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Income Taxes
 12 Months Ended
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 available.