, historical operating results, cumulative income in recent years, forecasted earnings, and a reduction of uncertainty regarding forecasted earnings as a result of developments in certain customer and strategic initiatives during 2016.

A summary of the activity in the valuation allowance for the last three fiscal years is as follows (in thousands):

	2016			2015			2014
Balance at beginning of period	$	151,792		$	232,163		$	117,227
(Benefit) expense recognized		(127,518	)		(47,531	)		54,571
Other comprehensive (income) loss		—			(32,484	)		60,340
Other		—			(356	)		25
Balance at end of period	$	24,274		$	151,792		$	232,163

Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future.

The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations in U.S. federal and state jurisdictions. The Company 1) records unrecognized tax benefits as liabilities in accordance with ASC 740, and 2) adjusts these liabilities when the Company’s judgment changes because of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of liabilities for unrecognized tax benefits. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. The Company recognizes an uncertain tax position when it is more likely than not that the position will be sustained upon examination—including resolution of any related appeals or litigation processes—based on the technical merits.

Reconciliation of the beginning and ending amount of unrecognized tax benefits as of fiscal years 2016, 2015, and 2014 was as follows (in thousands):

Balance at December 28, 2013	$	59,291
Gross decreases due to positions taken in prior years		(11,392	)
Gross increases due to positions taken in current year		63
Decreases due to lapses of statute of limitations		(362	)
Decreases due to changes in tax rates		(1,016	)
Balance at December 27, 2014		46,584
Gross decreases due to positions taken in prior years		(4,856	)
Gross increases due to positions taken in current year		—
Decreases due to lapses of statute of limitations		(15	)
Increases due to changes in tax rates		92
Positions assumed in business acquisition		3,279
Balance at January 2, 2016		45,084
Gross increases due to positions taken in prior years		4,743
Gross increases due to positions taken in current year		—
Decreases due to lapses of statute of limitations		(767	)
Increases due to changes in tax rates		180
Balance at December 31, 2016	$	49,240

The Company believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by approximately $3 million in the next 12 months as a result of the completion of tax audits or as a result of the expiration of the statute of limitations.

Included in the balance of unrecognized tax benefits at the end of fiscal years 2016, 2015 and 2014 was $43 million, $40 million and $41 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also included in the balance of unrecognized tax benefits as of those periods was $37 million, $36 million, and $39 million, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts—primarily deferred taxes.

The Company recognizes interest expense related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of December 31, 2016, January 2, 2016 and December 27, 2014, the Company had accrued interest and penalties of approximately $4 million, $4 million and $2 million, respectively. The increase in accrued interest and penalties in the period ending January 2, 2016 was primarily related to unrecognized tax benefits assumed in a business acquisition.

The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. Our 2007 through 2015 U.S. federal tax years, and various state tax years from 2000 through 2015, remain subject to income tax examinations by the relevant taxing authorities. Prior to 2007, the Company was owned by Royal Ahold N.V. (“Ahold”). Ahold has indemnified the Company for 2007 pre-closing consolidated U.S. federal and certain combined state income taxes, and the Company is responsible for all other taxes, and interest and penalties.