5.  INCOME TAXES

Income tax provision (benefit) consisted of:

 

 

As of December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances. We re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. We are still analyzing certain aspects of the Tax Act, including the impact of the limitations on certain employee compensation, the deductibility of certain purchases of fixed assets, and the allowance of an indefinite carryforward period of net operating losses, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of our net deferred tax balance using the new federal tax rate was a benefit of $5.5 million.   

The effective tax rate expense (benefit) and the statutory federal income tax rate are reconciled as follows:

 

The components of deferred tax assets and liabilities consisted of the following:

 

The valuation allowance increased by $105.8 million and $1.0 million in 2017 and 2016, respectively. 

The timing of recording or releasing a valuation allowance requires significant judgment. A valuation allowance is required when it is more-likely-than-not that all or a portion of deferred tax assets may not be realized. Establishment and removal of a valuation allowance requires us to consider all positive and negative evidence and to make a judgmental decision regarding the timing and amount of valuation allowance required as of a reporting date. The assessment takes into account expectations of future taxable income or loss, available tax planning strategies and the reversal of temporary differences. The development of these expectations involves the use of estimates such as operating profitability. The weight given to the evidence is commensurate with the extent to which it can be objectively verified.

 

We performed an assessment of the deferred tax assets during the third and fourth quarters of 2017, weighing the positive and negative evidence as outlined in ASC 740, Income Taxes. As we have incurred three years of cumulative pre-tax losses, such objective negative evidence limits our ability to give significant weight to other positive subjective evidence, such as projections for future growth and profitability. Accordingly, we recorded a valuation allowance charge of $192.3 million for 2017, which was recorded in income tax (benefit) expense on our consolidated statements of operations. During the quarter ended December 31, 2017, as a result of the Tax Act, principally the change to allow an indefinite carryforward period of net operating losses, we reassessed our analysis and decreased our related valuation allowance by $53.6 million. As of December 31, 2017, our valuation allowance against a majority of our net deferred tax assets was $109.7 million.

We will continue to maintain a valuation allowance against our deferred tax assets until we believe it is more-likely-than-not that these assets will be realized in the future. If sufficient positive evidence, such as three-year cumulative pre-tax income, arises in the future that provides an indication that all or a portion of the deferred tax assets meet the more-likely-than-not standard, the valuation allowance may be reversed, in whole or in part, in the period that such determination is made.

As of December 31, 2017, we have net operating loss carryforwards in various states totaling approximately $278.9 million, which expire in various years between 2024 and 2037 if not used.

As of December 31, 2017, we had approximately $25.1 million of long‑term liabilities relating to uncertain tax positions consisting of approximately $20.8 million in gross unrecognized tax benefits (primarily state tax positions before the offsetting effect of federal income tax) and $4.3 million in gross accrued interest and penalties. If recognized, approximately $11.1 million of the net unrecognized tax benefits would impact the effective tax rate, with the remainder impacting other accounts, primarily deferred taxes. It is reasonably possible that up to $4.3 million reduction of unrecognized tax benefits and related interest may occur within the next 12 months as a result of the expiration of statutes of limitations.

We record interest on unrecognized tax benefits as a component of interest expense, while penalties are recorded as part of income tax expense.  Related to the unrecognized tax benefits noted below, we recorded interest expense (benefit), of $1.1 million, $0.5 million and ($0.3) million for 2017, 2016 and 2015, respectively. We recorded penalty expense (benefit) of $0.3 million, $0.0 million and $0.1 million during 2017, 2016 and 2015, respectively. Accrued interest and penalties at December 31, 2017, December 25, 2016, and December 27, 2015, were approximately $4.3 million, $3.0 million and $2.5 million, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits consists of the following:

 

As of December 31, 2017, the following tax years and related taxing jurisdictions were open: