Income tax expense attributable to income from continuing operations consists of:

(dollars in thousands)	2020			2019			2018
current
federal	$	—			(1,492	)		(1,367	)
state		7			27			9
2017 Tax Cuts and Jobs Act		—			(282	)		4,854
foreign		4,248			6,144			4,726
uncertain income tax positions		725			—			—
		4,980			4,397			8,222
deferred
federal		(1,875	)		3,236			4,295
state		(103	)		(96	)		112
2017 Tax Cuts and Jobs Act (1)		—			(268	)		(6,903	)
undistributed earnings – foreign subsidiaries		(114	)		3,735			(195	)
U.S. Federal & State carryforwards and credits		(1,307	)		74			—
uncertain income tax positions		(380	)		—			—
foreign		(247	)		(85	)		93
valuation allowance (1)		2,400			(4,456	)		116
		(1,626	)		2,140			(2,482	)
	$	3,354			6,537			5,740

(1)

The income tax benefit of $6,903 recorded during fiscal 2018 included a charge of $4,550 for the establishment of a valuation allowance against U.S. foreign tax credits that were not more-likely-than not to be realized as a result of the 2017 Tax Cuts and Jobs Act. During fiscal 2019, we recorded an income tax charge of $4.5 million for the write-off of certain U.S. foreign tax credits, and in turn, we recorded an income tax benefit of $4.5 million for the reduction in our valuation allowance. The $4.5 million income charge for the write-off of certain U.S. foreign tax credits is included in the undistributed earnings – foreign subsidiaries income tax expense amount of $3,735.

(Loss) income before income taxes from continuing operations related to our foreign and U.S. operations consists of:

(dollars in thousands)	2020			2019			2018
Foreign
China	$	8,316			9,899			11,036
Canada		(1,391	)		5,488			5,985
Cayman Islands		(6	)		280			339
Total Foreign		6,919			15,667			17,360
United States		(14,598	)		(2,945	)		9,523
	$	(7,679	)		12,722			26,883

The following schedule summarizes the principal differences between the income tax expense from continuing operations at the federal income tax rate and the effective income tax rate from continuing operations reflected in the consolidated financial statements:

	2020			2019			2018
federal income tax rate		21.0	%		21.0	%		30.4	%
global intangible low taxed income tax (GILTI)		(24.4	)		16.9			—
foreign tax rate differential		(16.1	)		13.0			3.7
income tax effects of impairment of nondeductible goodwill		(11.3	)		—			—
uncertain income tax positions		(4.8	)		0.5			—
income tax effects of Chinese foreign exchange gains and losses		(5.0	)		2.2			(2.8	)
write-off of U.S. foreign income tax credits		—			35.1			—
valuation allowance		(1.6	)		(35.0	)		0.4
income tax effects of the 2017 Tax Cuts and Jobs Act		—			(4.3	)		(7.6	)
Other		(1.5	)		2.0			(2.7	)
		(43.7	)%		51.4	%		21.4	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities consist of the following:

(dollars in thousands)	2020			2019
deferred tax assets:
accounts receivable	$	263			282
Inventories		2,280			1,591
Compensation		1,970			1,973
liabilities and other		166			284
intangible assets and goodwill		856			—
property, plant, and equipment (1)		185			193
operating lease liability		671			—
foreign income tax credits - U.S.		783			1,252
loss carryforwards – U.S.		4,137			2,360
valuation allowances		(3,148	)		(748	)
total deferred tax assets		8,163			7,187

deferred tax liabilities:
undistributed earnings on foreign subsidiaries		(3,409	)	(3,523	)
unrecognized tax benefits – U.S.		—		(380	)
property, plant and equipment (2)		(5,008	)	(4,710	)
right of use asset		(690	)	—
Goodwill		—		(1,203	)
Other		(81	)	(90	)
total deferred tax liabilities		(9,188	)	(9,906	)
Net deferred liabilities	$	(1,025	)	(2,719	)

(1)	Pertains to the company’s operations located in China.

(2)	Pertains to the company’s operations located in the U.S. and Canada.

At May 3, 2020, our U.S. federal net operating loss carryforwards totaled $4.4 million with related future income tax benefits of $925,000 In accordance with the 2017 Tax Cuts and Jobs Act (“TCJA”), U.S. federal net operating loss carryforwards generated in fiscal 2019 and after do not expire. All our U.S. federal net operating loss carryforwards were generated prior to fiscal 2019 and have expiration dates ranging from fiscal years 2027 through 2036. At May 3, 2020, our U.S. state net operating loss carryforwards totaled $51.9 million with related future income tax benefits of $931,000. Our U.S. state net operating loss carryforwards totaling $51.9 million have expiration dates ranging from fiscal years 2021 through 2040. Our U.S. foreign income tax credits of $783,000 will expire 10 years from when the associated earnings and profits from our foreign subsidiaries are repatriated to the U.S.

On December 22, 2017 (the “Enactment Date”), TCJA was signed into law. TCJA contained significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing certain business assets, (iii) a one-time mandatory repatriation tax (the “Transition Tax”) related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) limitations on the use of foreign tax credits to reduce the U.S. income tax liability, (v) the repeal of the domestic production activities deduction, (vi) additional limitations on the deductibility of interest expense and executive compensation, and (vii) the creation of the Global Intangible Low Taxed Income (“GILTI”) tax.

The corporate income tax rate reduction was effective as of January 1, 2018. Since we have a fiscal year rather than a calendar year, we were subject to IRS rules relating to transitional income tax rates for fiscal 2018. As a result, our fiscal 2018 U.S. federal income tax rate was a blended income tax rate of 30.4% compared with a fully reduced U.S. federal income tax rate of 21.0% during fiscal 2019 and 2020.

The re-measurement of our U.S. deferred income tax balances to the new U.S. federal corporate income tax rate and the determination of the income tax effects of the Transition Tax on our accumulated earnings and profits associated with our foreign subsidiaries were components of the TCJA that significantly affected our financial statements during fiscal 2019 and 2018.

In order to determine the effects of the new U.S. federal corporate income tax rate on our U.S. deferred income tax balances during fiscal 2019 and 2018, ASC Topic 740 “Income Taxes” (ASC Topic 740), requires the re-measurement of our U.S. deferred income tax balances as of the Enactment Date of TCJA, based on income tax rates at which our U.S. deferred income tax balances are expected to reverse in the future. As a result, we recorded an income tax charge of $2.2 million for the re-measurement of our U.S. net deferred income taxes during fiscal 2018. During the third quarter of fiscal 2019, we completed our assessment of the remeasurement of our U.S. deferred income tax balances and recorded an income tax benefit of $268,000.

The Transition Tax was based on our total post-1986 foreign earnings and profits (“E&P”) that were previously deferred from U.S. income tax and applicable income tax rates associated with E&P held in cash and other specified assets (the “aggregate foreign cash position”). Also, E&P was not permanently reinvested prior to the TCJA. As a result, we recorded an income tax benefit of $4.3 million for the income tax effects of the Transition Tax during fiscal 2018. This $4.3 million income tax benefit related to an income tax benefit of $18.0 million for the release of deferred income tax liabilities related to E&P, an income tax benefit of $11.7 million related to the reduction in our U.S. Federal income tax rate pursuant to the TCJA on the effective settlement of an IRS exam related to E&P, partially offset by an income tax charge for the write-off and the establishment of a valuation allowance against our unused foreign tax credits totaling $25.4 million. During the third quarter of fiscal 2019, we completed our assessment of the income tax effects of the Transition Tax and recorded an income tax benefit of $282,000. Additionally, we elected to pay the Transition Tax over a period of eight years in accordance with the TCJA.

In addition to the above components of the TJCA, GILTI was effective during fiscal 2019. Our policy to account for GILTI is to expense this tax in the period incurred. As a result, we recorded income tax charges of $1.9 million and $2.1 million during fiscal 2020 and 2019, respectively.

On June 14, 2019, the U.S. Treasury released proposed regulations regarding the GILTI provisions of the U.S. income tax code. The proposed regulations contain a provision for an exclusion from treatment as GILTI if taxable income amounts are subject to a high rate of foreign income tax, as defined in the proposed regulations. If an entity were to qualify for the high-income tax exception, the high-taxed income earned that would be subject to GILTI and U.S. income tax may be excluded from U.S. income tax. However, since these regulations are in proposed form, an entity is not allowed to record an income tax benefit under these provisions until these regulations have been finalized.

In accordance with ASC Topic 740, we evaluate our deferred income taxes to determine if a valuation allowance is required. ASC Topic 740 requires that companies assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law.

Based on our assessments at May 3, 2020 and April 29, 2019, valuation allowances against our deferred income taxes pertain to the following jurisdictions:

A summary of the change in the valuation allowances against our deferred income taxes follows:

(dollars in thousands)	2020		2019			2018
beginning balance	$	748		5,204			536
Write-off of deferred income taxes (1)		—		(4,544	)		—
establishment of valuation allowance (1) (2)		2,281		—			4,550
change in estimate (3)		119		88			118
ending balance	$	3,148		748			5,204

(1)

During fiscal 2018, we recorded an income tax charge of $4.6 million for the establishment of a valuation allowance associated with U.S. foreign tax credits that we believed were not more-likely-than not to be realized based on the provisions outlined in TCJA. During fiscal 2019, we recorded an income tax charge of $4.5 million for the write-off of certain U.S. foreign tax credits, and in turn, we recorded an income tax benefit of $4.5 million for the reduction in our valuation allowance.

(2)

In connection with the sale of a discontinued operation that was treated as a partnership for income tax purposes, we generated a capital loss carryforward totaling $10.9 million with a related future income tax benefit of $2.3 million. Since capital losses can only be offset by capital gains, we established a full valuation allowance on this capital loss carryforward as we do not have capital assets that would generate capital gains that would utilize this carryforward.

(3)	Amounts pertain to a change in estimate of the recoverability of certain U.S. state loss carryforward balances as of the end of the respective prior fiscal year.

In accordance with ASC Topic 740, we assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company. At May 3, 2020, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and would be eventually distributed to our U.S. parent company. The conclusion reached from our assessment has been consistent with pior years. ASC Topic 740 requires that a deferred tax liability should be recorded for undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. Also, we assess the recognition of U.S. foreign income tax credits associated with foreign withholding and income tax payments and whether it is more-likely-than-not that our foreign income tax credits will not be realized. If it is determined that any foreign income tax credits need to be recognized or it is more-likely-than-not our foreign income tax credits will not be realized, an adjustment to our provision for income taxes will be recognized at that time.

During fiscal 2018, TCJA imposed a Transition Tax on our undistributed E&P associated with our foreign subsidiaries. TCJA required us to determine E&P as of November 2, 2017 and December 31, 2017 (the “Measurement Dates”), in which the greater E&P amount of the Measurement Dates is subject to the Transition Tax. As a result, we had E&P prior to participation exemption totaling $157.1 million subject to the Transition Tax and $43.2 million of foreign tax credits that could be used to reduce the Transition Tax subject to certain limitations as defined in TCJA.

For fiscal 2019 and beyond, TCJA allows a U.S. corporation a 100% dividend received deduction for E&P received from a 10% owned foreign corporation. Therefore, a deferred tax liability will only be required for withholding taxes that are incurred by our foreign subsidiaries at the time E&P is distributed. As a result, we recorded a deferred tax liability for withholding taxes on undistributed E&P from our foreign subsidiaries totaling $3.4 million and $3.5 million at May 3, 2020 and April 28, 2019, respectively.

In accordance with ASC Topic 740, an unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

The following table sets forth the change in the company’s unrecognized income tax benefit:

(dollars in thousands)	2020			2019			2018
beginning balance	$	903			844			12,245
increases from prior period tax positions		106			135			350
decreases from prior period tax positions (1)		(85	)		(76	)		(11,751	)
increases from current period tax positions		434			—			—
decreases from current period tax positions		(89	)		—			—
ending balance	$	1,269			903			844

(1)	The $11.8 million reduction in our unrecognized income tax benefits during fiscal 2018 is mostly associated with the reduction in our U.S. Federal income tax rate pursuant to the TCJA on the effective settlement of an IRS exam.

At May 3, 2020, we had $1.3 million of total gross unrecognized tax benefits, of which $1.3 million would favorably affect the income tax rate in future periods. At April 28, 2019, we had $903,000 of total gross unrecognized tax benefits, of which $523,000 would favorably affect the income tax rate in future periods.

At May 3, 2020, we had $1.3 million of total gross unrecognized tax benefits, of which $1.3 million were classified as income taxes payable-long-term in the accompanying Consolidated Balance Sheets. At April 28, 2019, we had $903,000 of total gross unrecognized tax benefits, of which $380,000 and $523,000 were classified as non-current deferred income taxes and income taxes payable- long-term, respectively, in the accompanying Consolidated Balance Sheets.

We elected to classify interest and penalties as part of income tax expense. At May 3, 2020, and April 28, 2019, the gross amount of interest and penalties due to unrecognized tax benefits was $103,000 and $97,000, respectively.

Our gross unrecognized income tax benefit of $1.3 million at May 3, 2020, relates to income tax positions for which significant change is currently not expected within the next year. This amount primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. United States federal income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2016 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2017 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2015 and subsequent.

Currently, we are not under examination for any open income tax years in any of our income tax paying jurisdictions located in the United States, China, and Canada.

During the third quarter of fiscal 2017, Revenue Quebec commenced an examination of our Canadian provincial (Quebec) income tax returns for fiscal years 2013 through 2015. This examination was completed during the fourth quarter of fiscal 2018 with final adjustments totaling $4,000.

During the fourth quarter of fiscal 2016, the Internal Revenue Service commenced and examination of our U.S. Federal income tax returns for fiscal years 2014 through 2016. This examination was effectively settled during the fourth quarter of fiscal 2018 with no adjustment.

Income tax payments, net of income tax refunds, were $5.0 million, $6.7 million, and $4.0 million during fiscal years 2020, 2019, and 2018, respectively.