Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2018, 2017 and 2016 was as follows:



	Year Ended December 31,
	2018			2017			2016
Provision (benefit) for income taxes:	(In millions)
Current
Federal	$	33.6		$	42.6		$	60.8
State	6.4			5.1			6.4
Foreign	2.1			2.9			2.3
	42.1			50.6			69.5
Deferred
Federal	(7.8		)	(131.0		)	(9.5		)
State	(4.0		)	(5.1		)	(3.2		)
	(11.8		)	(136.1		)	(12.7		)
Provision (benefit) for income taxes	$	30.3		$	(85.6	)	$	56.8

The provision (benefit) for income taxes differs from the expected federal income tax rates as follows:



	Year Ended December 31,
	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
Non-deductibility of goodwill impairment	—		(29.3	)	—
Change in federal tax rate	—		15.5		—
State and other taxes, net of federal tax benefit	3.6		0.4		2.7
Change in unrecognized tax benefits	3.3		(0.7	)	0.4
Change in valuation allowance	0.4		0.3		—
Domestic production activity deduction	—		0.3		(0.6	)
Changes in tax rates and state tax laws	(1.6	)	(0.3	)	(1.7	)
Change in accounting for excess tax deficiencies/benefits	0.1		(0.5	)	—
Other	0.6		(0.7	)	0.2
Effective tax rate	27.4	%	20.0	%	36.0	%

The Company applied a lower state tax rate to the deferred tax balances during fourth quarter of 2018, a result of the state legislative changes and the acquisition of 69 Applebee’s restaurants in December 2018. The change in the state tax rate applied to the deferred tax balances lowered the 2018 effective tax rate by 1.6%.

The Company recognized a $358.2 million impairment of goodwill during the third quarter of 2017 that was not deductible for federal income tax purposes and therefore had no associated tax benefit. The impairment of goodwill lowered the 2017 effective tax rate by 29.3%. Additionally, the Company was required to revalue its deferred taxes at the federal tax rate of 21% in accordance with the Tax Cuts and Jobs Act (the “Tax Act”). The change in the federal tax rate applied to the deferred tax balances increased the 2017 effective tax rate by 15.5%.

The Company applied a lower state tax rate to the deferred tax balances during second quarter of 2016, a result of the consolidation of company offices. The change in the state tax rates applied to the deferred tax balances lowered the 2016 effective tax rate by 1.7%.

The Company files federal income tax returns and the Company or one of its subsidiaries file income tax returns in various state and international jurisdictions. With few exceptions, the Company is no longer subject to federal, state or non-United States tax examinations by tax authorities for years before 2011. The Internal Revenue Service (“IRS”) commenced examination of the Company’s U.S. federal income tax return for the tax years 2011 to 2013 in fiscal year 2016. The examination is anticipated to conclude during fiscal year 2019. The Company continues to believe that adequate reserves have been provided relating to all matters contained in the tax periods open to examination.

Net deferred tax assets (liabilities) consisted of the following components:



	2018			2017
	(In millions)
Differences in capitalization and depreciation and amortization of reacquired franchises and equipment	$	—		$	—
Differences in acquisition financing costs	—			0.1
Employee compensation	9.0			7.6
Deferred gain on sale of assets	—			0.7
Book/tax difference in revenue recognition	34.3			14.2
Other	16.8			42.2
Deferred tax assets	60.1			64.8
Valuation allowance	(0.4		)	—
Total deferred tax assets after valuation allowance	59.7			64.8
Differences between financial and tax accounting in the recognition of franchise and equipment sales	(16.8		)	(20.7		)
Differences in capitalization and depreciation ⁽¹⁾	(139.2		)	(147.5		)
Differences in acquisition financing costs	(0.6		)	—
Book/tax difference in revenue recognition	—			(2.4		)
Differences between book and tax basis of property and equipment	(8.1		)	(8.5		)
Other	(0.8		)	(3.5		)
Deferred tax liabilities	(165.5		)	(182.6		)
Net deferred tax liabilities	$	(105.8	)	$	(117.8	)

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⁽¹⁾	Primarily related to the 2007 Applebee's acquisition.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of deferred tax assets. As of December 31, 2018, management determined it is more likely than not that the benefit from foreign tax credit carryforward will not be realized. In recognition of this risk, management provided a valuation allowance of $0.4 million on the deferred tax assets related to the foreign tax credit carryforward.

The Company had gross operating loss carryforwards for state tax purposes of $0.4 million and $0.6 million as of December 31, 2018 and 2017, respectively. The net operating loss carryforwards may begin to expire between 2019 and 2035 for state tax purposes.

The total gross unrecognized tax benefit as of December 31, 2018 and 2017 was $5.2 million and $5.9 million, respectively, excluding interest, penalties and related income tax benefits. If recognized, these amounts would affect the Company's effective income tax rates.

The Company estimates the unrecognized tax benefits may decrease over the upcoming 12 months by an amount up to $1.0 million related to settlements with taxing authorities and the lapse of statutes of limitations. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Year Ended December 31,
	2018			2017			2016
Unrecognized tax benefit as of January 1	$	5.9		$	3.9		$	3.9
Changes for tax positions of prior years	3.8			2.8			0.6
Increases for tax positions related to the current year	0.4			0.6			0.1
Decreases relating to settlements and lapsing of statutes of limitations	(4.9		)	(1.4		)	(0.7		)
Unrecognized tax benefit as of December 31	$	5.2		$	5.9		$	3.9

As of December 31, 2018, the accrued interest was $1.1 million and accrued penalties were less than $0.1 million, excluding any related income tax benefits. As of December 31, 2017, the accrued interest and penalties were $1.1 million and less than $0.1 million, respectively, excluding any related income tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of the income tax provision recognized in the Consolidated Statements of Comprehensive (Loss) Income.