9. 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, 2016		December 26, 2015		December 27, 2014
Federal income tax expense at statutory rate (35%)	$	12,581,100	$	12,328,700	$	11,406,100
Change in valuation allowance		13,800		(4,400)		(25,800)
State and local income taxes, net of federal benefit		1,021,600		956,000		897,800
Permanent differences, including stock option expenses		84,300		158,100		144,500
Other, net		27,600		(13,300)		99,700
Actual income tax expense	$	13,728,400	$	13,425,100	$	12,522,300

Components of the provision for income taxes are as follows:


	Year Ended
	December 31, 2016		December 26, 2015		December 27, 2014
Current:
Federal	$	12,016,000	$	13,486,500	$	10,567,100
State		1,598,700		1,654,800		1,456,400
Foreign		396,600		425,900		386,900
Current provision		14,011,300		15,567,200		12,410,400
Deferred:
Federal		(274,600)		(1,983,200)		134,200
State		(8,300)		(158,900)		(22,300)
Deferred provision		(282,900)		(2,142,100)		111,900
Total provision for income taxes	$	13,728,400	$	13,425,100	$	12,522,300

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


	December 31, 2016		December 26, 2015
Deferred tax assets:
Accounts receivable and lease reserves	$	347,400	$	345,200
Non-qualified stock option expense		2,370,700		1,926,400
Deferred franchise and software license fees		817,500		810,900
Trademarks		76,800		85,700
Lease deposits		1,674,300		1,373,000
Loss from and impairment of equity and note investments		4,065,200		4,051,400
Valuation allowance		(4,065,200)		(4,051,400)
Other		413,100		372,800
Total deferred tax assets		5,699,800		4,914,000
Deferred tax liabilities:
Lease revenue and initial direct costs		(8,802,800)		(8,277,600)
Depreciation and amortization		(228,900)		(251,200)
Total deferred tax liabilities		(9,031,700)		(8,528,800)
Total net deferred tax liabilities	$	(3,331,900)	$	(3,614,800)

During the years ended December 31, 2016, December 26, 2015 and December 27, 2014, $599,400, $26,300 and $91,100, 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 (which are capital losses for tax purposes). As a result, valuation allowances of $4.1 million and $4.1 million as of December 31, 2016 and December 26, 2015, respectively, have been recorded.

The amount of unrecognized tax benefits, including interest and penalties, as of December 31, 2016 and December 26, 2015, was $502,000 and $489,200, respectively, primarily for potential 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 $22,500 and $19,300 for the payment of interest and penalties at December 31, 2016 and December 26, 2015, respectively.

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


	Total
Balance at December 27, 2014	$	449,000
Increases related to current year tax positions		114,700
Subtractions for tax positions of prior years		(8,000)
Expiration of the statute of limitations for the assessment of taxes		(85,800)
Balance at December 26, 2015		469,900
Increases related to current year tax positions		128,500
Subtractions for tax positions of prior years		(5,300)
Expiration of the statute of limitations for the assessment of taxes		(113,600)
Balance at December 31, 2016	$	479,500

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 2012. The Company is currently under examination by the Internal Revenue Service for the 2014 tax year. 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.