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Income Taxes:

12 Months Ended

Dec. 26, 2020

11. 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 26, 2020		December 28, 2019		December 29, 2018
Federal income tax expense at statutory rate (21%, 21%, 21%)	$	8,088,600	$	8,708,200	$	8,249,400
Change in valuation allowance		54,000		147,900		(13,800)
State and local income taxes, net of federal benefit		1,368,500		1,310,800		1,334,100
Permanent differences, including stock option expenses		(1,027,300)		(1,056,800)		(355,500)
Adjustment to uncertain tax positions		85,100		(58,500)		4,500
Other, net		125,200		266,500		(61,100)
Actual income tax expense	$	8,694,100	$	9,318,100	$	9,157,600

Components of the provision for income taxes are as follows:


	Year Ended
	December 26, 2020		December 28, 2019		December 29, 2018
Current:
Federal	$	7,836,000	$	9,076,400	$	6,355,800
State		1,795,800		1,693,800		1,551,000
Foreign		286,000		363,200		423,000
Current provision		9,917,800		11,133,400		8,329,800
Deferred:
Federal		(1,202,100)		(1,834,800)		967,300
State		(21,600)		19,500		(139,500)
Deferred provision		(1,223,700)		(1,815,300)		827,800
Total provision for income taxes	$	8,694,100	$	9,318,100	$	9,157,600

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


	December 26, 2020		December 28, 2019
Deferred tax assets:
Accounts receivable and lease reserves	$	66,600	$	154,700
Non-qualified stock option expense		1,581,900		1,758,100
Deferred revenue		1,885,400		1,957,500
Trademarks		36,100		34,500
Lease deposits		532,600		930,700
Loss from and impairment of equity and note investments		2,637,600		2,595,500
Foreign tax credits		185,000		173,100
Valuation allowance		(2,822,600)		(2,768,600)
Other		204,600		194,400
Total deferred tax assets		4,307,200		5,029,900
Deferred tax liabilities:
Lease revenue and initial direct costs		(2,330,700)		(4,207,400)
Depreciation and amortization		(85,800)		(155,500)
Total deferred tax liabilities		(2,416,500)		(4,362,900)
Total net deferred tax assets	$	1,890,700	$	667,000

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) and the foreign tax credits. As a result, valuation allowances of $2.8 million and $2.8 million as of December 26, 2020 and December 28, 2019, respectively, have been recorded.

The amount of unrecognized tax benefits, including interest and penalties, as of December 26, 2020 and December 28, 2019, was $621,100 and $532,500, 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 $111,000 and $33,500 for the payment of interest and penalties at December 26, 2020 and December 28, 2019, respectively.

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


	Total
Balance at December 29, 2018	$	551,300
Increases related to current year tax positions		131,900
Expiration of the statute of limitations for the assessment of taxes		(184,200)
Balance at December 28, 2019		499,000
Increases related to current year tax positions		144,500
Subtractions for tax positions of prior years		(133,400)
Balance at December 26, 2020	$	510,100

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 2016. 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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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