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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Taxes [Abstract] |
Income Taxes | 6. Income Taxes Income before income taxes, classified by source of income, was as follows:
| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Domestic | $ | 1,192,004 |  | $ | 818,057 |  | $ | 311,021
Foreign |  | (10,473) |  |  | (5,294) |  |  | (17,240)
Income before income taxes | $ | 1,181,531 |  | $ | 812,763 |  | $ | 293,781
The components of the benefit/(provision) for income taxes were as follows:
| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Current tax: |  |  |  |  |  |  |  |
U.S. Federal | $ | (246,210) |  | $ | (156,447) |  | $ | 204,063
U.S. State |  | (79,041) |  |  | (15,351) |  |  | (32,684)
Foreign |  | (374) |  |  | (338) |  |  | (1,044)
|  | (325,625) |  |  | (172,136) |  |  | 170,335
Deferred tax: |  |  |  |  |  |  |  |
U.S. Federal |  | 23,502 |  |  | 33,004 |  |  | (120,066)
U.S. State |  | 19,940 |  |  | (20,404) |  |  | 11,507
Foreign |  | (3,771) |  |  | 7,229 |  |  | 7,158
|  | 39,671 |  |  | 19,829 |  |  | (101,401)
Valuation allowance |  | 3,524 |  |  | (7,472) |  |  | (6,949)
Benefit/(provision) for income taxes | $ | (282,430) |  | $ | (159,779) |  | $ | 61,985
The effective tax rate differs from the statutory tax rates as follows:
| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Statutory U.S. federal income tax rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income tax, net of related federal income tax benefit |  | 3.8 |  |  | 3.5 |  |  | 4.2 |
Federal tax credits |  | (1.0) |  |  | (1.6) |  |  | (3.5) |
Executive compensation disallowed |  | 0.8 |  |  | 2.9 |  |  | 2.9 |
Meals and entertainment |  | - |  |  | - |  |  | 0.1 |
Enhanced deduction for food donation |  | - |  |  | - |  |  | (0.1) |
Valuation allowance |  | 0.2 |  |  | 0.3 |  |  | 1.6 |
Uncertain tax position reserves |  | 0.3 |  |  | - |  |  | - |
Other |  | 0.6 |  |  | - |  |  | 1.8 |
Return to provision and other discrete items |  | (0.1) |  |  | 0.1 |  |  | 2.1 |
Equity compensation related adjustments |  | (1.7) |  |  | (4.7) |  |  | (13.5) |
Federal net operating loss |  | - |  |  | (1.8) |  |  | (37.7) |
Effective income tax rate |  | 23.9 | % |  | 19.7 | % |  | (21.1) | %
The effective tax rate for the year ended December 31, 2022, was higher than the effective tax rate for the year ended December 31, 2021, primarily due to a decrease in excess tax benefits related to option exercises and equity vesting, fewer benefits generated from a federal net operating loss (“NOL”) and a net increase in uncertain tax position reserves. The components of the deferred income tax assets and liabilities for continuing operations were as follows:
|  |  |  | December 31,
|  |  |  | 2022 |  | 2021
Deferred income tax liability: |  |  |  |  |  |  |  |
Leasehold improvements, property and equipment, net |  |  |  | $ | 263,444 |  | $ | 279,586
Goodwill and other assets |  |  |  |  | 1,754 |  |  | 1,728
Prepaid assets and other |  |  |  |  | (4,685) |  |  | 106
Operating lease assets |  |  |  |  | 901,058 |  |  | 851,324
Total deferred income tax liability |  |  |  |  | 1,161,571 |  |  | 1,132,744
Deferred income tax asset: |  |  |  |  |  |  |  |
Gift card liability |  |  |  |  | 15,893 |  |  | 9,699
Capitalized transaction costs |  |  |  |  | 323 |  |  | 324
Stock-based compensation and other employee benefits |  |  |  |  | 45,129 |  |  | 45,261
Foreign net operating loss carry-forwards |  |  |  |  | 24,799 |  |  | 27,446
State credits |  |  |  |  | 3,151 |  |  | 3,595
Operating lease liabilities |  |  |  |  | 962,815 |  |  | 909,528
Allowances, reserves and other |  |  |  |  | 15,688 |  |  | 24,179
Capitalized research costs |  |  |  |  | 17,415 |  |  | -
State net operating loss carry-forwards |  |  |  |  | 4,832 |  |  | 1,568
Valuation allowance |  |  |  |  | (27,097) |  |  | (30,621)
Total deferred income tax asset |  |  |  |  | 1,062,948 |  |  | 990,979
Deferred income tax liabilities |  |  |  | $ | 98,623 |  | $ | 141,765
Gross foreign NOLs were $114,727 and $108,324 for the year ended December 31, 2022 and 2021, respectively. Our foreign NOLs can be carried forward indefinitely. Gross state NOLs available across all jurisdictions in which we operate were $73,327 and $50,467 as of December 31, 2022 and 2021, respectively. Our state NOLs expire over varying intervals in the future. We had gross valuation allowances against certain foreign deferred tax assets of $124,609 and $119,741 as of December 31, 2022 and 2021, respectively. The decrease in the valuation allowance was primarily due to immaterial tax rate changes on various foreign tax attributes. Unrecognized Tax Benefits A reconciliation of the unrecognized tax benefits was as follows:
| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Beginning of year | $ | 5,262 |  | $ | 10,859 |  | $ | 15,028
Increase/(Decrease) resulting from prior year tax position |  | 3,937 |  |  | (151) |  |  | (2,853)
Increase resulting from current year tax position |  | 312 |  |  | 1,387 |  |  | 1,870
Settlements with taxing authorities |  | - |  |  | - |  |  | -
Lapsing of statutes of limitations |  | (609) |  |  | (6,833) |  |  | (3,186)
End of year | $ | 8,902 |  | $ | 5,262 |  | $ | 10,859
Interest expense related to uncertain tax positions is recognized in interest and other income, net on the consolidated statements of income and comprehensive income. Penalties related to uncertain tax positions are recognized in benefit/(provision) for income taxes on the consolidated statements of income and comprehensive income. For the years ended December 31, 2022, 2021 and 2020, we recognized $384, $180 and $554, 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, 2022 and 2021, we have accrued interest of $589 and $356, respectively. The Internal Revenue Service (“IRS”) commenced an examination of our U.S. income tax returns for the tax year ended December 31, 2020 in the fourth quarter of 2022 that is anticipated to be completed within 18 months. As of December 31, 2022, the IRS has not proposed any adjustments to our tax positions. Our tax returns are currently under audit by the State of Pennsylvania for the tax years ended December 31, 2019, December 31, 2020 and December 31, 2021. As of December 31, 2022, the State of Pennsylvania has not proposed any adjustments to our tax positions. 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 2018. Currently, we expect expirations of statutes of limitations, excluding indemnified amounts, on reserves of approximately $573 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. Inflation Reduction Act of 2022 On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes a 15% minimum tax on the adjusted financial statement income of corporations with a three taxable year average annual adjusted financial statement income in excess of $1 billion, a 1% excise tax on net stock repurchases made by publicly traded US corporations and several tax incentives to promote clean energy. The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. While these tax law changes have no immediate effect and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes availabl e.

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