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
Loss before income taxes includes the following components for the fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 (in thousands):
2021 2020 2019
U.S. $ (49,978) $ (262,728) $ (14,549)
Foreign (176) (20,824) (7,688)
Loss before income taxes $ (50,154) $ (283,552) $ (22,237)
The benefit for income taxes for the fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 consist of the following (in thousands):
2021 2020 2019
Current:
Federal $ —  $ (60,340) $ (3,054)
State (152) 1,354  (1,687)
Foreign —  —  — 
Total current income tax (benefit) $ (152) $ (58,986) $ (4,741)
Deferred:    
Federal $ —  $ 44,353  $ (10,994)
State —  8,086  1,354 
Foreign —  (937) 47 
Total deferred income tax expense (benefit) —  51,502  (9,593)
Income tax benefit $ (152) $ (7,484) $ (14,334)
The reconciliation between the income tax benefit and the amount of income tax computed by applying the U.S. federal statutory rate to loss before income taxes as shown in the accompanying consolidated statements of operations and comprehensive loss for fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 is as follows:
2021 2020 2019
Tax provision at U.S. federal statutory rate 21.0  % 21.0  % 21.0  %
State income taxes 3.8  3.9  2.2 
FICA tip tax credits —  —  46.0 
Foreign taxes versus U.S statutory rate —  0.2  0.8 
Valuation allowance on deferred income tax assets (25.2) (27.9) (9.1)
Impact of CARES Act and related method changes —  5.5  — 
Other tax credits —  —  6.1 
Meals and entertainment —  —  (0.7)
Excess stock options 1.1  (0.1) (2.9)
Employee travel —  —  (0.1)
Other (0.4) —  1.2 
Effective tax rate 0.3  % 2.6  % 64.5  %
The Company had a tax benefit in all three years presented above, but due to the mathematical computation of tax benefit to book loss the effective tax rate in 2021, 2020, and 2019 are represented as a positive percentage. The decrease in the Company's effective tax benefit in 2021 is primarily due to the 2020 favorable rate impact of net operating loss carrybacks allowed as part of the CARES Act. The decrease in the 2020 effective tax benefit is primarily due to a decrease in credits and an increase in the valuation allowance.
The Company's federal and state deferred taxes at December 26, 2021 and December 27, 2020 are as follows (in thousands):
2021 2020
Deferred tax assets:
Leasing transactions $ 126,981  $ 134,471 
General business and other tax credits 40,472  40,366 
Net operating loss carryover 36,069  23,567 
Accrued compensation and related costs 9,738  11,893 
Goodwill 8,296  9,536 
Stock-based compensation 6,461  5,561 
Advanced payments 3,912  4,702 
Other non-current deferred tax assets 5,782  3,073 
Subtotal 237,711  233,169 
Valuation allowance (99,093) (86,677)
Total $ 138,618  $ 146,492 
Deferred tax liabilities:
Leasing transactions $ (108,067) $ (112,860)
Property and equipment (17,600) (21,549)
Supplies inventory (4,128) (4,267)
Prepaid expenses (2,517) (2,884)
Other non-current deferred tax liabilities (6,306) (4,932)
Total $ (138,618) $ (146,492)
Net deferred tax asset $ —  $ — 
The Company had net operating loss carryforwards for tax purposes of $36.1 million as of December 26, 2021. This is comprised of approximately $11.8 million of federal net operating loss carryovers, approximately $14.8 million of state net operating loss carryovers, and approximately $9.5 million of foreign net operating loss carryovers. The federal net operating loss has an indefinite carryforward period, the state net operating loss carryovers expire at various dates between 2025 and 2041, and the foreign net operating loss carryovers expire at various dates between 2035 and 2041.
As of December 26, 2021, the Company had a deferred tax asset of $39.3 million related to federal tax credits, which expire at various dates between 2037 and 2040. The Company also had a deferred tax asset of $1.2 million related to state tax credits which expire in 2024.
In assessing the realizability of deferred income tax assets, ASC 740 requires a more likely than not standard be met. If the Company determines that it is more likely than not that deferred income tax assets will not be realized, a valuation allowance must be established. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies when making this determination. Due to the COVID-19 pandemic, the Company has experienced cumulative losses in recent years which is significant negative evidence that is difficult to overcome in order to reach a determination that a valuation allowance is not required. Projected future taxable income is positive subjective evidence but is not strong enough to overcome the recent cumulative loss objective evidence. Therefore, management determined that a full valuation allowance was required as of December 26, 2021 and at December 27, 2020.
Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $99.1 million has been recorded against the deferred tax asset for federal and state tax credits, federal and state deferred tax assets, all net operating loss carry forwards and the deferred taxes of our foreign subsidiary.
The following table summarizes the Company's unrecognized tax benefits at December 26, 2021, December 27, 2020, and December 29, 2019
(in thousands):
2021 2020 2019
Beginning of year $ 80  $ 104  $ 304 
Increase due to current year tax positions 3  —  52 
Due to decrease to a position taken in a prior year —  (24) (170)
Settlements —  —  (16)
Reductions related to lapses in the statute of limitations (51) —  (66)
End of year $ 32  $ 80  $ 104 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $32 thousand. The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next 12 months, other than nominal tax settlements.
The Company had outstanding federal and state refund claims of approximately $15.8 million as of December 26, 2021. In January 2022, the Company received $2.4 million of those refund claims, and expects to receive the remaining $13.4 million over the next 12-18 months due to processing delays at the IRS.