NOTE 14 - INCOME TAXES

All of our operations are domestic. Income tax expense consisted of the following (in thousands):



	Fiscal Year
	2015			2014		2013
Federal income tax expense:
Current	$	3,380		$	12,948	$	9,462
Deferred	(2,156		)	3,048		(761		)
	1,224			15,996		8,701
State income tax expense:
Current	765			2,323		1,509
Deferred	(174		)	300		(47		)
	591			2,623		1,462
Total income tax expense	$	1,815		$	18,619	$	10,163

Income tax is included in the consolidated financial statements as follows (in thousands):



	Fiscal Year
	2015		2014			2013
Continuing operations	$	1,815	$	22,847		$	15,400
Discontinued operations	—		(4,228		)	(5,237		)
Total income tax expense	$	1,815	$	18,619		$	10,163

Reconciliation between the federal income tax expense charged to income before income tax computed at statutory tax rates and the actual income tax expense recorded follows (in thousands):



	Fiscal Year
	2015			2014			2013
Federal income tax expense at the statutory rate	$	1,958		$	17,314		$	9,382
State income taxes, net	332			1,811			974
Uncertain tax position	128			92			531
Other	474			590			399
Job credits	(1,077		)	(1,188		)	(1,123		)
Total income tax expense	$	1,815		$	18,619		$	10,163

Deferred tax assets (liabilities) consisted of the following (in thousands):



	January 30, 2016			January 31, 2015
Gross deferred tax assets:
Net operating loss carryforwards	$	469		$	521
Accrued expenses	2,719			2,392
Lease obligations	19,186			18,690
Deferred compensation	11,223			9,967
Deferred income	4,592			4,707
Other	2,879			2,905
	41,068			39,182
Gross deferred tax liabilities:
Inventory	(6,725		)	(5,756		)
Depreciation and amortization	(54,218		)	(55,320		)
	(60,943		)	(61,076		)

Valuation allowance	(402		)	(402		)
Net deferred tax liabilities	$	(20,277	)	$	(22,296	)

ASC No. 740, Income Taxes, requires recognition of future tax benefits of deferred tax assets to the extent such realization is more likely than not. Consistent with the requirements of ASC No. 740, the tax benefits recognized related to pre-reorganization deferred tax assets are recorded as a direct addition to additional paid-in capital. The remaining valuation allowance of $0.4 million at January 30, 2016 and January 31, 2015, respectively, was established for pre-reorganization state net operating losses, which may expire prior to utilization. Adjustments are made to reduce the recorded valuation allowance when positive evidence exists that is sufficient to overcome the negative evidence associated with those losses.

We have net operating loss carryforwards for state income tax purposes of approximately $11.7 million which, if not utilized, will expire in varying amounts between 2016 and 2021. We do not have any net operating loss carryforwards for federal income tax purposes.

As of January 30, 2016, the total unrecognized tax benefit was $0.7 million, which if recognized, would favorably affect the effective income tax rate in a future period. A reconciliation of the beginning and ending amount of total unrecognized tax benefits, including associated interest, is as follows (in thousands):



	2015
Balance, beginning of period	$	623
Additions based on tax positions related to 2015	100
Additions for tax positions for prior years	20
Balance, end of period	$	743

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Internal Revenue Service ("IRS") has completed its field examination of the federal income tax returns for 2009, 2010, 2011 and 2012. We have received Revenue Agent Reports from the IRS that seek adjustments to income before taxes of approximately $3.2 million in connection with an unresolved issue related to Section 199, Domestic Production Deduction. We filed a protest with the IRS Appeals Office regarding the proposed adjustment. Meetings with the Appeals Office have been set for April 2016. We believe that adequate provision has been made for any adjustments that may result from tax audits. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

We recognize penalty and interest accrued related to unrecognized tax benefits as an income tax expense. During the years ended January 30, 2016, January 31, 2015, and February 1, 2014, the amount of penalties and interest accrued was approximately nil. We are subject to U.S. federal income tax examinations by tax authorities for 2013 forward. We are also subject to audit by the taxing authorities of 38 states for years generally after 2011.