Note 12. Income Taxes

Income tax expense consists of the following:

	Fiscal Year
	2020			2019⁽¹⁾
(amounts in thousands)
Federal - current	$	(3,542	)	$	-
State - current		-			44
Deferred		-			-
Income tax (benefit) expense	$	(3,542	)	$	44

⁽¹⁾ Amount adjusted to reflect impact of discontinued operations.

A reconciliation of the Company’s effective income tax rate with the federal statutory rate is as follows:

	Fiscal Year
		2020			2019⁽¹⁾
Federal statutory rate			21.0	%		21.0	%
State income taxes, net of federal tax effect			0.0	%		0.3	%
Change in Valuation Allowance			(27.7	%)		(21.0	%)
Cash surrender value - insurance / benefit program			6.8	%		0.1	%
Uncertain tax position			(47.6	%)		---	%
Other			(0.1	%)		(0.1	%)
Effective tax rate			(47.6	%)		0.3	%

⁽¹⁾Amount adjusted to reflect impact of discontinued operations.

The Other category is comprised of various items, including the impacts of non-deductible entertainment, penalties and parking benefits and the refundable portion of the federal alternative minimum tax carryover credit.

Significant components of the Company’s deferred tax assets are as follows:

	January 30, 2021			February 1, 2020
(amounts in thousands)
DEFERRED TAX ASSETS
Accrued Expenses	$	71		$	1,783
Inventory		215			32
Retirement and compensation related accruals		3,981			5,888
Fixed assets		218			6,470
Federal and state net operating loss and credit carry forwards		90,206			83,562
Real estate leases, included deferred rent		-			5,712
Losses on investment		853			896
Others		107			549
Gross deferred tax assets before valuation allowance		95,651			104,892
Less: valuation allowance		(95,022	)		(104,556	)
Total deferred tax assets	$	629		$	336

DEFERRED TAX LIABILITIES
Intangibles	$	(629	)	$	(336	)
Inventory		-			-
Total deferred tax liabilities	$	(629	)	$	(336	)

NET DEFERRED TAX ASSET	$	-		$	-

The Company, at the end of fiscal 2020, has a net operating loss carryforward of $346.7 million for federal income tax purposes which will expire at various times throughout 2040 with a portion being available indefinitely. The Company has approximately $219.5 million of net operating loss carryforward for state income tax purposes as of the end of fiscal 2020 that expire at various times through 2040 and are subject to certain limitations and statutory expiration periods. The reduction in state net operating loss carryforward is due to the FYE Transaction, as the Company will not utilize those losses. The state net operating loss carryforwards are subject to various business apportionment factors and multiple jurisdictional requirements when utilized. The Company has federal tax credit carryforwards of $0.5 million which will expire in 2026. The Company has state tax credit carryforwards of $0.2 million.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based on the available objective evidence, management concluded that a full valuation allowance should be recorded against its deferred tax assets. As of January 30, 2021, the valuation allowance decreased to $95.0 million from $104.6 million as of February 1, 2020. Management will continue to assess the valuation allowance against the gross deferred assets.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the respective years is provided below. Amounts presented excluded interest and penalties, where applicable, on unrecognized tax benefits:

	Fiscal Year
	2020			2019
(amounts in thousands)
Unrecognized tax benefits at beginning of year	$	1,930		$	1,930
Increases in tax positions from prior years		-			-
Decreases in tax positions from prior years		(1,517	)		-
Increases in tax positions for current years		-			-
Settlements		-			-
Lapse of applicable statute of limitations		-			-
Unrecognized tax benefits at end of year	$	413		$	1,930

As of January 30, 2021, the Company had $1.9 million of gross unrecognized tax benefits, $1.5 million of which would affect the Company’s tax rate if recognized. While it is reasonably possible that the amount of unrecognized tax benefits will increase or decrease within the next twelve months, the Company does not expect the change to have a significant impact on its results of operations or financial position. The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all federal income tax matters and all material state and local income tax matters through fiscal 2013.

The Company’s practice is to recognize interest and penalties associated with its unrecognized tax benefits as a component of income tax expense in the Company’s Consolidated Statements of Operations. During fiscal 2020, the Company accrued a provision for interest expense of $0.2 million. As of January 30, 2021, the liability for uncertain tax positions reflected in the Company’s Consolidated Balance Sheets was $3.5 million, including accrued interest and penalties of $2.7 million.

The Tax Cuts and Jobs Act also repeals the Corporation Alternative Minimum Tax (“AMT”) for tax years beginning after December 31, 2017. Any AMT carryover credits became refundable starting in the 2018 tax year, and any remaining credit will be fully refundable in 2021.