20.	INCOME TAXES

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

	2017			2016			2015
Current:
Federal	$	73,792		$	1,110		$	5,307
State		9,084			639			1,722
Current income tax provision		82,876			1,749			7,029
Deferred:
Federal		(133,182	)		(15,095	)		15,117
State		10,254			(65,339	)		2,489
Deferred income tax (benefit) provision		(122,928	)		(80,434	)		17,606
Total income tax (benefit) provision	$	(40,052	)	$	(78,685	)	$	24,635

The Company’s effective income tax rates for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016 were (10)%, (60)% and 13%, 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. Changes in tax laws and rates may affect recorded deferred tax assets and liabilities and the Company’s effective tax rate in the future.

On December 22, 2017 the U.S. government enacted comprehensive tax legislation referred to herein as the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to (1) a reduction of the U.S. federal corporate tax rate and (2) bonus depreciation that permits full expensing of qualified property.

The SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740, Income Taxes is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740, Income Taxes on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Tax Act reduced the corporate tax rate to 21 percent, effective January 1, 2018 and provided for bonus depreciation that allows for full expensing of qualified assets placed into service after September 27, 2017. Our accounting for the reduction of the corporate tax rate and bonus depreciation that allows for full expensing of qualified property is incomplete, However, the Company was able to determine a reasonable estimate of the impact of the corporate tax rate reduction and bonus depreciation that will allow for full expensing of qualified property. Consequently, we have recorded a provisional decrease to our deferred tax liabilities of $173 million with a corresponding adjustment to deferred income tax benefit of $173 million for the year ended December 30, 2017 related to the reduction of the corporate tax rate. Additionally, we have recorded a provisional increase in our net deferred tax liabilities of $4 million with a corresponding adjustment of $4 million to other long-term liabilities for the year ended December 30, 2017 related to bonus depreciation that allowed for full expensing of qualified property. The income tax effects for these positions require further analysis to prepare the accounting related to the income tax effects of the Tax Act in reasonable detail. The accounting for these items is expected to be complete when the 2017 U.S. federal income tax return is filed in 2018.

The reconciliation of the (benefit) provision 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 years is shown below (in thousands).

	2017			2016			2015
Federal income taxes computed at statutory rate	$	141,485		$	45,888		$	67,254
State income taxes, net of federal income tax benefit		16,023			1,886			2,776
Stock-based compensation		(26,150	)		(2,873	)		438
Non-deductible expenses		5,349			4,700			2,911
Change in the valuation allowance for deferred tax assets		(806	)		(127,518	)		(47,531	)
Net operating loss expirations		927			1,563			1,860
Tax credits		(3,675	)		(3,217	)		—
Change in unrecognized tax benefits		(1,147	)		647			(1,946	)
Change in U.S. federal statutory tax rate		(173,057	)		—			—
Other		999			239			(1,127	)
Total income tax (benefit) provision	$	(40,052	)	$	(78,685	)	$	24,635

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

	December 30, 2017			December 31, 2016
Deferred tax assets:
Allowance for doubtful accounts	$	7,416		$	10,552
Accrued employee benefits		6,472			35,020
Restructuring reserves		4,646			14,885
Workers’ compensation, general and fleet liabilities		42,958			61,118
Deferred income	162				470
Deferred financing costs		1,744			5,379
Postretirement benefit obligations		23,350			51,618
Net operating loss carryforwards		86,246			162,511
Other accrued expenses		9,819			30,429
Total gross deferred tax assets		182,813			371,982
Less valuation allowance		(28,962	)		(24,274	)
Total net deferred tax assets		153,851			347,708
Deferred tax liabilities:
Property and equipment		(92,092	)		(216,556	)
Inventories		(29,802	)		(41,765	)
Intangibles		(273,774	)		(435,817	)
Total deferred tax liabilities		(395,668	)		(694,138	)
Net deferred tax liability	$	(241,817	)	$	(346,430	)

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

	December 30, 2017			December 31, 2016
Noncurrent deferred tax assets	$	21,505		$	34,405
Noncurrent deferred tax liability		(263,322	)		(380,835	)
Net deferred tax liability	$	(241,817	)	$	(346,430	)

As of December 30, 2017, the Company had tax affected state net operating loss carryforwards of $86 million, which will expire at various dates from 2018 to 2037. The Company’s net operating loss carryforwards expire as follows (in millions):

	State
2018-2022	$	25
2023-2027		42
2028-2032		14
2033-2037		5
	$	86

The Company also has state credit carryforwards of $12 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, Income Taxes 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 previously recorded 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):

	2017		2016			2015
Balance at beginning of period	$	24,274	$	151,792		$	232,163
Expense (benefit) recognized		4,688		(127,518	)		(47,531	)
Other comprehensive income		—		—			(32,484	)
Other		—		—			(356	)
Balance at end of period	$	28,962	$	24,274		$	151,792

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, Income Taxes 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 2017, 2016, and 2015 was as follows (in thousands):

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
Gross increases due to positions taken in prior years		71,801
Gross decreases due to positions taken in prior years		(3,602	)
Gross decreases due to positions taken in current year		(5,098	)
Decreases due to lapses of statute of limitations		(319	)
Decreases due to changes in tax rates		(3,837	)
Balance at December 30, 2017	$	108,185

The Company believes it is reasonably possible that the liability for unrecognized tax benefits will decrease by approximately $64 million in the next 12 months as a result of the completion of tax audits, the expiration of the statute of limitations, or the receipt of affirmative written consent of the IRS to change a method of accounting.

Included in the balance of unrecognized tax benefits at the end of fiscal years 2017, 2016 and 2015 was $60 million, $43 million and $40 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of December 30, 2017, the Company had accrued interest and penalties of approximately $5 million, and $4 million as of December 31, 2016 and January 2, 2016.

The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. Our 2007 through 2016 U.S. federal tax years, and various state tax years from 2000 through 2016, 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.