We have historically elected not to provide for U.S. income taxes with respect to the undistributed earnings of our foreign subsidiaries as we intended to utilize those earnings in our foreign operations for an indefinite period of time. Under Internal Revenue Code section 965 of U.S. Tax Reform, we are deemed to have distributed all the post-1986 accumulated earnings of our foreign subsidiaries to the U.S. as of December 31, 2017. In light of the U.S. Tax Cuts and Jobs Act, the Company

re-evaluated

its permanent reinvestment assertion with respect to unremitted foreign earnings. As a result, we are now permanently reinvested with respect to our foreign earnings in Canada beginning in fiscal 2018.

A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows:



	Fiscal 2019			Fiscal 2018			Fiscal 2017
Federal income taxes at the statutory rate		21.0%			21.0%			33.9%
Re-measurement of deferred tax assets and liabilities		—			(2.2%	)		6.7%
Transition tax		—			(0.6%	)		2.9%
State income tax rate		2.9%			3.8%			2.5%
Officer’s compensation under Sec.162(m)		1.0%			—			—
Deferred true up		(1.3%	)		—			—
Change in uncertain tax positions		0.5%			4.1%			(1.6%	)
Rate differential		(1.8%	)		(2.3%	)		(2.9%	)
Research and development credits		(0.7%	)		(2.1%	)		—
Other		0.5%			0.6%			1.1%
Total		22.1%			22.3%			42.6%

Significant components of our deferred income tax accounts are as follows:



Deferred tax asset (liabilities), Dollars in thousands	Fiscal 2019			Fiscal 2018
Operating lease liabilities	$	347,693		$	—
Merchandise inventories		22,311			18,703
Customer deposits		19,520			14,345
Compensation		14,350			11,251
Stock-based compensation		9,860			14,281
Accrued liabilities		8,440			13,470
State taxes		7,546			7,435
Executive deferred compensation		7,543			5,739
Federal and state net operating loss		3,443			4,223
Deferred rent		—			18,942
Operating lease right-of-use assets		(309,801	)		—
Deferred lease incentives		(46,701	)		(26,032	)
Property and equipment		(37,309	)		(31,557	)
Prepaid catalog expenses		(394	)		(936	)
Other		2,369			(4,797	)
Valuation allowance		(3,648	)		(3,542	)
Total deferred tax assets, net	$	45,222		$	41,525

As a result of the acquisition of Outward, Inc., we had net state operating loss carry-forwards as of February 2, 2020. A valuation allowance has been provided against certain state net operating carry-forwards, as we do not expect to fully utilize the losses in future years.

The following table summarizes the activity related to our gross unrecognized tax benefits:



Dollars in thousands	Fiscal 2019			Fiscal 2018			Fiscal 2017
Beginning Balance	$	35,209		$	18,051		$	25,864
Increases related to current year tax positions		3,438			4,694			3,345
Increases for tax positions for prior years		1,405			14,905			808
Decrease for tax positions for prior years		(308	)		(1,279	)		(10,610	)
Settlements		—			(376	)		—
Lapse in statute of limitations		(3,106	)		(786	)		(1,356	)
Ending Balance	$	36,638		$	35,209		$	18,051

As of February 2, 2020, we had $36,638,000 of gross unrecognized tax benefits, of which $32,421,000 would, if recognized, affect the effective tax rate.

We accrue interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of February 2, 2020 and February 3, 2019, our accruals for the payment of interest and penalties totaled $7,251,000 and $5,437,000 respectively.

Due to the potential resolution of tax issues, it is reasonably possible that the balance of our gross unrecognized tax benefits could decrease within the next twelve months by a range of $0 to $11,757,000.

We file income tax returns in the U.S. and foreign jurisdictions. We are subject to examination by the tax authorities in these jurisdictions. Our U.S. federal taxable years for which the statute of limitations has not expired are fiscal years 2016 to 2019. Substantially all material states, local and foreign jurisdictions’ statutes of limitations are closed for taxable years prior to 2016.