Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 27, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for federal and state income taxes consisted of the following:
Year Ended
December 27, 2020 December 29, 2019 December 30, 2018
Current:
Federal $ (712) $ 1,151  $ 435 
State 410  1,042  1,048 
Total current income tax (benefit) expense (302) 2,193  1,483 
Deferred:
Federal (4,552) (4,676) (3,643)
State (653) (418) (194)
Total deferred income tax benefit (5,205) (5,094) (3,837)
Total income tax benefit $ (5,507) $ (2,901) $ (2,354)
Temporary differences between tax and financial reporting basis of assets and liabilities which give rise to the deferred income tax assets (liabilities) and their related tax effects are as follows:
Year Ended
December 27, 2020 December 29, 2019
Deferred tax assets:
Accrued liabilities $ 464  $ 517 
General business tax credits 23,331  17,923 
Operating lease liabilities 50,714  52,773 
Stock-based compensation 861  969 
Other 326  230 
Total deferred tax assets 75,696  72,412 
Deferred tax liability:
Intangibles (8,805) (8,219)
Prepaid expenses (1,265) (1,330)
Property and equipment (21,007) (20,526)
Operating lease assets (36,813) (39,736)
Total deferred tax liabilities (67,890) (69,811)
Deferred tax assets, net $ 7,806  $ 2,601 
Deferred tax balances were measured using a 21% federal statutory rate. As of December 27, 2020, the Company has general business tax credits of $23.3 million expiring in 2036 through 2041.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred taxes will not be realized. Both positive and negative evidence is considered in forming management’s judgment as to whether a valuation allowance is appropriate, and more weight is given to evidence that can be objectively verified. The tax benefits relating to any reversal of the valuation allowance on the deferred tax assets would be recognized as a reduction of future income tax expense. The Company believes that it will realize all of the deferred tax assets. Therefore, no valuation allowance has been recorded.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) temporarily restored the ability to carryback net operating losses (“NOL”) originating in 2018, 2019 and 2020 to offset taxable income in the five preceding years and eliminated the 80% taxable income limitation on such net operating loss deductions if utilized before 2021. Additionally, the CARES Act included an administrative correction of the depreciation recovery period for qualified improvement property ("QIP"), including certain restaurant leasehold improvement costs, that resulted in the acceleration of depreciation on these assets retroactive to 2018. The Company filed for a refund of overpaid taxes with regards to credits carried back to those years.
The following is a reconciliation of the expected federal income taxes at the statutory rates of 21% for the fiscal year ended December 27, 2020, December 29, 2019 and December 30, 2018 to the actual provision for income taxes:
Year Ended
  December 27, 2020 December 29, 2019 December 30, 2018
Expected income tax (benefit) expense $ (1,848) $ 696  $ 669 
State tax expense, net of federal benefit (192) 493  675 
FICA tip credit (2,539) (3,896) (3,411)
Deferred tax balance adjustment (a)
(1,079) —  173 
Stock compensation 344  (34) 60 
Other (193) (160) (520)
Income tax benefit $ (5,507) $ (2,901) $ (2,354)
(a) Deferred tax balance adjustment recorded during fiscal 2020 is associated with a carryback of federal NOLs due to the CARES Act administrative correction of the deprecation recovery period for QIP.
The Internal Revenue Service ("IRS") audited our tax return for the fiscal year 2016. In August 2020, the IRS issued a Notice of Proposed Adjustment to the Company asserting that the tenant allowances paid under our operating leases should be recorded
as taxable income for years 2016 and prior. The Company disagrees with this position based on the underlying facts and circumstances as well as standard industry practice. The Company estimates if the IRS's position was upheld, the Company's tax liability could range between $0.5 million and $2.5 million. Federal tax standards require that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e. a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. In accordance with the standards, the Company believes that it is more likely than not that the Company's position will ultimately be sustained upon further examination, including the resolution of the IRS's appeal or litigation processes, if any. As of December 27, 2020 and December 29, 2019 the Company recognized no liability for uncertain tax positions.
It is the Company’s policy to include any penalties and interest related to income taxes in its income tax provision. However, the Company currently has no penalties or interest related to income taxes.
The tax years 2019, 2018 and 2017 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.