7. Income Taxes

On December 22, 2017 (the “Enactment Date”), H.R. 1, originally known as the Tax Cuts and Jobs Act, was enacted. The new law (Public Law No.115-97 hereinafter referred to as the “Tax Act”) includes significant changes to the U.S. corporate income tax system including, but not limited to, lowering the statutory corporate tax rate from 35% to 21%, limiting or eliminating certain deductions and the repeal of Corporate AMT tax regime. The majority of the provisions are applicable to the Company for fiscal 2019. For fiscal 2018, the Company computed its income tax expense using a blended federal tax rate of 32.6%. The 21% federal tax rate applies to the fiscal year ending March 2, 2019 and each year thereafter.

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


	Year Ended
	March 2,		March 3,		March 4,
	2019		2018		2017
	(52 Weeks)		(52 Weeks)		(53 Weeks)
Current tax:
Federal	$	(22,187)	$	(210)	$	—
State		9,866		51,279		14,600
		(12,321)		51,069		14,600
Deferred tax and other:
Federal		50,151		316,451		10,355
State		39,647		(61,533)		19,483

		89,798		254,918		29,838
Total income tax expense	$	77,477	$	305,987	$	44,438

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


	Year Ended
	March 2,		March 3,		March 4,
	2019		2018		2017
	(52 Weeks)		(52 Weeks)		(53 Weeks)
Federal statutory rate*	$	(123,790)	$	(14,202)	$	16,982
Federal tax rate change		—		324,765		—
Nondeductible expenses		2,890		1,213		2,479
State income taxes, net		(12,605)		(22,836)		8,225
Increase (decrease) of previously recorded liabilities		(3,105)		27,295		(955)
Nondeductible compensation		1,798		654		1,157
Acquisition costs		—		696		4,023
Stock based compensation		3,478		8,363		—
Valuation allowance		212,252		(8,853)		14,718
Other		(3,441)		(11,108)		(2,191)
Total income tax expense	$	77,477	$	305,987	$	44,438

* Federal statutory rate included in the above table is 21.0%, 32.6% and 35.0%, respectively, for the fiscal years ended March 2, 2019, March 3, 2018 and March 4, 2017.

Net income for fiscal 2019 from continuing operations included income tax expense of $77,477, of which $212,252 relates to the increase in valuation allowance for federal and state net deferred tax assets that may not be realized based on the Company's future projections of taxable income.

Net income for fiscal 2018 from continuing operations included income tax expense of $305,987, of which $324,765 relates to the federal income tax rate change on the re-measurement of net deferred tax assets pursuant to the Tax Act. Additionally, the Company recorded within state income taxes the net impact of the Pennsylvania tax law change which resulted in a substantial increase to the state net operating loss carryforwards and a corresponding increase to the valuation allowance.

Net income from continuing operations for fiscal 2017 included income tax expense of $44,438, which included an increase in valuation allowance of $14,718 primarily related to a reduction in estimated utilization of state NOLs and for expiring carryforwards.

The Company recognized tax expense of $91,067, $749,704 and $46 within Net loss (income) from discontinued operations, net of tax, in the Statement of Operations in fiscal 2019, fiscal 2018 and fiscal 2017, respectively. The Company’s effective income tax rate from discontinued operations included adjustments to the valuation allowance of $(2,417), $(32,870) and $15 for fiscal 2019, fiscal 2018 and fiscal 2017, respectively.

The tax effect of temporary differences that gave rise to significant components of deferred tax assets and liabilities consisted of the following at March 2, 2019 and March 3, 2018:


	2019		2018
Deferred tax assets:
Accounts receivable	$	36,607	$	39,182
Accrued expenses		107,356		113,493
Liability for lease exit costs		37,333		40,662
Pension, retirement and other benefits		87,397		104,494
Long-lived assets		320,561		246,793
Credits		48,884		85,555
Net operating losses		1,084,139		1,089,084
Total gross deferred tax assets		1,722,277		1,719,263
Valuation allowance		(1,091,416)		(896,800)
Total deferred tax assets		630,861		822,463
Deferred tax liabilities:
Outside basis difference		5,392		5,420
Inventory		215,588		223,024
Other		797		0
Total gross deferred tax liabilities		221,777		228,444
Net deferred tax assets	$	409,084	$	594,019

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


	2019		2018		2017
Unrecognized tax benefits	$	230,210	$	8,939	$	10,676
Increases to prior year tax positions		155		—		16
Decreases to tax positions in prior periods		(111)		(1,015)		(626)
Increases to current year tax positions		—		224,408		26
Settlements		—		—		—
Divestitures		(543)		(1,607)		—
Lapse of statute of limitations		(9,872)		(515)		(1,153)
Unrecognized tax benefits balance	$	219,839	$	230,210	$	8,939

The amount of the above unrecognized tax benefits at March 2, 2019, March 3, 2018 and March 4, 2017 which would impact the Company’s effective tax rate, if recognized, was $28,482, $31,377 and $892 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.

The Company believes that it is reasonably possible that a decrease of up to $12,736 in unrecognized tax benefits related to state exposures may be necessary in the next twelve months however 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. The Company recognized an expense/(benefit) for interest and penalties in connection with tax matters of $(769), $7,058 and $(276) for fiscal years 2019, 2018 and 2017, respectively. As of March 2, 2019 and March 3, 2018 the total amount of accrued income tax‑related interest and penalties was $6,553 and $7,322, 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 2015. 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.

Net Operating Losses and Tax Credits

At March 2, 2019, the Company had federal net operating loss carryforwards of approximately $1,063,382. Of these, $884,627 will expire, if not utilized, between fiscal 2029 and 2031. An additional $178,246 will expire, if not utilized, between fiscal 2032 and 2037.

At March 2, 2019, the Company had state net operating loss carryforwards of approximately $12,048,528, the majority of which will expire ratably through fiscal 2030; the net tax effect of these carryforwards is $1,089,656 and are reflected in the table above.

At March 2, 2019, the Company had federal business tax credit carryforwards of $28,478 the majority of which will expire between 2020 and 2021. In addition to these credits, the Company had alternative minimum tax credit carryforwards of $13,497 which will be refunded to the Company between fiscal 2020 - 2022. The Company recorded a receivable for refundable AMT tax credits of $13,497 for fiscal 2019.

Valuation Allowances

The valuation allowances as of March 2, 2019 and March 3, 2018 apply to the net deferred tax assets of the Company. The Company maintained a valuation allowance of $1,091,416 and $896,800 at March 2, 2019 and March 3, 2018, respectively. The primary driver of the increase for fiscal 2019 is to reduce federal and state net deferred tax assets that may not be realized based on the Company's future projections of taxable income. The primary driver of the increase for fiscal 2018 resulted from the Pennsylvania tax law change which caused a substantial increase to the state net operating loss carryforwards, which required an offsetting increase in valuation allowance.