Income Taxes

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



	Year ended
	January 1, 2017			January 3, 2016			December 28, 2014
Current:
Federal	$	—		$	—		$	—
State	—			—			217
	—			—			217

Deferred:
Federal	1,297			(2,901		)	(11,330		)
State	992			(58		)	(1,448		)
	2,289			(2,959		)	(12,778		)
Change in valuation allowance	(30,374		)	2,959			24,326
Provision (benefit) for income taxes	$	(28,085	)	$	—		$	11,765

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 1, 2017 and January 3, 2016 were as follows:



	January 1, 2017			January 3, 2016
Deferred income tax assets:
Deferred income on sale-leaseback of certain real estate	$	4,714		$	4,881
Lease financing obligations	254			242
Postretirement benefit obligations	1,255			1,229
Stock-based compensation expense	599			378
Federal net operating loss carryforwards	21,351			17,696
State net operating loss carryforwards	3,845			3,795
Goodwill and other intangibles, net	2,814			2,639
Occupancy costs	7,460			7,120
Tax credit carryforwards	21,987			13,667
Accrued vacation benefits	2,560			2,314
Accrued workers compensation	1,490			2,087
Accumulated other comprehensive income-postretirement benefits	499			—
Other	2,131			1,869
Gross deferred income tax assets	70,959			57,917
Less: Valuation allowance	—			(30,374		)
Net deferred income tax assets	$	70,959		$	27,543

Deferred income tax liabilities:
Accumulated other comprehensive income-postretirement benefits	$	—		$	(42	)
Inventory and other reserves	(97		)	(103		)
Property and equipment depreciation	(17,599		)	(3,803		)
Franchise rights	(24,422		)	(23,595		)
Total deferred income tax liabilities	$	(42,118	)	$	(27,543	)

Carrying value of net deferred income tax assets	$	28,841		$	—

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. For the years ended January 3, 2016 and December 28, 2014, the Company determined that a valuation allowance was needed for all of its net deferred income tax assets, based on the required weight of positive and negative evidence under ASC 740, including consideration of the Company’s three-year cumulative losses. During the year ended December 28, 2014, the Company recorded income tax expense of $24.3 million due to the establishment of a valuation allowance on its net deferred tax assets and during the year ended January 3, 2016, the Company established an additional valuation allowance of $3.0 million as a result of changes in its net deferred income tax assets.

During the year ended January 1, 2017, the Company evaluated evidence to consider the reversal of the valuation allowance on its net deferred income tax assets and determined in the fourth quarter of fiscal 2016 that there was sufficient positive evidence to conclude that it is more likely than not its deferred income tax assets are realizable. In determining the likelihood of future realization of the deferred income tax assets as of January 1, 2017, the Company considered both positive and negative evidence and weighted the effect of such evidence based upon its objectivity. As a result, the Company believes that the weight of the positive evidence, including the cumulative income position in the three most recent years (as adjusted for non-recurring items and permanent differences between book and tax) and forecasts for a sustained level of future taxable income, is sufficient to overcome the weight of the negative evidence, and recorded a $30.4 million tax benefit to release the full valuation allowance against the Company's deferred income tax assets in the fourth quarter of 2016.

The Company's federal net operating loss carryforwards expire beginning in 2033. As of January 1, 2017, the Company had federal net operating loss carryforwards of approximately $61.0 million. The Company’s state net operating loss carryforwards expire beginning in 2017 through 2036.

A reconciliation of the statutory federal income tax benefit to the income tax provision (benefit) for the years ended January 1, 2017, January 3, 2016, and December 28, 2014 was as follows:



	Year ended
	January 1, 2017			January 3, 2016			December 28, 2014
Statutory federal income tax provision (benefit)	$	6,085		$	1		$	(9,223	)
State income taxes, net of federal benefit	403			6			(749		)
Change in valuation allowance	(30,374		)	2,959			24,326
Employment tax credits	(5,408		)	(2,710		)	(2,291		)
Non-deductible expenses	965			—			25
Miscellaneous	244			(256		)	(323		)
Provision (benefit) for income taxes	$	(28,085	)	$	—		$	11,765

The Company's policy is to recognize interest and/or penalties related to uncertain tax positions in income tax expense. At January 1, 2017 and January 3, 2016, the Company had no unrecognized tax benefits and no accrued interest related to uncertain tax positions. The tax years 2013 - 2016 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.