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Income Taxes:
 12 Months Ended
Dec. 31, 2011
Income Taxes:  
Income Taxes:

10.          Income Taxes:

 

A reconciliation of the expected federal income tax expense based on the federal statutory tax rate to the actual income tax expense is provided below:

 

 

 

Year Ended

 

 

 

December 31, 2011

 

December 25, 2010

 

Federal income tax expense at statutory rate (35%)

 

$

8,183,600

 

$

6,145,100

 

Valuation allowance

 

577,700

 

249,400

 

State and local income taxes, net of federal benefit

 

827,700

 

766,500

 

Permanent differences, including stock option expenses

 

(223,600

)

122,600

 

Other, net

 

(78,800

)

(55,100

)

Actual income tax expense

 

$

9,286,600

 

$

7,228,500

 

 

Components of the provision for income taxes are as follows:

 

 

 

Year Ended

 

 

 

December 31, 2011

 

December 25, 2010

 

Current:

 

 

 

 

 

Federal

 

$

4,718,000

 

$

4,717,200

 

State

 

860,000

 

973,100

 

Foreign

 

377,000

 

322,000

 

Current provision

 

5,955,000

 

6,012,300

 

Deferred:

 

 

 

 

 

Federal

 

2,890,500

 

979,000

 

State

 

441,100

 

237,200

 

Deferred provision

 

3,331,600

 

1,216,200

 

Total provision for income taxes

 

$

9,286,600

 

$

7,228,500

 

 

The tax effects of temporary differences that give rise to the net deferred income tax assets and liabilities are presented below:

 

 

 

December 31, 2011

 

December 25, 2010

 

Deferred tax assets:

 

 

 

 

 

Accounts receivable and lease reserves

 

$

315,600

 

$

393,300

 

Accrued restructuring charge

 

65,500

 

66,800

 

Non-qualified stock option expense

 

1,026,000

 

865,200

 

Deferred franchise and software license fees

 

464,700

 

420,100

 

Trademarks

 

98,300

 

108,900

 

Lease deposits

 

943,800

 

803,200

 

Loss from and impairment of equity and note investments

 

2,660,700

 

2,122,300

 

Valuation allowance

 

(2,660,700

)

(2,083,000

)

Other

 

305,900

 

222,600

 

Total deferred tax assets

 

3,219,800

 

2,919,400

 

Deferred tax liabilities:

 

 

 

 

 

Lease revenue and initial direct costs

 

(8,776,600

)

(5,132,600

)

Depreciation and amortization

 

(263,100

)

(275,100

)

Total deferred tax liabilities

 

(9,039,700

)

(5,407,700

)

Total net deferred tax liabilities

 

$

(5,819,900

)

$

(2,488,300

)

 

During the years ended December 31, 2011 and December 25, 2010, $249,500 and $17,600, respectively, was directly credited to stockholders’ equity to account for excess tax benefits related to stock option exercises.

 

The Company has assessed its taxable earnings history and prospective future taxable income.  Based upon this assessment, the Company has determined that it is more likely than not that its deferred tax assets will be realized in future periods and no valuation allowance is necessary, except for the deferred tax assets related to the loss from and impairment of equity and note investments.  As a result, valuation allowances of $2.7 million and $2.1 million as of December 31, 2011 and December 25, 2010, respectively, have been recorded.

 

The amount of unrecognized tax benefits, including interest and penalties, as of December 31, 2011 and December 25, 2010, was $334,800 and $163,300, respectively, primarily for potential foreign and state taxes.

 

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense for all periods presented.  The Company had accrued approximately $25,300 and $7,400 for the payment of interest and penalties at December 31, 2011 and December 25, 2010, respectively.

 

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

 

 

 

Total

 

Balance at December 26, 2009

 

$

112,100

 

Increases related to current year tax positions

 

59,500

 

Additions for tax positions of prior years

 

9,900

 

Expiration of the statute of limitations for the assessment of taxes

 

(25,600

)

Balance at December 25, 2010

 

155,900

 

Increases related to current year tax positions

 

88,600

 

Additions for tax positions of prior years

 

103,700

 

Expiration of the statute of limitations for the assessment of taxes

 

(38,700

)

Balance at December 31, 2011

 

$

309,500

 

 

The Company and its subsidiaries file income tax returns in the U.S. federal, numerous state and certain foreign jurisdictions.  With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2007.  The Internal Revenue Service concluded its examination of our U.S. federal tax returns for the fiscal years ended 2007 and 2008 in 2010.  We expect various statutes of limitation to expire during the next 12 months.  Due to the uncertain response of taxing authorities, a range of outcomes cannot be reasonably estimated at this time.