7. Income Taxes

The provision for income tax expense (benefit) was as follows:

	Year Ended
	February 27, 2016 (52 Weeks)			February 28, 2015 (52 Weeks)			March 1, 2014 (52 Weeks)
Current tax:
Federal	$	(52	)	$	—		$	—
State		9,396			6,011			4,748

		9,344			6,011			4,748
Deferred tax and other:
Federal		117,200			(1,544,344	)		—
State		(13,605	)		(144,020	)		(30,609	)
Tax expense recorded as an increase of additional paid-in-capital		—			—			26,665

		103,595			(1,688,364	)		(3,944	)

Total income tax (benefit) expense	$	112,939		$	(1,682,353	)	$	804

A reconciliation of the expected statutory federal tax and the total income tax expense (benefit) was as follows:

	Year Ended
	February 27, 2016 (52 Weeks)			February 28, 2015 (52 Weeks)			March 1, 2014 (52 Weeks)
Federal statutory rate		35.0	%		35.0	%		35.0	%
Nondeductible expenses		2.3			0.2			0.3
State income taxes, net		8.6			2.7			17.7
Decrease of previously recorded liabilities		—			(0.9	)		(8.4	)
Nondeductible compensation		2.2			1.2			17.7
Acquisition Costs		2.4			—			—
Release of indemnification asset		—			—			2.4
Valuation allowance		(9.5	)		(431.4	)		(64.4	)
Other		(0.4	)		(1.0	)		—

Total income tax expense (benefit)		40.6	%		(394.2	)%		0.3	%

Net income for fiscal 2016 included income tax expense of $112,939 based on the effective tax rate above, which included a benefit of $26,358 related to a reduction in valuation allowance primarily for an increase in estimated utilization of state NOLs and for expiring carryforwards.

The fiscal 2015 income tax benefit of $1,682,353 was primarily attributable to the reduction of the deferred tax valuation allowance. The reduction of the valuation allowance was based upon the Company's achievement of cumulative profitability over a three year window, reported earnings for ten consecutive quarters, utilization of federal and state net operating losses against taxable income for the last three years and the Company's historical ability of predicting earnings. Based upon the Company's projections for future taxable income over the periods in which the deferred tax assets are recoverable, management believed that it was more likely than not that the Company would realize the benefits of substantially all the net deferred tax assets existing at February 28, 2015.

Net Income for fiscal 2014 included income tax expense of $804 resulting from an increase in the deferred tax valuation allowance for the windfall tax benefits recorded in additional paid-in capital ("APIC") pursuant to the tax law ordering approach offset by adjustments to unrecognized tax benefits due to the lapse of statute of limitations.

The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following at February 27, 2016 and February 28, 2015:

	2016			2015
Deferred tax assets:
Accounts receivable	$	72,883		$	68,582
Accrued expenses		198,636			207,553
Liability for lease exit costs		81,704			98,906
Pension, retirement and other benefits		182,394			175,081
Long-lived assets		487,944			475,187
Other		6,203			5,232
Credits		64,382			63,826
Net operating losses		1,182,440			1,300,964

Total gross deferred tax assets		2,276,586			2,395,331
Valuation allowance		(212,023	)		(231,679	)

Total deferred tax assets		2,064,563			2,163,652
Deferred tax liabilities:
Outside basis difference		108,860			—
Inventory		416,562			437,165

Total gross deferred tax liabilities		525,422			437,165

Net deferred tax assets	$	1,539,141		$	1,726,487

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

	2016			2015			2014
Unrecognized tax benefits	$	9,514		$	10,143		$	30,020
Increases to prior year tax positions		1,667			1,003			—
Decreases to tax positions in prior periods		(577	)		(984	)		(3,215	)
Increases to current year tax positions		72			123			—
Settlements		—			(681	)		—
Lapse of statute of limitations		—			(90	)		(16,662	)

Unrecognized tax benefits balance	$	10,676		$	9,514		$	10,143

The amount of the above unrecognized tax benefits at February 27, 2016, February 28, 2015 and March 1, 2014 which would impact the Company's effective tax rate, if recognized, was $2,084, $440 and $876, respectively. Additionally, any impact on the effective rate may be mitigated by the valuation allowance that is remaining against the Company's net deferred tax assets.

While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, management does not expect the change to have a significant impact on the results of operations or the financial position of the Company.

The Company recognizes interest and penalties related to tax contingencies as income tax expense. Prior to the adoption of ASC 740, "Income Taxes," the Company included interest as income tax expense and penalties as an operating expense. The Company recognized an expense/(benefit) for interest and penalties in connection with tax matters of $60, ($5,250) and ($16,833) for fiscal years 2016, 2015 and 2014, respectively. As of February 27, 2016 and February 28, 2015 the total amount of accrued income tax-related interest and penalties was $539 and $115, respectively.

The Company files U.S. federal income tax returns as well as income tax returns in those states where it does business. The consolidated federal income tax returns are closed for examination through fiscal year 2012. However, any net operating losses that were generated in these prior closed years may be subject to examination by the IRS upon utilization. Tax examinations by various state taxing authorities could generally be conducted for a period of three to five years after filing of the respective return. However, as a result of filing amended returns, the Company has statutes open in some states from fiscal year 2005.

Net Operating Losses and Tax Credits

At February 27, 2016, the Company had federal net operating loss (NOL) carryforwards of approximately $2,865,598. Of these, $1,673,912 will expire, if not utilized, between fiscal 2020 and 2028. An additional $1,173,321 will expire, if not utilized, between fiscal 2029 and 2036.

At February 27, 2016, the Company had state NOL carryforwards of approximately $4,538,030, the majority of which will expire between fiscal 2023 and 2027.

The Company's federal and state net operating loss carryforwards include federal deductions of $18,365 and state deductions of $79,442 for windfall tax benefits that have not yet been recognized in the financial statements at February 27, 2016. These tax benefits will be credited to additional paid-in capital when they reduce current taxable income consistent with the tax law ordering approach.

At February 27, 2016, the Company had federal business tax credit carryforwards of $50,165, the majority of which will expire between 2019 and 2021. In addition to these credits, the Company had alternative minimum tax credit carryforwards of $3,234.

Valuation Allowances

The valuation allowances as of February 27, 2016 and February 28, 2015 apply to the net deferred tax assets of the Company. The Company maintained a valuation allowance of $212,023 and $231,679, which relates primarily to state deferred tax assets at February 27, 2016 and February 28, 2015, respectively.