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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Taxes [Abstract] |
Income Taxes | 6. Income Taxes Income before income taxes, classified by source of income, was as follows:
| Year ended December 31,
| 2020 |  | 2019 |  | 2018
Domestic | $ | 311,021 |  | $ | 465,253 |  | $ | 279,955
Foreign |  | (17,240) |  |  | (6,968) |  |  | (11,519)
Income before income taxes | $ | 293,781 |  | $ | 458,285 |  | $ | 268,436
The components of the benefit/(provision) for income taxes were as follows:
| Year ended December 31,
| 2020 |  | 2019 |  | 2018
Current tax: |  |  |  |  |  |  |  |
U.S. Federal | $ | 204,063 |  | $ | (57,020) |  | $ | (58,878)
U.S. State |  | (32,684) |  |  | (20,499) |  |  | (21,780)
Foreign |  | (1,044) |  |  | (646) |  |  | (637)
|  | 170,335 |  |  | (78,165) |  |  | (81,295)
Deferred tax: |  |  |  |  |  |  |  |
U.S. Federal |  | (120,066) |  |  | (27,231) |  |  | (10,541)
U.S. State |  | 11,507 |  |  | (2,740) |  |  | (479)
Foreign |  | 7,158 |  |  | 2,685 |  |  | 2,261
|  | (101,401) |  |  | (27,286) |  |  | (8,759)
Valuation allowance |  | (6,949) |  |  | (2,676) |  |  | (1,829)
Benefit/(provision) for income taxes | $ | 61,985 |  | $ | (108,127) |  | $ | (91,883)
The effective tax rate differs from the statutory tax rates as follows:
| Year ended December 31,
| 2020 |  | 2019 |  | 2018
Statutory U.S. federal income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income tax, net of related federal income tax benefit |  | 4.2 |  |  | 4.1 |  |  | 6.6 |
Federal credits |  | (3.5) |  |  | (1.7) |  |  | (2.1) |
Executive compensation disallowed |  | 2.9 |  |  | 2.0 |  |  | 1.4 |
Meals and entertainment |  | 0.1 |  |  | 0.1 |  |  | 0.1 |
Enhanced deduction for food donation |  | (0.1) |  |  | - |  |  | (0.1) |
Valuation allowance |  | 1.6 |  |  | 0.5 |  |  | 0.7 |
Other |  | 1.8 |  |  | 0.8 |  |  | 3.5 |
Return to provision and other discrete items |  | 2.1 |  |  | 0.1 |  |  | 1.1 |
Equity compensation related adjustments |  | (13.5) |  |  | (3.3) |  |  | 2.0 |
Federal net operating loss |  | (37.7) |  |  | - |  |  | - |
Effective income tax rate |  | (21.1) | % |  | 23.6 | % |  | 34.2 | %
The effective tax rate for the year ended December 31, 2020, was lower than the effective tax rate for the year ended December 31, 2019, primarily due to stock-based compensation, partially offset by current year increases in non-deductible executive compensation and net excess benefits from the federal net operating loss (“NOL”) generated in the current year that will be carried back to tax years 2015-2017. We have estimated a federal NOL for the year ended December 31, 2020. We expect to carryback the federal NOL generated in the current year to tax years 2015-2017 when the corporate federal income tax rate was 35%. As a result, for the year ended December 31, 2020, we recorded an income tax benefit of $110,765 due to the federal income tax rate differential in 2020 of 21% versus 2015-2017 of 35%. The components of the deferred income tax assets and liabilities were as follows:
|  |  |  | December 31,
|  |  |  | 2020 |  | 2019
Deferred income tax liability: |  |  |  |  |  |  |  |
Leasehold improvements, property and equipment |  |  |  | $ | 298,225 |  | $ | 162,291
Goodwill and other assets |  |  |  |  | 1,628 |  |  | 1,537
Prepaid assets and other |  |  |  |  | (350) |  |  | 1,290
Operating lease asset |  |  |  |  | 752,864 |  |  | 686,333
Total deferred income tax liability |  |  |  |  | 1,052,367 |  |  | 851,451
Deferred income tax asset: |  |  |  |  |  |  |  |
Gift card liability |  |  |  |  | 3,849 |  |  | 6,185
Capitalized transaction costs |  |  |  |  | 324 |  |  | 323
Stock-based compensation and other employee benefits |  |  |  |  | 34,709 |  |  | 41,270
Foreign net operating loss carry-forwards |  |  |  |  | 21,598 |  |  | 13,796
State credits |  |  |  |  | 4,452 |  |  | 4,170
Operating lease liabilities |  |  |  |  | 812,699 |  |  | 741,120
Allowances, reserves and other |  |  |  |  | 25,981 |  |  | 22,973
State net operating loss carry-forwards |  |  |  |  | 22,482 |  |  | -
Valuation allowance |  |  |  |  | (23,149) |  |  | (16,200)
Total deferred income tax asset |  |  |  |  | 902,945 |  |  | 813,637
Deferred income tax liabilities |  |  |  | $ | 149,422 |  | $ | 37,814
Gross foreign NOLs were $98,710 and $68,169 for the year ended December 31, 2020 and 2019, respectively. Our foreign NOLs can be carried forward indefinitely. Gross state NOLs generated across all jurisdictions in which we operate were $340,259 and $0 for the years ended December 31, 2020 and 2019, respectively. Our state NOLs expire over varying intervals in the future. We had gross valuation allowances against certain foreign deferred tax assets of $104,820 and $77,191 as of December 31, 2020 and 2019, 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,
| 2020 |  | 2019 |  | 2018
Beginning of year | $ | 15,028 |  | $ | 9,360 |  | $ | 8,937
(Decrease)/Increase resulting from prior year tax position |  | (2,853) |  |  | 5,855 |  |  | -
Increase resulting from current year tax position |  | 1,870 |  |  | 758 |  |  | 751
Settlements with taxing authorities |  | - |  |  | (736) |  |  | -
Lapsing of statutes of limitations |  | (3,186) |  |  | (209) |  |  | (328)
End of year | $ | 10,859 |  | $ | 15,028 |  | $ | 9,360
Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income. Penalties related to uncertain tax positions are recognized in benefit/(provision) for income taxes on the consolidated statements of income. For the years ended December 31, 2020, 2019 and 2018, we recognized $554, $1,853 and $536, respectively, in interest expense related to uncertain tax positions. These are gross amounts before any tax benefits and are included in other liabilities on the consolidated balance sheets. As of December 31, 2020 and 2019, we have accrued interest of $2,185 and $3,054, 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 $6,316 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. Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) On March 27, 2020, President Trump signed into law the CARES Act. Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions, among others, addressing the carryback of NOLs for specific periods, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. The CARES Act provides for the deferral of the employer-paid portion of social security payroll taxes. We have elected to defer the employer-paid portion of social security payroll taxes through December 31, 2020, of $70,812 and will remit such amounts during calendar year 2021. We accelerated tax depreciation expenses due to the technical amendments made by the CARES Act to QIP. As of December 31, 2020, accelerated tax depreciation expenses of $60,376 represents a temporary book-to-tax timing difference (i.e., no effective tax rate impact) for income tax purposes and is in deferred income tax liabilities and income tax receivable on the consolidated balance sheet. The CARES Act provides refundable employee retention credits, which can be used to offset payroll tax liabilities. For the year ended December 31, 2020, we recorded a benefit of $3,403, which primarily offsets payroll tax expense. Additionally, as a result of the Canada Emergency Wage Subsidy, for our Canadian employees, we recognized a benefit of $2,028 for the year ended December 31, 2020, which primarily offset labor expense. 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.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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