NOTE 6 - INCOME TAXES

The provision for income taxes consists of the following as of the fiscal year ended:


	2016		2015		2014
Federal - current	$	1,329	$	5,283	$	2,829
State and local - current		930		1,359		1,182
Deferred		8,725		3,914		5,500
	$	10,984	$	10,556	$	9,511

A reconciliation of the statutory to the effective rate of the Company is as follows as of the fiscal year ended:


	2016		2015		2014
Tax provision using statutory rate	35.0	%	35.0	%	35.0	%
State and local taxes, net of Federal benefit	4.3	%	4.4	%	4.7	%
Valuation allowance	(0.4)	%	0.2	%	1.0	%
Noncontrolling interest related	(0.7)	%	0.6	%	0.4	%
Permanent differences	(0.5)	%	0.3	%	(0.1)	%
Legal settlement related	—	%	(5.4)	%	—	%
Tax provision for continuing operations	37.7	%	35.1	%	41.0	%

The Company has provided a valuation allowance against certain net deferred tax assets based upon management’s estimation of realizability of those assets through future taxable income. This valuation allowance was based in large part on the Company’s history of generating operating income or losses in individual tax locales and expectations for the future. The Company’s ability to generate the expected amounts of taxable income from future operations to realize its recorded net deferred tax assets is dependent upon general economic conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of government. There can be no assurances that the Company will meet its expectations of future taxable income. However, management has considered the above factors in reaching its conclusion that it is more likely than not that future taxable income will be sufficient to realize the deferred tax assets (net of valuation allowance) as of December 30, 2016.

During 2016, the valuation allowance increased by $0.7 million due to a change in expected realizability of deferred tax assets.

The principal tax carry-forwards and temporary differences were as follows as of the fiscal year ended:


	2016		2015
Deferred tax assets
Non-deductible reserves and allowances	$	12,688	$	12,855
Insurance accruals		3,506		3,431
Net operating loss carryforwards		5,229		4,550
		21,423		20,836
Valuation allowance		(2,487)		(1,762)
Total deferred tax assets		18,936		19,074

Deferred tax liabilities
Goodwill & intangibles		(38,706)		(30,719)
Accelerated depreciation		(1,375)		(1,449)
Total deferred tax liabilities		(40,081)		(32,168)
Net deferred tax liabilities	$	(21,145)	$	(13,094)

Total net deferred tax liabilities are reflected in the accompanying balance sheet as long-term liabilities.

The Company had book goodwill of $105.1 million and $113.2 million at December 30, 2016 and January 1, 2016, respectively, which was not deductible for tax purposes.

As of December 30, 2016, the Company has U.S. operating loss carry forwards of $8.1 million that are available to reduce future taxable income. If not used to offset taxable income, the losses will expire between 2028 and 2034. Due to U.S. limitations on acquired operating losses, a valuation allowance has been established on $0.8 million of these losses.

State operating loss carryforwards totaling $42.9 million at December 30, 2016 are being carried forward in jurisdictions where the Company is permitted to use tax losses from prior periods to reduce future taxable income. If not used to offset future taxable income, these losses will expire between 2017 and 2036. Due to uncertainty regarding the Company’s ability to use some of the carryforwards, a valuation allowance has been established on $35.8 million of state net operating loss carryforwards. Based on the Company’s historical record of producing taxable income and expectations for the future, the Company has concluded that future operating income will be sufficient to give rise to taxable income sufficient to utilize the remaining state net operating loss carryforwards.

US GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. Changes in unrecognized tax benefits were as follows.


		2016		2015		2014
Beginning of fiscal year	$	2,470	$	1,186	$	—
Increases related to positions taken on items from prior years		—		—		—
Decreases related to positions taken on items from prior years		(94)		—		—
Increases related to positions taken in the current year		1,182		1,284		1,186
Lapse of statute of limitations		—		—		—
Settlement of uncertain tax positions with tax authorities		—		—		—
Balance at end of fiscal year	$	3,558	$	2,470	$	1,186

For federal tax purposes, the Company is currently subject to examinations for tax years after 2012, while for state purposes, tax years after 2010 are subject to examination, depending on the specific state rules and regulations. The Internal Revenue Service completed an examination of the Company’s December 31, 2011 tax year as well as an examination of Omni Home Health Holdings, Inc.’s federal tax returns for the year ended December 31, 2012 and the period ended December 6, 2013.

The Company may from time to time be assessed interest and penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results. Assessments for interest and/or penalties are classified in the Consolidated Statement of Income as General and administrative - other.