INCOME TAXES

All of our operations are domestic. We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. Income tax expense (benefit) consisted of the following (in thousands):



	Fiscal Year
	2018		2017
Federal income tax expense (benefit):
Current	$	—	$	(12,216	)
Deferred	—		428
	—		(11,788		)
State income tax expense (benefit):
Current	438		193
Deferred	—		(1,473		)
	438		(1,280		)
Total income tax expense (benefit)	$	438	$	(13,068	)

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
	2018			2017
Federal income tax benefit at the statutory rate	$	(18,328	)	$	(16,992	)
State income taxes, net	(1,799		)	(1,345		)
Other	477			1,375
Tax deficiencies related to share-based payments	942			1,948
Tax credits	(2,060		)	(4,386		)
Valuation allowance on net deferred tax assets	21,206			6,077
Tax Act	—			255
Total income tax expense (benefit)	$	438		$	(13,068	)

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



	February 2, 2019			February 3, 2018
Gross deferred tax assets:
Net operating loss	$	20,360		$	6,758
Accrued expenses	2,426			2,203
Lease obligations	7,969			9,355
Deferred compensation	7,822			7,147
Deferred income	1,263			2,583
Other	10,246			4,650
	50,086			32,696
Gross deferred tax liabilities:
Inventory	(2,517		)	(1,862		)
Depreciation and amortization	(19,707		)	(24,342		)
	(22,224		)	(26,204		)

Valuation allowance	(27,862		)	(6,492		)
Net deferred tax assets	$	—		$	—

We record valuation allowances when it is more-likely-than-not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. Management assesses all available positive and negative evidence to estimate our ability to generate sufficient future taxable income of the appropriate character, and in the appropriate taxing jurisdictions, to permit use of our existing deferred tax assets. In determining the need for valuation allowances, we have considered and made judgments and estimates regarding estimated future taxable income and ongoing prudent and feasible tax planning strategies. These estimates and judgments include some degree of uncertainty and changes in these estimates and assumptions could require us to adjust the valuation allowances for our deferred tax assets.

We believe that the reversal of existing deferred tax liabilities will create taxable income that will allow us to recognize an equal amount of tax assets. We have generated cumulative federal and state net operating losses estimated at $77.9 million, which are included in deferred tax assets. Under the 2017 Tax Act, the federal losses generated in tax years ending after December 31, 2017, can be carried forward indefinitely, but are limited to offset 80% of taxable income in any one year. For state income tax purposes, these losses will expire in no less than 5 years, depending upon the states with many states adopting the federal unlimited carryforward.

We have elected to recognize penalties and interest accrued related to unrecognized tax benefits as an income tax expense. In 2018 and 2017, we had no unrecognized tax benefits, and the amount of penalties and interest accrued were nil.

We are currently under U.S. federal income tax examination for tax years 2013 through 2016 forward. We are also subject to audit by the taxing authorities of 38 states for years generally after 2014 and 3 additional states relating to the Gordmans Acquisition beginning in 2017. 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.