Note 6. Income Taxes

As of December 24, 2017, the Company had a gross amount of unrecognized tax benefits of $115,400 ($86,500 net of federal benefit). As of March 26, 2017, the Company had a gross amount of unrecognized tax benefits of $204,500 ($147,800 net of federal benefit).

The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as part of the provision for income taxes. The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for the first nine months of fiscal 2018 was an expense of $34,600 (net of federal benefit). The cumulative amount included in the consolidated balance sheet as of December 24, 2017 was $323,800 (net of federal benefit). The total amount of interest and penalties related to tax uncertainties recognized in the consolidated statement of income for the first nine months of fiscal 2017 was an expense of $9,000 (net of federal benefit). The cumulative amount of interest and penalties included in the consolidated balance sheet as of March 26, 2017 was $314,300 (net of federal benefit).

A reconciliation of the changes in the gross balance of unrecognized tax benefits, excluding interest, is as follows:



Beginning balance at March 26, 2017 of unrecognized tax benefit	$	204,500
Increases related to current period tax positions		2,700
Reductions as a result of a lapse in the applicable statute of limitations		(91,800)
Ending balance at December 24, 2017 of unrecognized tax benefits	$	115,400

The Company has adopted Accounting Standards Updated No. 2016-09 Topic 718, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), effective as of March 27, 2017. The new guidance requires all of the tax effects related to share-based payments to be recognized through the income statement and is effective for public entities for annual and interim reporting periods beginning after December 15, 2016. The Company will treat the tax effects of share-based compensation awards as discrete items in the interim reporting periods in which the windfalls or shortfalls occurred. As a result of the adoption of the ASU 2016-09, the effective rate is 0.4% higher than if the ASU 2016-09 was not adopted for the nine months ended December 24, 2017.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. Though certain key aspects of the new law are effective January 1, 2018 and have an immediate accounting effect, other significant provisions are not effective or may not result in accounting effects for fiscal year companies until the following fiscal year. In the Company’s case, the following fiscal year is the fiscal year beginning April 2, 2018.

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act.

Amounts recorded where a provisional estimate that has been determined for the nine months ended December 24, 2017 principally relate to the reduction in the U.S. corporate income tax rate to 21 percent effective January 1, 2018, which resulted in the Company reporting an income tax benefit of $0.3 million to re-measure deferred taxes liabilities associated with indefinitely lived intangible assets that will reverse at the new 21 percent rate and to adjust the current fiscal year federal rate on a prorated basis. For the three months ended December 24, 2017, the U.S. federal statutory rate is a blended rate of 31.6 percent based upon the number of days in fiscal 2018 that the Company will be taxed at the former statutory rate of 35 percent and the number of days that it will be taxed at the new rate of 21 percent. The Company is currently evaluating the Tax Cuts and Jobs Act with its professional advisers; the full impact of the Tax Cuts and Jobs Act on the Company in future periods cannot be predicted at this time and no assurances in that regard are made by the Company.

Changes on account of the Tax Cuts and Jobs Act for which a reasonable estimate of the accounting effects has not yet been made include additional limitations on certain meals and entertainment expenses and repeal to the exception for performance based compensation under the excessive compensation limitation rules.

Other significant provisions of the Tax Cuts and Jobs Act that are not yet effective but may impact income taxes in future years include: limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income and a limitation of net operating losses generated after fiscal 2018 to 80 percent of taxable income.