NOTE 11. INCOME TAXES

The provision (benefit) for income taxes includes:

	52 Weeks Ended		52 Weeks Ended			52 Weeks Ended

	December 28, 2013		December 29, 2012			December 31, 2011
Current:
Federal	$	—	$	(8,000	)	$	44,000
State		59,000		87,000			(294,000	)


		59,000		79,000			(250,000	)


Deferred:
Federal		7,476,000		(843,000	)		454,000
State		2,733,000		(521,000	)		(20,000	)


		10,209,000		(1,364,000	)		434,000


Provision (benefit) for income taxes	$	10,268,000	$	(1,285,000	)	$	184,000

The Company's effective tax rate, as a percent of income before income taxes, differs from the statutory federal tax rates as follows:

	52 Weeks Ended			52 Weeks Ended			52 Weeks Ended

	December 28, 2013			December 29, 2012			December 31, 2011
Federal statutory tax rate		34.0	%		34.0	%		34.0	%
State and local income taxes, net of federal tax benefit		4.3	%		4.6	%		8.0	%
Valuation allowance		(80.3	)%		(28.3	)%		(24.8	)%
Change in unrecognized tax benefits		0.0	%		0.0	%		(12.0	)%
Other net, primarily permanent differences		(0.5	)%		(0.7	)%		2.9	%


Provision for income taxes		(42.5	)%		9.6	%		8.1	%

The major components of the Company's net deferred tax assets (liabilities) at December 28, 2013 and December 29, 2012 are as follows:

Current	December 28, 2013			December 29, 2012

Group insurance	$	217,000		$	227,000
Sales return reserve		257,000			189,000
Inventory		614,000			639,000
Prepaid expenses		(406,000	)		(514,000	)


		682,000			541,000
Valuation allowance		(682,000	)		(189,000	)


Total Current	$	—		$	352,000

Non-Current	December 28, 2013			December 29, 2012

Federal and State tax net operating loss carry-forwards	$	22,311,000		$	13,556,000
Deferred rent		1,438,000			1,380,000
Deferred construction allowances		(7,884,000	)		(7,273,000	)
Other (principally depreciation expense)		11,816,000			10,968,000


		27,681,000			18,631,000
Valuation allowance		(27,681,000	)		(8,774,000	)


Total Non-current	$	—		$	9,857,000

During fiscal 2013 and 2012, the Company generated federal net operating losses of approximately $22.7 million and $17.9 million, respectively. During fiscal 2011, the Company generated federal taxable income of $2.2 million. At December 28, 2013, the Company had federal net operating loss ("NOL") carry-forwards of approximately $55.7 million, expiring from 2030 through 2033.

In assessing the realization of our deferred tax assets, we consider all available evidence to determine whether it is more likely than not that some portion or all of the net deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income, during the periods in which those temporary differences become realizable. We consider the scheduled reversal of deferred tax assets (including the impact of available carry-back and carry-forward periods) and projected taxable income in assessing the realization of federal deferred tax assets. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company's current or previous losses are given more weight than its projected future performance. Consequently, based on our evaluation of all available evidence, in particular our recent operating losses, the Company increased the federal valuation allowance by $15.7 million and $3.7 million during fiscal 2013 and 2012, respectively. During fiscal 2011, the Company reduced the federal valuation allowance by $0.5 million, primarily due to the utilization of net operating loss carry-forwards. At December 28, 2013, the federal valuation allowance was $23.9 million.

For state income tax purposes, the Company increased the state valuation allowance by $3.8 million and $138,000 during fiscal 2013 and 2012, respectively. During fiscal 2011, the Company reduced the state valuation allowance by $112,000. At December 28, 2013, the state valuation allowance was $4.5 million. The Company's state NOLs expire from 2013 through 2033.

At December 29, 2012, the current portion of deferred tax assets and liabilities are included in prepaid expenses and other current assets, while the non-current portion of deferred tax assets and liabilities are included in other assets on the Company's accompanying consolidated balance sheets.

The Company accounts for Uncertainty in Income Taxes in accordance with Topic 740 of the FASB ASC which prescribes a comprehensive model of how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. The provision also states that a tax benefit from an uncertain tax position may be recognized if it is "more likely than not" that the position is sustainable, based upon its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that has greater than a 50% likelihood of being realized upon the ultimate settlement with a taxing authority having full knowledge of all relevant information. As of each of December 28, 2013 and December 29, 2012, the Company had no reserve recorded for potential tax contingencies.

Although the Company believes that it has adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than the Company's accrued position. Accordingly, the Company's provisions on federal, state and local tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise resolved. As of December 28, 2013, the Company does not believe that its estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.

The Company and certain of its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and local jurisdictions.

The Company, with few exceptions, is subject to federal, state and local income tax examinations by taxing authorities for years after 2009.