Income Taxes

The following table presents the domestic and foreign components of Income before provision for income taxes:



	FISCAL YEAR
(dollars in thousands)	2015		2014			2013
Domestic	$	146,331	$	124,157		$	112,674
Foreign	24,523		(4,187		)	59,686
	$	170,854	$	119,970		$	172,360

Provision (benefit) for income taxes consisted of the following:



	FISCAL YEAR
(dollars in thousands)	2015		2014			2013
Current provision:
Federal	$	17,952	$	13,364		$	21,518
State	5,962		7,687			10,196
Foreign	11,384		16,616			9,681
	35,298		37,667			41,395
Deferred provision (benefit):
Federal	2,514		(8,842		)	(83,437		)
State	626		688			(347		)
Foreign	856		(5,469		)	181
	3,996		(13,623		)	(83,603		)
Provision (benefit) for income taxes	$	39,294	$	24,044		$	(42,208	)

Effective Income Tax Rate - The reconciliation of income taxes calculated at the United States federal tax statutory rate to the Company’s effective income tax rate is as follows:



	FISCAL YEAR
	2015		2014		2013
Income taxes at federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	2.3		3.2		3.6
Valuation allowance on deferred income tax assets	1.7		1.5		(30.6	)
Employment-related credits, net	(15.8	)	(24.2	)	(22.3	)
Net life insurance expense	(0.3	)	(0.8	)	(1.6	)
Noncontrolling interests	(0.8	)	(1.2	)	(2.8	)
Tax settlements and related adjustments	(0.1	)	1.7		0.7
Gain on remeasurement of equity method investment	—		—		(6.8	)
Foreign rate differential	0.6		2.7		(1.4	)
Other, net	0.4		2.1		1.7
Total	23.0	%	20.0	%	(24.5	)%

The net increase in the effective income tax rate in fiscal year 2015 as compared to fiscal year 2014 was primarily due to a change in the amount and mix of income and losses across the Company’s domestic and international subsidiaries and the payroll tax audit settlements.

The net increase in the effective income tax rate in fiscal year 2014 as compared to fiscal year 2013 was primarily due to the release of the domestic valuation allowance in 2013, the exclusion of gain on remeasurement of equity method investment in 2013 and a change in the blend of income across the Company’s domestic and international subsidiaries.

Deferred Tax Assets and Liabilities - The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and liabilities are as follows:



(dollars in thousands)	DECEMBER 27, 2015			DECEMBER 28, 2014
Deferred income tax assets:
Deferred rent	$	53,426		$	46,226
Insurance reserves	22,716			22,082
Unearned revenue	18,029			16,248
Deferred compensation	65,100			70,849
Net operating loss carryforwards	8,176			9,193
Federal tax credit carryforwards	148,447			160,266
Partner deposits and accrued partner obligations	13,248			18,026
Other, net	12,658			11,585
Gross deferred income tax assets	341,800			354,475
Less: valuation allowance	(4,088		)	(5,658		)
Net deferred income tax assets	337,712			348,817
Deferred income tax liabilities:
Less: property, fixtures and equipment basis differences	(198,449		)	(198,532		)
Less: intangible asset basis differences	(150,997		)	(155,741		)
Less: deferred gain on extinguishment of debt	(34,181		)	(45,782		)
Net deferred income tax liabilities	$	(45,915	)	$	(51,238	)

Valuation Allowance - In 2013, the Company released $67.7 million of the valuation allowance related to U.S. deferred income tax assets based on the expectation that the Company will maintain a cumulative income position in the future to utilize deferred tax assets. Of the $67.7 million valuation allowance release, $52.0 million was recorded as income tax benefit and $15.7 million was recorded as an increase to Additional paid-in capital. As the general business tax credits were expected to be realized due to current year and future year’s income, the portion attributable to future year’s income, or $44.8 million, was released as a discrete event in 2013. The remainder was attributable to current year activity as income was realized and impacted the 2013 effective income tax rate.

Undistributed Earnings - A provision for income taxes has not been recorded for United States or additional foreign taxes on undistributed earnings related to the Company’s foreign affiliates as these earnings were and are expected to continue to be permanently reinvested. The aggregate undistributed earnings of the Company’s foreign subsidiaries for which no deferred tax liability has been recorded is $151.3 million as of December 27, 2015. If the Company identifies an exception to its reinvestment policy of undistributed earnings, additional tax liabilities will be recorded. It is not practical to determine the amount of unrecognized deferred income tax liabilities on the undistributed earnings.

Tax Carryforwards - The amount and expiration dates of tax loss carryforwards and credit carryforwards as of December 27, 2015 are as follows:



(dollars in thousands)	EXPIRATION DATE			AMOUNT
United States state loss carryforwards	2019	-	2034	$	10,605
United States federal tax credit carryforwards	2032	-	2035	$	156,708
Foreign loss carryforwards	2017	-	Indefinite	$	34,035

Unrecognized Tax Benefits - As of December 27, 2015 and December 28, 2014, the liability for unrecognized tax benefits was $19.4 million and $17.6 million, respectively. Of the total amount of unrecognized tax benefits, including accrued interest and penalties, $19.3 million and $18.3 million, respectively, if recognized, would impact the Company’s effective tax rate.

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



	FISCAL YEAR
(dollars in thousands)	2015			2014			2013
Balance as of beginning of year	$	17,563		$	17,068		$	13,591
Additions for tax positions taken during a prior period	3,022			2,177			73
Reductions for tax positions taken during a prior period	(848		)	(422		)	(26		)
Additions for tax positions taken during the current period	2,305			2,649			1,960
Additions for tax positions on acquisition	—			—			2,799
Settlements with taxing authorities	(1,078		)	(3,935		)	(488		)
Lapses in the applicable statutes of limitations	(540		)	(120		)	(841		)
Translation adjustments	(994		)	146			—
Balance as of end of year	$	19,430		$	17,563		$	17,068

The Company recognizes interest and penalties related to uncertain tax positions in Provision (benefit) for income taxes. The Company recognized a benefit related to interest and penalties of $0.6 million, an expense of $1.5 million and a benefit of $0.2 million for fiscal years 2015, 2014 and 2013, respectively. The Company had approximately $1.6 million and $2.2 million accrued for the payment of interest and penalties at December 27, 2015 and December 28, 2014 respectively.

In many cases, the Company’s uncertain tax positions are related to tax years that remain the subject to examination by relevant taxable authorities. Based on the outcome of these examinations, or a result of the expiration of the statute of limitations for specific jurisdictions, it is reasonably possible that the related recorded unrecognized tax benefits for tax positions taken on previously filed tax returns will change by approximately $2.0 million to $3.0 million within the next twelve months.

Open Tax Years - Following is a summary of the open audit years by jurisdiction:



	OPEN AUDIT YEARS
United States federal	2007	-	2014
United States states	2001	-	2014
Foreign	2008	-	2014

The Company was previously under examination by tax authorities in South Korea for the 2008 to 2012 tax years. In connection with the examination, the Company was assessed an additional $6.7 million of tax obligations. The Company appealed the assessment (“South Korea appeal”). During fiscal 2013, the Company was required to deposit the amount of the assessment with the South Korea tax authorities.

During 2015, the Company lost the South Korea appeal. The Company is currently seeking relief from double taxation through competent authority. Accordingly, the Company has not recorded any additional tax expense related to the assessment in South Korea.