NOTE 14 - INCOME TAXES

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



	Fiscal Year
	2016			2015			2014
Federal income tax expense (benefit):
Current	$	(5,234	)	$	3,380		$	12,948
Deferred	(19,052		)	(2,156		)	3,048
	(24,286		)	1,224			15,996
State income tax expense (benefit):
Current	292			765			2,323
Deferred	(1,172		)	(174		)	300
	(880		)	591			2,623
Total income tax expense (benefit)	$	(25,166	)	$	1,815		$	18,619

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



	Fiscal Year
	2016			2015		2014
Continuing operations	$	(25,166	)	$	1,815	$	22,847
Discontinued operations	—			—		(4,228		)
Total income tax expense (benefit)	$	(25,166	)	$	1,815	$	18,619

A reconciliation between the federal income tax expense (benefit) computed at statutory tax rates and the actual income tax expense (benefit) recorded is as follows (in thousands):



	Fiscal Year
	2016			2015			2014
Federal income tax expense (benefit) at the statutory rate	$	(22,072	)	$	1,958		$	17,314
State income taxes, net	(1,084		)	332			1,811
Uncertain tax position	(743		)	128			92
Other	654			474			590
Job credits	(1,921		)	(1,077		)	(1,188		)
Total income tax expense (benefit)	$	(25,166	)	$	1,815		$	18,619

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



	January 28, 2017			January 30, 2016
Gross deferred tax assets:
Net operating loss	$	10,184		$	469
Accrued expenses	2,893			2,719
Lease obligations	16,762			19,186
Deferred compensation	12,048			11,223
Deferred income	3,956			4,592
Other	4,434			2,879
	50,277			41,068
Gross deferred tax liabilities:
Inventory	(4,706		)	(6,725		)
Depreciation and amortization	(45,703		)	(54,218		)
	(50,409		)	(60,943		)

Valuation allowance	(415		)	(402		)
Net deferred tax liabilities	$	(547	)	$	(20,277	)

ASC 740, Income Taxes, requires recognition of future tax benefits of deferred tax assets to the extent such realization is more likely than not. In the current year, we generated federal and state net operating losses estimated at $9.7 million which are included in deferred tax assets. There is sufficient taxable income in prior years available to carryback these losses once the net operating loss amount is fixed and determinable, eliminating the need for a valuation allowance.

Consistent with the requirements of ASC 740, the tax benefits recognized related to pre-reorganization deferred tax assets were recorded as a direct addition to additional paid-in capital. The remaining valuation allowance of $0.4 million at January 28, 2017 and January 30, 2016, respectively, was established for pre-reorganization state net operating losses, which may expire prior to utilization. Adjustments to tax expense 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 from pre-reorganization state losses which, if not utilized, will expire in varying amounts between 2018 and 2021.

As of January 28, 2017, we had no unrecognized tax benefits. In the second quarter of 2016, we released a $0.7 million benefit associated with the favorable resolution of an uncertain tax position under audit. A reconciliation of the beginning and ending amount of total unrecognized tax benefits, including associated interest, is as follows (in thousands):



	2016
Balance, beginning of period	$	743
Release of FIN 48 reserve	(743		)
Balance, end of period	$	—

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. We recognize penalty and interest accrued related to unrecognized tax benefits as an income tax expense. During the years ended January 28, 2017, January 30, 2016, and January 31, 2015, 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 2012. 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.