Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 26, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for federal and state income taxes consisted of the following:
Year Ended
December 26, 2021 December 27, 2020 December 29, 2019
Current:
Federal $ 759  $ (712) $ 1,151 
State 917  410  1,042 
Total current income tax expense (benefit) 1,676  (302) 2,193 
Deferred:
Federal 2,009  (4,552) (4,676)
State 397  (653) (418)
Total deferred income tax expense (benefit) 2,406  (5,205) (5,094)
Total income tax expense (benefit) $ 4,082  $ (5,507) $ (2,901)
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 26, 2021 December 27, 2020
Deferred tax assets:
Accrued liabilities $ 605  $ 464 
General business tax credits 25,200  23,331 
Operating lease liabilities 46,390  50,714 
Stock-based compensation 702  861 
Other 382  326 
Total deferred tax assets 73,279  75,696 
Deferred tax liability:
Intangibles (9,420) (8,805)
Prepaid expenses (1,292) (1,265)
Property and equipment (22,930) (21,007)
Operating lease assets (34,237) (36,813)
Total deferred tax liabilities (67,879) (67,890)
Deferred tax assets, net $ 5,400  $ 7,806 
As of December 26, 2021, the Company has general business tax credits of $25.2 million expiring in 2037 through 2043.
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 26, 2021, December 27, 2020 and December 29, 2019 to the actual provision for income taxes:
Year Ended
  December 26, 2021 December 27, 2020 December 29, 2019
Expected income tax (benefit) expense $ 7,194  $ (1,848) $ 696 
State tax expense (benefit), net of federal benefit 1,039  (192) 493 
FICA tip credit (3,361) (2,539) (3,896)
Deferred tax balance adjustment (a)
—  (1,079) — 
Officers' compensation 536  66  168 
Stock compensation (1,275) 344  (34)
Other (51) (259) (328)
Income tax expense (benefit) $ 4,082  $ (5,507) $ (2,901)
(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 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 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 of December 26, 2021 and December 27, 2020, 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 2020, 2019 and 2018 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.