Chuy's Holdings, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 25, 2016

The provision for federal and state income taxes for the years ended December 25, 2016, December 27, 2015 and December 28, 2014 consisted of the following:



	2016		2015		2014
Current income tax expense:
Federal	$	2,933	$	1,724	$	—
State	613		945		713
Total current income tax expense	3,546		2,669		713
Deferred income tax expense:
Federal	2,827		2,903		3,506
State	661		171		118
Total deferred income tax expense	3,488		3,074		3,624
Total income tax expense	$	7,034	$	5,743	$	4,337

Temporary difference between tax and financial reporting basis of assets and liabilities that give rise to the deferred income tax assets (liabilities) and their related tax effects as of December 25, 2016 and December 27, 2015 are as follows:



	2016			2015
Deferred tax assets:
Accrued liabilities	$	17,236		$	588
General business tax credits	12,653			8,135
Stock-based compensation	1,222			1,121
Other	403			309
Total deferred tax assets	31,514			10,153
Deferred tax liability:
Intangibles	(10,609		)	(9,523		)
Prepaid expenses	(1,673		)	(1,371		)
Property and equipment	(33,001		)	(9,540		)
Total deferred tax liabilities	(45,283		)	(20,434		)
Deferred tax liabilities, net	$	(13,769	)	$	(10,281	)

We have approximately $9.2 million and $0.1 million of tax benefits ($3.3 million and $0.0 million net of tax, respectively) related to excess stock compensation which were recorded to additional paid-in-capital during the fiscal years ended December 25, 2016 and December 27, 2015, respectively. Under the "tax law ordering" method, as described in ASC 740, these amounts were also used as tax deductions and reduced taxable income for fiscal year ended December 25, 2016 and the amount of net operating loss carry forward utilized during fiscal year ended December 27, 2015. As of December 25, 2016, the Company has general business tax credits of $12.7 million expiring in 2035.

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 are 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.

The following is a reconciliation of the expected federal income taxes at the statutory rate of 35% for the fiscal years ended December 25, 2016 and December 27, 2015, and 34% for the fiscal year ended and December 28, 2014 to the actual provision for income taxes:



	2016			2015			2014
Expected income tax expense	$	8,497		$	6,524		$	5,382
State tax expense, net of federal benefit	829			725			548
FICA tip credit	(1,936		)	(1,924		)	(1,615		)
Other	(356		)	418			22
Income tax expense	$	7,034		$	5,743		$	4,337

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. A recognized tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The standards also require that changes in judgment that result in subsequent recognition, derecognition or change in a measurement of a tax position taken in a prior annual period (including any related interest and penalties) be recognized as a discrete item in the interim period in which the change occurs. As of December 25, 2016 and December 27, 2015 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.