Income Taxes

12 Months Ended

Aug. 26, 2020

The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences:


	August 26, 2020		August 28, 2019
	(In thousands)
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims	$	562	$	395
Deferred compensation	162		193
Net operating losses	9,916		5,541
General business and foreign tax credits	12,105		12,529
Depreciation, amortization and impairments	3,125		8,561
Interest expense	1,886		—
Lease liabilities	4,731		—
Straight-line rent, dining cards, accruals, and other	1,413		2,594
Subtotal	33,900		29,813
Valuation allowance	(29,478)		(28,865)
Total deferred income tax assets	4,422		948
Deferred income tax liabilities:
Property taxes and other	769		948
Lease assets	3,653		—
Total deferred income tax liabilities	4,422		948
Net deferred income tax asset	$	—	$	—

At August 26, 2020, the Company considered the deferred tax assets not to be realizable and maintains a full valuation allowance against the Company’s net deferred tax asset balance. The most significant deferred tax asset prior to valuation allowance is the Company’s general business tax credits carryovers to future years of $12.1 million. This item may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2039, if not utilized by then.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations. In the third quarter of fiscal 2018, management concluded that a full valuation allowance on the Company's net deferred tax assets was necessary. As of August 26, 2020, the Company continues to maintain a full valuation allowance against the net deferred tax asset balance. The Plan of Liquidation (see Note 2. Subsequent Events) may or may not impact this determination in future periods.

An analysis of the provision for income taxes for continuing operations is as follows:


	August 26, 2020		August 28, 2019
	(In thousands)
Current federal and state income tax expense	$	327	$	418
Current foreign income tax expense	30		51

Provision for income taxes	$	357	$	469

Relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense, computed using the statutory tax rate, was as follows:


	Fiscal Year Ended
	August 26, 2020				August 28, 2019
	Amount		%		Amount		%
	(in thousands, except percentages)
Income tax benefit from continuing operations at the federal rate	$	(6,104)	21.0	%	$	(3,098)	21.0	%
Permanent and other differences:
Federal jobs tax credits (wage deductions)	—		—		89		(0.6)
Stock options and restricted stock	17		(0.1)		19		(0.1)
Other permanent differences	3		—		31		(0.2)
State income tax, net of federal benefit	189		(0.7)		273		(1.9)
General Business Tax Credits	—		—		(422)		2.9

Other	580		(1.9)		117		(0.8)
Change in valuation allowance	5,672		(19.5)		3,460		(23.5)
Provision for income taxes from continuing operations	$	357	(1.2)	%	$	469	(3.2)	%

For the fiscal year ended August 26, 2020, including both continuing and discontinued operations, the Company is estimated to report a federal taxable loss of $19.3 million. For the fiscal year ended August 28, 2019, including both continuing and discontinued operations, the Company generated federal taxable loss of $5.1 million.

Our income tax filings are periodically examined by various federal and state jurisdictions. There are no open examinations by federal and state income tax jurisdiction. The Company's U.S. federal income tax return remains open to examination for fiscal 2017 through fiscal 2019.

There were no payments of federal income taxes in fiscal 2020 or fiscal 2019. The Company has income tax filing requirements in over 30 states. State income tax payments were $0.4 million and $0.4 million in fiscal 2020 and 2019, respectively.

The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2019 and 2020 (in thousands):


Balance as of August 29, 2018	$	25
Decrease based on prior year tax positions	—
Interest Expense	—
Balance as of August 28, 2019	$	25
Decrease based on prior year tax positions	—
Interest Expense	—
Balance as of August 26, 2020	$	25

The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of August 26, 2020. The Company has included interest or penalties related to income tax matters as part of income tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 26, 2020.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.

- 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.

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