New York & Company, Inc.

11. Income Taxes

Income tax expense consists of:

	Fiscal Year 2016		Fiscal Year 2015		Fiscal Year 2014
	(Amounts in thousands)
Federal:
Current	$	—	$	—	$	—
Deferred		—		—		—
State and Local:
Current		673		737		716
Deferred		—		—		—

	$	673	$	737	$	716

The components of items giving rise to the net deferred income tax assets (liabilities) recognized in the Company's consolidated balance sheets are as follows:

	January 28, 2017			January 30, 2016
	Non-current			Non-current
	(Amounts in thousands)
Deferred income tax assets:
Accrued expenses	$	17,289		$	16,229
Inventory		1,127			1,177
Fixed assets and intangible assets		7,131			7,765
Net operating loss		43,125			37,477
Other assets		11,267			11,344

Subtotal		79,939			73,992
Valuation allowance		(73,075	)		(66,675	)

Total deferred income tax assets	$	6,864		$	7,317

Deferred income tax liabilities:
Prepaid costs	$	(6,864	)	$	(7,317	)

Total deferred income tax liabilities	$	(6,864	)	$	(7,317	)

Net deferred tax assets (liabilities)	$	—		$	—

The Company continues to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more-likely-than-not standard under ASC 740, the valuation allowance would be reversed accordingly in the period that such determination is made.

As of January 28, 2017, the Company had $602.5 million of various state net operating loss carryforwards and $100.5 million of federal net operating loss carryforwards.

The state net operating loss carryforwards are reported on a pre-apportioned basis that applies to various states with varying tax laws and expiration dates. Below is a summary of the Company's loss carryforwards and when they expire:

Tax Year Ended	State NOL Carryover (Amounts in thousands)		The Earliest Expiration Starts at the Beginning of Fiscal Year		Years Remaining
2/3/2007	$	4,914		FY2012	10
2/2/2008		50,698		FY2013	11
1/31/2009		48,738		FY2014	12
1/30/2010		67,229		FY2015	13
1/29/2011		78,728		FY2016	14
1/28/2012		66,164		FY2017	15
2/2/2013		30,185		FY2018	1 to 16
2/1/2014		44,850		FY2019	2 to 17
1/31/2015		76,337		FY2020	3 to 18
1/30/2016		64,619		FY2021	4 to 19
1/28/2017		70,037		FY2022	5 to 20

	$	602,499

Tax Year Ended	Federal NOL Carryover (Amounts in thousands)		The Earliest Expiration Starts at the Beginning of Fiscal Year		Years Remaining
1/29/2011	$	29,499		FY2031		14
1/28/2012		23,897		FY2032		15
1/31/2015		21,549		FY2035		18
1/30/2016		10,018		FY2036		19
1/28/2017		15,501		FY2037		20

	$	100,464

A reconciliation of the statutory federal income tax expense is as follows:

	Fiscal Year 2016			Fiscal Year 2015			Fiscal Year 2014
	(Amounts in thousands)
Statutory 35% federal tax	$	(5,816	)	$	(3,265	)	$	(5,660	)
State and local income taxes, net of federal income tax benefit		(1,002	)		326			(638	)
Federal tax credit		(380	)		(320	)		(358	)
Basis adjustment		151			193			733
Permanent difference		218			195			216
Valuation allowance		6,619			3,018			6,630
Other, net		883			590			(207	)

Income tax expense	$	673		$	737		$	716

The Company files U.S. federal income tax returns and income tax returns in various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for tax years through 2012. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2012.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits in accordance with ASC 740 is as follows:

	Fiscal Year 2016			Fiscal Year 2015			Fiscal Year 2014
	(Amounts in thousands)
Unrecognized tax benefits at beginning of period	$	4,696		$	3,872		$	3,883
Additions based on tax positions related to the current year		25			214			108
Additions for tax positions of prior years		263			611			61
Reductions for tax positions of prior years		(3,159	)		(1	)		(50	)
Settlements		—			—			(66	)
Reductions for lapse of statute of limitations		(1	)		—			(64	)

Unrecognized tax benefits at end of period	$	1,824		$	4,696		$	3,872

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal year 2016, fiscal year 2015 and fiscal year 2014 the Company recorded interest and penalties in the consolidated statements of operations of $0.2 million, $0.3 million and $0.1 million, respectively. At January 28, 2017 and January 30, 2016, the Company had accrued $0.7 million and $0.6 million respectively, for the potential payment of interest and penalties. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next twelve months. Of the total $1.8 million of unrecognized tax benefits at January 28, 2017, approximately $1.3 million, if recognized, would affect the Company's effective tax rate.