Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.21.2
Income Taxes
 9 Months Ended
Sep. 26, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following is a reconciliation of the expected federal income taxes at the statutory rates of 21%:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 26, 2021 September 27, 2020 September 26, 2021 September 27, 2020
Expected income tax expense (benefit) $ 1,512  $ 693  $ 5,664  $ (2,250)
State tax expense, net of federal benefit 230  216  935  108 
FICA tip credit (622) (1,187) (2,880) (2,979)
Deferred tax balance adjustment (a)
—  620  —  (1,016)
Officers compensation 101  —  474  — 
Stock compensation —  134  (1,396) 500 
Other (3) —  10  — 
Income tax expense (benefit) $ 1,218  $ 476  $ 2,807  $ (5,637)
(a) Reflects the tax benefit recorded in the quarter associated with a carryback of federal net operating losses due to the CARES Act administrative correction of the deprecation recovery period for qualified improvement property.
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. As of September 26, 2021, the Company believes that it will realize all of its deferred tax assets. Therefore, no valuation allowance has been recorded.
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 to us 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 associated with this position could range between $0.5 million and $2.5 million. In accordance with the provisions of FASB Accounting Standards Codification Subtopic 740-10, Accounting for Uncertainty in Income Taxes, 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 a result, no additional accrual has been made as of September 26, 2021.
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.