Del Frisco's Restaurant Group, Inc.

Income Taxes

The components of income tax expense consist of the following:



	Fiscal Year Ended
(Amounts in thousands)	December 26, 2017			December 27, 2016		December 29, 2015
Current tax expense:
Federal	$	516		$	2,768	$	894
State	1,501			2,465		1,117
Total current tax expense	2,017			5,233		2,011
Deferred tax (benefit) expense:
Federal	(13,664		)	1,381		1,722
State	(1,287		)	194		1,774
Total deferred tax (benefit) expense	(14,951		)	1,575		3,496
Total income tax (benefit) expense	$	(12,934	)	$	6,808	$	5,507

On December 22, 2017, the TCJA was signed into law. The TCJA contains significant changes to corporate taxation, including a reduction of the federal corporate tax rate from 35% to 21%, creating a territorial tax system, allowing for immediate expensing of certain qualified property, modifying or repealing many business deductions and credits, and providing other incentives.

SAB 118, to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Act in the period of enactment. The SEC Staff noted in SAB 118 that in these cases a company should continue to apply Topic 740, Income Taxes based on the provisions of the tax laws that were in effect immediately prior to the TCJA being enacted. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under Topic 740. We completed our accounting for the TCJA under ASC 740 and reported provisional amounts for the income tax effects of the TCJA for which the accounting is incomplete but a reasonable estimate could be determined, for all aspects of the TCJA, which are included in our year ended December 26, 2017 consolidated financial statements. There were no specific impacts of the TCJA that could not be reasonably estimated, however the final impact of the TCJA may differ from these estimates, due to, among other things, changes in our interpretations and assumptions of the TCJS, and additional guidance that may be issued by the Internal Revenue Service.

The $12.9 million income tax benefit was primarily attributable to permanent differences as a result of goodwill impairment and TCJA, which permanently reduced the maximum federal corporate income tax rate from 35% to 21%. A change in the tax rate requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the corporate income tax rate reduction lowered the expected future cost of existing deferred tax liabilities resulting in the income tax benefit for 2017.

The difference between the reported income tax (benefit) expense and taxes determined by applying the applicable U.S. federal statutory income tax rate to (loss) income before taxes is reconciled as follows:



	Fiscal Year Ended
(Amounts in thousands)	December 26, 2017					December 27, 2016					December 29, 2015
Income tax (benefit) expense at federal statutory rate	$	(8,537	)	35	%	$	8,602		35	%	$	7,527		35	%
State tax (benefit) expense, net	(1,028		)	4	%	1,835			7	%	1,215			6	%
FICA tip and work opportunity credits	(3,654		)	15	%	(3,519		)	(14	)%	(3,428		)	(16	)%
Impacts related to the TCJA	(4,620		)	19	%	—			—	%	—			—	%
Goodwill impairment	4,594			(19	)%	—			—	%	—			—	%
Other items, net	311			(1	)%	(110		)	—	%	193			1	%
Total income tax (benefit) expense	$	(12,934	)	53	%	$	6,808		28	%	$	5,507		26	%

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of deferred tax assets and liabilities are presented below:



(Amounts in thousands)	December 26, 2017			December 27, 2016
Deferred tax assets:
Equity-based compensation	$	1,292		$	1,507
Accrued liabilities	3,472			5,212
Deferred compensation	3,165			5,620
Deferred rent liabilities	12,057			14,480
Tax credits carryover	4,632			—
Intangible Assets – Pre-opening Costs	1,807			3,073
Other	246			172
Total deferred tax assets	26,671			30,064
Deferred tax liabilities:
Property and equipment	18,524			32,001
Intangible assets	11,073			15,968
Other	312			284
Total deferred tax liabilities	29,909			48,253
Net deferred tax liabilities	$	(3,238	)	$	(18,189	)

We may, from time to time, be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we receive an assessment for interest and penalties, it has been classified in the consolidated financial statements as income tax expense. Generally, our federal, state, and local tax returns for years subsequent to 2013 remain open to examination by the major taxing jurisdictions to which we are subject.

A reconciliation of the beginning and ending amount of unrecognized tax position is as follows:



	Fiscal Year Ended
(Amounts in thousands)	December 26, 2017			December 27, 2016			December 29, 2015
Balance at beginning of year	$	16		$	40		$	1,386
Additions resulting from current year positions	—			—			—
Additions for positions taken in prior years	—			—			—
Payments made for settlements	—			—			(944		)
Expiration of statute of limitations	(16		)	(24		)	(402		)
Balance at end of year	$	—		$	16		$	40

We do not believe our uncertain tax positions will change materially during the next 12 months. As of December 26, 2017 and December 27, 2016, accrued interest and penalties included in the consolidated balance sheets totaled $0.1 million and $0.3 million, respectively. The change in interest and penalties associated with our unrecognized tax benefits is included as a component of the Other, net line of the effective tax rate reconciliation.