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Income Taxes | 12 Months Ended
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May 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The (benefit) provision for income taxes from continuing operations consisted of the following:
(in thousands) | Year Ended |  |  |  |
| May 31, 2020 |  | May 26, 2019 |  | May 27, 2018
Current: |  |  |  |  |
Federal | $ | (7,836) |  |  | $ | (67) |  |  | $ | (2,854) |
State | 38 |  |  | 63 |  |  | 60 |
Foreign | 56 |  |  | 83 |  |  | 83 |
Total | (7,742) |  |  | 79 |  |  | (2,711) |
Deferred: |  |  |  |  |
Federal | (5,212) |  |  | 1,581 |  |  | (7,122) |
State | (162) |  |  | (142) |  |  | 470 |
Total | (5,374) |  |  | 1,439 |  |  | (6,652) |
Income tax expense (benefit) | $ | (13,116) |  |  | $ | 1,518 |  |  | $ | (9,363) |
The actual (benefit) provision for income taxes from continuing operations differs from the statutory U.S. federal income tax rate as follows:
(in thousands) | Year Ended |  |  |  |
| May 31, 2020 |  | May 26, 2019 |  | May 27, 2018
Tax at U.S. statutory rate (1) | $ | (10,774) |  |  | $ | 764 |  |  | $ | 4,784 |
State income taxes, net of federal benefit | (1,782) |  |  | 46 |  |  | 439 |
Tax reform/CARES Act | (2,770) |  |  | — |  |  | (14,350) |
Change in valuation allowance | 2,654 |  |  | 929 |  |  | (176) |
Tax credit carryforwards | (613) |  |  | (771) |  |  | (777) |
Other compensation-related activity | 334 |  |  | 618 |  |  | 566 |
Impairment of goodwill | 647 |  |  | — |  |  | — |
Foreign rate differential | (863) |  |  | — |  |  | — |
Other | 51 |  |  | (68) |  |  | 151 |
Income tax expense (benefit) | $ | (13,116) |  |  | $ | 1,518 |  |  | $ | (9,363) |
(1) Statutory rate was 21.0% for fiscal year 2020 and 2019, 29.4% for fiscal year 2018. The effective tax rate for fiscal year 2020 changed from a tax provision expense of 71% to tax provision benefit of 26% in comparison to fiscal year 2019. The decrease in the income tax expense for fiscal year 2020 was primarily due to a decrease in the Company’s profit before tax, carryback of net operating losses, and the benefit of federal and state research and development credits which is offset by the change in valuation allowance, and impairment of goodwill. The effective tax rate for fiscal year 2019 changed from a benefit of 64% to expense of 71% in comparison to fiscal year 2018. The increase in the income tax expense for fiscal year 2019 was primarily due to the Company’s acquisition of Yucatan Foods and the change in valuation allowance related to the foreign deferred balances, the change in ending state deferred blended rate, the limitation of deductibility of executive compensation, and partially offset by the benefit of the foreign rate differential and the federal and state research and development credits, all primarily as a result of the TCJA. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes, among other items, provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act allows losses incurred in tax years 2018, 2019, and 2020 to be carried back to each of the five preceding tax years and to offset 100% of regular taxable income. Additionally, the CARES Act accelerates the Company’s ability to receive refunds of alternative minimum tax credits generated in prior tax years. As a result of the CARES Act, the Company is able to benefit net operating losses generated in fiscal years 2019 and 2020 at the 21% federal statutory rate in effect for those years and carry back to tax years with a 35% federal statutory rate thus recognizing a tax benefit of $2.8 million during the year ended May 31, 2020. Significant components of deferred tax assets and liabilities reported in the accompanying Consolidated Balance Sheets consisted of the following:
(in thousands) | Year Ended |  |
| May 31, 2020 |  | May 26, 2019
Deferred tax assets: |  |  |
Accruals and reserves | $ | 4,651 |  |  | $ | 3,130 |
Net operating loss carryforwards | $ | 14,947 |  |  | $ | 9,385 |
Stock-based compensation | $ | 904 |  |  | $ | 979 |
Research and AMT credit carryforwards | $ | 4,491 |  |  | $ | 2,839 |
Lease liability | $ | 6,731 |  |  | $ | — |
Limitations on business interest expense | $ | 2,081 |  |  | $ | — |
Other | $ | 426 |  |  | $ | 461 |
Gross deferred tax assets | $ | 34,231 |  |  | $ | 16,794 |
Valuation allowance | $ | (6,770) |  |  | $ | (4,116) |
Net deferred tax assets | $ | 27,461 |  |  | $ | 12,678 |
Deferred tax liabilities: |  |  |
Depreciation and amortization | (19,049) |  |  | (14,324) |
Goodwill and other indefinite life intangibles | (12,204) |  |  | (13,351) |
Basis difference in investment in non-public company | (3,439) |  |  | (4,396) |
Right of use asset | (6,357) |  |  | — |
Deferred tax liabilities | (41,049) |  |  | (32,071) |
Net deferred tax liabilities | (13,588) |  |  | (19,393) |
The effective tax rates for fiscal year 2020 differ from the blended statutory federal income tax rate of 21% percent as a result of several factors, including a decrease in the Company’s profit before tax, carryback of net operating losses, the change in valuation allowance related to state and foreign deferred balances, foreign rate differential, change in ending state deferred blended rate, impairment of goodwill and fixed assets, and the benefit of federal and state research and development credits. The effective tax rates for fiscal year 2019 differ from the blended statutory federal income tax rate of 21% percent as a result of several factors, including Yucatan acquisition, the change in valuation allowance related with foreign deferred balances, foreign rate differential, change in ending state deferred blended rate, limitation of deductibility of executive compensation, and the benefit of federal and state research and development credits. The effective tax rates for fiscal year 2018 differ from the statutory federal blended income tax rate of 29.4% as a result of several factors, including change in ending federal and state deferred blended rate, one-time transition tax due to the repatriation of foreign earnings, the change in valuation allowance, limitation of deductibility of executive compensation, and the benefit of federal and state research and development credits. During the fiscal years ended May 31, 2020 and May 26, 2019, excess tax deficits related to stock-based compensation of $0.4 million and $0.2 million, respectively, were reflected in the Consolidated Statements of Operations as a component of Income tax expense (benefit), specifically related to the prospective application of excess tax deficits and tax deficiencies related to stock-based compensation. As of May 31, 2020, the Company had federal, foreign, California, Indiana, and other state net operating loss carryforwards of approximately $42.9 million, $11.7 million, $18.5 million, $6.5 million, and $14.1 million respectively. These losses expire in different periods ranging from 2027 through 2038, if not utilized. Federal net operating loss of $35.6 million have an indefinite life. The Company acquired additional net operating losses through the acquisition of Greenline. Utilization of these acquired net operating losses in a specific year is limited due to the “change in ownership” provision of the Internal Revenue Code of 1986 and similar state provisions. The net operating losses presented above for federal and state purposes is net of any such limitation. The Company has federal, California, and Minnesota research and development tax credit carryforwards of approximately $2.2 million, $2.1 million, and $0.4 million, respectively. The research and development tax credit carryforwards have an unlimited carryforward period for California purposes, 20 year carryforward for federal purposes, and 15 year carryforward for Minnesota purposes. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. Based on this analysis and considering all positive and negative evidence, we determined that a valuation allowance of $0.4 million, $2.8 million, and $3.5 million should be recorded against federal, state, and foreign deferred tax assets as a result of uncertainty around the utilization of net operating losses, and federal capital loss carryforward. The accounting for uncertainty in income taxes recognized in an enterprise’s financial statements prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and the derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands) | Year Ended |  |  |  |
| May 31, 2020 |  | May 26, 2019 |  | May 27, 2018
Unrecognized tax benefits – beginning of the period | $ | 616 |  |  | $ | 479 |  |  | $ | 537 |
Gross increases – tax positions in prior period | 102 |  |  | 29 |  |  | 21 |
Gross decreases – tax positions in prior period | (11) |  |  | — |  |  | — |
Gross increases – current-period tax positions | 121 |  |  | 133 |  |  | 116 |
Settlements | — |  |  | — |  |  | (95) |
Lapse of statute of limitations | — |  |  | (25) |  |  | (100) |
Unrecognized tax benefits – end of the period | $ | 827 |  |  | $ | 616 |  |  | $ | 479 |
As of May 31, 2020 the total amount of net unrecognized tax benefits is $0.8 million, of which, $0.7 million, if recognized, would change the effective tax rate. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest is not material as of May 31, 2020. Additionally, the Company does not expect its unrecognized tax benefits to decrease within the next 12 months. Due to tax attribute carryforwards, the Company is subject to examination for tax years 2015 forward for U.S. tax purposes. The Company was also subject to examination in various state jurisdictions for tax years 2012 forward, none of which were individually material.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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