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Note 14. Income Taxes
 12 Months Ended
Dec. 30, 2012
Income Tax Disclosure [Text Block]
14.  Income Taxes

The provision (benefit) for income taxes for fiscal 2012 and fiscal 2011 consist of the following (in thousands):

   
For the Fiscal Year Ended
 
 
 
2012
   
2011
 
Current:
           
Federal
  $ (2,482 )   $ (3,316 )
State
 
18
      82  
      (2,464 )     (3,234 )
Deferred:
               
Federal
    —       —  
State
    —       —  
      —       —  
Total:
  $ (2,464 )   $ (3,234 )

Reconciliations of the statutory federal income tax rate to the Company’s actual rate based on earnings (loss) before income taxes for fiscal 2012 and fiscal 2011 are summarized as follows:

   
For the Fiscal Year Ended
 
 
 
2012
   
2011
 
Statutory federal tax rate
    35.0 %     (35.0 )%
State income taxes, net of federal income taxes
    1.6       1.0  
Change in valuation allowance
    (373.8 )     (31.1 )
Permanent tax differences
    5.5       0.8  
Resolution of prior year tax matters
    6.0       0.6  
      (325.7 )%     (63.7 )%

The Company’s deferred income tax (liabilities) and assets are as follows (in thousands):

 
 
 
December 30,
2012
   
January 1,
2012
 
Current deferred tax asset:
           
Accruals and reserves
  $ 273     $ 221  
Valuation allowances
    (273 )     (221 )
    $ —     $ —  
Non-current deferred taxes:
               
Development costs
  $ 3,863     $ 13,146  
Deferred interest on notes receivable
    6,995       12,396  
Unrealized losses on notes receivable
    (9,360 )     (857 )
Allowance for impaired notes receivable
    7,082       7,678  
Stock compensation expense
    1,518       1,435  
Amortization and impairment of intangible assets
    8,646       8,754  
Alternative minimum tax credit carryforward
    919       —  
Net operating loss carryforwards
    23,008       541  
Investment in unconsolidated investee
    (1,939 )     (171 )
Other
    130       (109 )
Valuation allowances
    (40,862 )     (42,813 )
    $ —     $ —  

As of December 30, 2012, management has evaluated all evidence and has determined that cumulative net losses generated over the past three years outweigh the current positive evidence that management believes exists surrounding its ability to generate future income. Therefore, management determined that a 100% valuation allowance against net deferred tax assets was appropriate at December 30, 2012.

As of December 30, 2012, Lakes had approximately $36.9 million of state net operating loss carryforwards. Lakes’ state net operating loss will expire at various times depending on specific state laws.

On March 17, 2011, Lakes and the Louisiana Department of Revenue entered into a settlement agreement whereby Lakes agreed to pay the Louisiana Department of Revenue $9.0 million in full and final payment.  In return, the Louisiana Department of Revenue agreed to dismiss its lawsuit and forever discharge Lakes from all proceedings and liabilities relating to this matter. As of January 2, 2011, income tax payable includes $9.0 million related to this settlement agreement.  This tax liability was considered an unrecognized tax benefit which affected Lakes’ effective tax rate when it was recognized.  Interest related to such uncertain tax position included as a component of income tax expense, amounted to approximately $0.5 million for fiscal 2010.  A tax benefit was recognized in fiscal 2010 of $8.5 million for the adjustment to the liability for uncertain tax positions.  Lakes issued the payment of $9.0 million related to the settlement agreement during March 2011.

A reconciliation of the unrecognized tax benefits for fiscal 2011 is as follows:

Balance at January 2, 2011
  $ 8,000  
Payment (*)
    (8,000 )
Balance at January 1, 2012
  $ —  

(*)  Of the $9.0 million Settlement Agreement discussed above, $8.0 million relates to taxes and $1.0 million relates to fees.

Lakes files a consolidated U.S. federal income tax return, as well as income tax returns in various states.  The U.S. federal income tax returns for the years 2009 – 2011 and state income tax returns in various states for the years 2008 – 2011 remain subject to examination.  The Company is currently under IRS audit for the 2009-2011 tax years and no adjustments have been made in the current period.