Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
11. Income Taxes
Loss before income taxes includes the following components for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 (in thousands):
2023 2022 2021
U.S. $ (20,894) $ (77,976) $ (50,419)
Foreign (24) (160) (176)
Loss before income taxes $ (20,918) $ (78,136) $ (50,595)
The expense (benefit) for income taxes for the fiscal years ended December 31, 2023, December 25, 2022, and December 26, 2021 consist of the following (in thousands):
2023 2022 2021
Current:
Federal $ 37  $ 374  $ — 
State 273  373  (152)
Foreign —  —  — 
Total current income tax expense (benefit) $ 310  $ 747  $ (152)
Deferred:    
Federal $ —  $ —  $ — 
State —  —  — 
Foreign —  —  — 
Total deferred income tax expense (benefit) —  —  — 
Income tax expense (benefit), net $ 310  $ 747  $ (152)
The reconciliation between the income tax expense (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 31, 2023, December 25, 2022, and December 26, 2021 is as follows:
2023 2022 2021
Tax provision at U.S. federal statutory rate 21.0  % 21.0  % 21.0  %
State income taxes 4.2  4.0  3.8 
FICA tip tax credits —  —  — 
Foreign taxes versus U.S statutory rate —  —  — 
Valuation allowance on deferred income tax assets (22.3) (24.2) (25.2)
Impact of CARES Act and related method changes —  —  — 
Other tax credits —  —  — 
Meals and entertainment —  —  — 
Excess stock options (3.3) (1.1) 1.1 
Employee travel —  —  — 
Other (1.1) (0.7) (0.4)
Effective tax rate (1.5) % (1.0) % 0.3  %
The Company's federal and state deferred taxes at December 31, 2023 and December 25, 2022 are as follows (in thousands):
2023 2022
Deferred tax assets:
Leasing transactions $ 113,963  $ 115,832 
General business and other tax credits 40,441  40,802 
Net operating loss carryover 44,131  47,847 
Accrued compensation and related costs 5,361  8,651 
Goodwill 7,244  7,851 
Stock-based compensation 6,333  7,309 
Advanced payments 628  1,371 
Interest expense 11,345  5,247 
Other non-current deferred tax assets 2,478  3,479 
Subtotal 231,924  238,389 
Valuation allowance (119,861) (115,790)
Total $ 112,063  $ 122,599 
Deferred tax liabilities:
Leasing transactions $ (97,386) $ (97,871)
Property and equipment (1,242) (11,550)
Supplies inventory (4,415) (4,047)
Prepaid expenses (1,472) (1,906)
Other non-current deferred tax liabilities (7,548) (7,225)
Total $ (112,063) $ (122,599)
Net deferred tax asset $ —  $ — 
The Company had net operating loss carryforwards for tax purposes of $44.1 million as of December 31, 2023. This is comprised of approximately $17.0 million of federal net operating loss carryovers, approximately $17.9 million of state net operating loss carryovers, and approximately $9.2 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 2042, and the foreign net operating loss carryovers expire at various dates between 2035 and 2042.
As of December 31, 2023, the Company had a deferred tax asset of $39.3 million related to federal tax credits, which expire at various dates between 2037 and 2041. The Company also had a deferred tax asset of $1.1 million related to state tax credits which expire in 2024.
The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all the tax benefit of its deferred income tax assets. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible. In making this determination, the Company considers all available positive and negative evidence including historical operating losses, the reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies. In 2020, management determined that a full valuation allowance was required and has recorded a full valuation allowance as of December 31, 2023 and at December 25, 2022.
Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $119.9 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 31, 2023, December 25, 2022, and December 26, 2021 (in thousands):
2023 2022 2021
Beginning of year $ 185  $ 32  $ 80 
Increase due to current year tax positions —  177  3 
Due to decrease to a position taken in a prior year —  —  — 
Settlements —  —  — 
Reductions related to lapses in the statute of limitations —  (24) (51)
End of year $ 185  $ 185  $ 32 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $0.2 million. 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 $0.6 million as of December 31, 2023.