Income Taxes

12 Months Ended

Dec. 31, 2019

7. Income Taxes

The components of the provision for income taxes were as follows:



	Year ended December 31,
	2019		2018		2017
Current tax:
U.S. Federal	$	57,020	$	58,878	$	98,208
U.S. State		20,499		21,780		18,639
Foreign		646		637		669
		78,165		81,295		117,516
Deferred tax:
U.S. Federal		27,231		10,541		(16,201)
U.S. State		2,740		479		(1,559)
Foreign		(2,685)		(2,261)		(496)
		27,286		8,759		(18,256)
Valuation allowance		2,676		1,829		230
Provision for income taxes	$	108,127	$	91,883	$	99,490

The effective tax rate differs from the statutory tax rates as follows:




	Year ended December 31,
	2019			2018		2017
Statutory U.S. federal income tax rate		21.0	%	21.0	%	35.0	%
State income tax, net of related federal income tax benefit		4.1		6.6		4.4
Federal credits		(1.7)		(2.1)		(1.5)
Executive compensation disallowed		2.0		1.4		-
Meals and entertainment		0.1		0.1		-
Enhanced deduction for food donation		-		(0.1)		(0.2)
Valuation allowance		0.5		0.7		0.1
Other		0.8		3.5		1.5
Effects of the TCJA		-		-		(2.3)
Return to provision and other discrete items		0.1		1.1		(0.9)
Equity compensation related adjustments		(3.3)		2.0		-
Effective income tax rate		23.6	%	34.2	%	36.1	%

The effective tax rate for the year ended December 31, 2019, was lower than the effective tax rate for the year ended December 31, 2018, primarily due to net excess benefits from stock-based compensation and net year over year decrease in tax expense related to equity award expirations, partially offset by current year increases in non-deductible executive compensation.

The components of the deferred income tax assets and liabilities for continuing operations were as follows:



	December 31,
	2019		2018
Deferred income tax liability:
Leasehold improvements, property and equipment	$	162,291	$	144,113
Goodwill and other assets		1,537		1,438
Prepaid assets and other		1,290		4,154
Operating lease asset		686,333		-
Total deferred income tax liability		851,451		149,705
Deferred income tax asset:
Deferred rent		-		49,481
Gift card liability		6,185		5,752
Capitalized transaction costs		323		323
Stock-based compensation and other employee benefits		41,270		65,651
Foreign net operating loss carry-forwards		13,796		11,871
State credits		4,170		5,230
Operating lease liability		741,120		-
Allowances, reserves and other		22,973		13,355
Valuation allowance		(16,200)		(13,524)
Total deferred income tax asset		813,637		138,139
Deferred income tax liabilities	$	37,814	$	11,566

As of December 31, 2019, we no longer have deferred tax assets related to outstanding non-vested stock awards that contain market conditions.

Gross foreign net operating losses were $68,169 and $54,599 as of December 31, 2019 and 2018, respectively.

We had gross valuation allowances against certain foreign deferred tax assets of $77,191 and $63,509 as of December 31, 2019 and 2018, respectively. The increase in the valuation allowance was primarily due to the recording of a valuation allowance on various foreign tax attributes.

Unrecognized Tax Benefits

A reconciliation of the unrecognized tax benefits was as follows:


	Year ended December 31,
	2019		2018		2017
Beginning of year	$	9,360	$	8,937	$	4,211
Increase resulting from prior year tax position		5,855		-		-
Increase resulting from current year tax position		758		751		4,726
Settlements with taxing authorities		(736)		-		-
Lapsing of statutes of limitations		(209)		(328)		-
End of year	$	15,028	$	9,360	$	8,937

Interest expense related to uncertain tax positions is recognized in interest expense on the consolidated statements of income. Penalties related to uncertain tax positions are recognized in income tax expense on the consolidated statements of income. During the years ended December 31, 2019, 2018, and 2017, we recognized $1,853, $536, and $364, respectively, in interest expense related to uncertain tax positions. These balances are gross amounts before any tax benefits and are included in other liabilities in the accompanying consolidated balance sheets. We accrued $3,054 and $1,329 for the payment of interest at December 31, 2019 and 2018, respectively.

We are no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2016. For the majority of states where we have a significant presence, we are no longer subject to tax examinations by tax authorities for tax years before 2016. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $202 within the next twelve months.

It is reasonably possible the amount of the unrecognized benefit with respect to certain unrecognized positions could significantly increase or decrease within the next twelve months and would have an impact on net income.

Tax Cuts and Jobs Act

Effective for tax years beginning after December 31, 2017, the U.S. corporate income tax rate is 21% pursuant to the Tax Cuts and Jobs Act (“TCJA”), that was signed into law December 2017. As of December 31, 2018, we completed our accounting for the tax effects of the TCJA and recorded cumulative tax adjustments of $6,446 in accordance with SAB 118 guidance.

In connection with the TCJA, a one-time transition tax is assessed on total post-1986 accumulated foreign earnings and profits that were previously deferred from U.S. income taxes, the amount of those earnings held in cash, and other specified assets and foreign tax pools. Based on our analysis of our total post-1986 accumulated foreign earnings and profits that were previously deferred from U.S. income taxes, the amount of those earnings held in cash, and other specified assets and foreign tax pools, we have determined a one-time transition tax of $0 for the year ended December 31, 2017.