Accounting for Income Taxes

3 Months Ended

May 04, 2014

Accounting for Income Taxes [Abstract]

(4)	Accounting for Income Taxes

Income taxes are provided using the asset/liability method, in which deferred taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. Deferred tax assets are reviewed for recoverability and valuation allowances are provided as necessary. The Company generally records income tax expense during interim periods based on its best estimate of the full year’s effective tax rate. However, income tax expense relating to adjustments to the Company’s liabilities for uncertainty in income tax positions for prior reporting periods are accounted for in the interim period in which it occurs. Income tax expense relating to adjustments for current year uncertain tax positions are accounted for as a component of the adjusted annualized effective tax rate.

In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accounting guidance states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining whether a valuation allowance is not needed against deferred tax assets. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses.

During fiscal 2014, the Company recorded a valuation allowance on its net deferred tax assets as a result of cumulative losses from operations during the most recent three year periods. The cumulative operating results during the thirty-six months ended May 4, 2014 resulted in a loss. As such, the Company recorded no provision for federal income taxes for the quarter ended May 4, 2014 as cumulative losses were negative for the cumulative three year period.

The statute of limitations for the Company’s federal income tax returns is open for fiscal 2011 through fiscal 2014. The Company files in numerous state jurisdictions with varying statutes of limitation. The Company’s state returns are subject to examination by the taxing authority for fiscal 2010 through 2014 or fiscal 2011 through fiscal 2014, depending on each state’s statute of limitations.

The Company is continuing to evaluate the impact of the recent regulations concerning amounts paid to acquire, produce, or improve tangible personal property and recovery of basis upon disposition. Given that Revenue Procedures were issued in late January of 2014, the Company is determining whether or not any changes in an accounting method are required. Presently, the Company does not anticipate a material impact on its financial statements.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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