Note 7 – Income Taxes

The components of income (loss)from continuing operations before income tax provision consist of the following:

 

Income tax (benefit) provision for fiscal year 2018 and 2017 consists of the following:

 

Income tax (benefit) provision differs from the amount that would result from applying the federal statutory rate as follows:

 

For fiscal years 2018 and 2017 the effective tax rate for the Company was 6.3% and (710.0)%, respectively. The Company’s effective tax rate for fiscal year 2018 differs from the U.S. federal rate primarily as a result of non-deductible share-based compensation, the write-off of expired state net operating loss carryforwards, and the change in the valuation allowance maintained against the Company’s deferred tax assets. The Company’s effective tax rate for fiscal year 2017 differs from the U.S. federal rate primarily as a result of the release of valuation allowances against the Company’s deferred tax assets.

Deferred tax assets and deferred tax liabilities consisted of the following:

 

At December 29, 2018, federal and state net operating loss (“NOL”) carryforwards were $74,418 and $72,152, respectively. Federal NOL carryforwards of $2,106 were acquired in the acquisition of WAG which are subject to Internal Revenue Code section 382 and limited to an annual usage limitation of $135. Federal NOL carryforwards begin to expire in 2029, and the state NOL carryforwards expire in the respective tax years as follows:

 

Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversal of existing taxable temporary differences. ASC 740 provides that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years or losses expected in early future years. As of December 30, 2017, the Company’s deferred tax assets were primarily the result of U.S. federal and state net operating loss carryforwards. A valuation allowance of $43,877 was recorded against our gross deferred tax asset balance as of December 31, 2016. As of December 30, 2017 in part because in the year then ended the Company achieved three years of cumulative pre-tax income in the U.S. federal tax jurisdiction, management determined that sufficient positive evidence existed to conclude that it was more likely than not that deferred taxes of $32,153 were realizable, and therefore, reduced the valuation allowance accordingly. As of December 29, 2018 the Company continued to maintain a valuation allowance in the amount of $5,816 against deferred tax assets that were more likely than not of being recognized.

The Tax Cuts and Jobs Act was enacted on December 22, 2017 and reduced the U.S. federal corporate tax rate to 21 percent, effective January 1, 2018. Consequently, we have recorded a decrease in our deferred tax assets, deferred tax liabilities and valuation allowance of $13,630,  $1,459 and $1,494, respectively, with a corresponding net adjustment to deferred income tax expense of $10,677 for the year ended December 30, 2017. In addition, we recognized a deemed repatriation of $1,123 of deferred foreign income from our Philippines subsidiary, which did not result in any incremental tax cost after application of foreign tax credits.

We are subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2014‑2018 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2015‑2018 remain open. The Company does not anticipate a significant change to the amount of unrecognized tax benefits within the next twelve months.

Included in accrued expenses are income taxes payable of $23 and $3 for the fiscal year 2018 and 2017 respectively, consisting primarily of current foreign taxes. Included in other non-current liabilities are income taxes payable of $614 and $601 for the fiscal year 2018 and 2017, respectively, relating to future foreign withholding taxes.