Income Taxes

The provision (benefit) for income taxes was comprised of the following:



	Year ended
	January 3, 2016			December 28, 2014			December 29, 2013
Current:
Federal	$	—		$	—		$	(4,325	)
State	—			217			212
	—			217			(4,113		)

Deferred:
Federal	(2,901		)	(11,330		)	(5,561		)
State	(58		)	(1,448		)	(1,347		)
	(2,959		)	(12,778		)	(6,908		)
Change in valuation allowance	2,959			24,326			624
Provision (benefit) for income taxes	$	—		$	11,765		$	(10,397	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.

The components of deferred income tax assets and liabilities at January 3, 2016 and December 28, 2014 were as follows:



	January 3, 2016			December 28, 2014
Deferred income tax assets:
Deferred income on sale-leaseback of certain real estate	$	4,881		$	5,857
Lease financing obligations	242			227
Postretirement benefit obligations	1,229			1,244
Stock-based compensation expense	378			273
Federal net operating loss carryforwards	17,696			11,091
State net operating loss carryforwards	3,795			3,077
Goodwill and other intangibles, net	2,639			2,641
Occupancy costs	7,120			7,017
Tax credit carryforwards	13,667			9,498
Accrued vacation benefits	2,314			2,020
Accrued workers compensation	2,087			2,020
Other	1,869			2,074
Gross deferred income tax assets	57,917			47,039
Less: Valuation allowance	(30,374		)	(27,423		)
Net deferred income tax assets	$	27,543		$	19,616

Deferred income tax liabilities:
Accumulated other comprehensive income-postretirement benefits	$	(42	)	$	(34	)
Inventory and other reserves	(103		)	(246		)
Property and equipment depreciation	(3,803		)	4,080
Franchise rights	(23,595		)	(23,416		)
Total deferred income tax liabilities	$	(27,543	)	$	(19,616	)

Carrying value of net deferred income tax assets	$	—		$	—

The Company performs an assessment of positive and negative evidence regarding the realization of its net deferred income tax assets as required by ASC 740. Under ASC 740, the weight given to negative and positive evidence is commensurate only to the extent that such evidence can be objectively verified. ASC 740 also prescribes that objective historical evidence, in particular the Company’s three-year cumulative loss position, be given greater weight than subjective evidence, including the Company’s forecasts of future taxable income, which include assumptions that cannot be objectively verified. The Company considers all available positive and negative evidence and has determined, based on the required weight of that evidence under ASC 740, that a valuation allowance was needed for all of its net deferred income tax assets at January 3, 2016 and December 28, 2014. As a result, the Company recorded income tax expense of $24.3 million in 2014 relative to this valuation reserve. During the year ended January 3, 2016, the Company established an additional valuation allowance of $3.0 million related to changes in its net deferred income tax assets.

The Company's federal net operating loss carryforwards expire beginning in 2033. As of January 3, 2016, the Company had federal net operating loss carryforwards of approximately $50.6 million. The Company’s state net operating loss carryforwards expire beginning in 2017 through 2034.

The estimation of future taxable income for federal and state purposes and the Company's ability to realize deferred tax assets can significantly change based on future events and operating results. Thus, recorded valuation allowances may be subject to future changes that could have a material impact on the consolidated financial statements. If the Company determines that it is more likely than not that it will realize these deferred tax assets in the future, the Company will make an adjustment to the valuation allowance at that time.

A reconciliation of the statutory federal income tax benefit to the tax provision (benefit) applied to income from continuing operations for the years ended January 3, 2016, December 28, 2014, and December 29, 2013 was as follows:



	Year ended
	January 3, 2016			December 28, 2014			December 29, 2013
Statutory federal income tax benefit	$	1		$	(9,223	)	$	(8,371	)
State income taxes, net of federal benefit	6			(749		)	(656		)
Change in valuation allowances	2,959			24,326			624
Employment tax credits	(2,710		)	(2,291		)	(2,298		)
Miscellaneous	(256		)	(298		)	304
Provision (benefit) for income taxes	$	—		$	11,765		$	(10,397	)

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At January 3, 2016 and December 28, 2014, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2012 - 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. In 2014, the Company concluded an examination of its consolidated federal income tax return for the tax years 2009 through 2012. Although it is not reasonably possible to estimate the amount by which unrecognized tax benefits may increase within the next twelve months due to uncertainties regarding the timing of examinations, the Company does not expect unrecognized tax benefits to significantly change in the next twelve months.