INCOME TAXES

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Inflation Reduction Act of 2022 (the “Act”) was signed into U.S. law on August 16, 2022. The Act includes various tax provisions, including an excise tax on stock repurchases, expanded tax credits for clean energy incentives, and a corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. The Company does not expect the Act to materially impact its financial statements.

On December 27, 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was enacted and provided clarification on the tax deductibility of expenses funded with PPP Loans as fully deductible for tax purposes. During the years ended September 30, 2023 and October 1, 2022, the Company recorded income of $272,000 and $2,420,000, respectively (including $6,000 and $65,000 of accrued interest, respectively), for financial reporting purposes related to the forgiveness of its PPP Loans. The forgiveness of these amounts is not taxable.

The provision for income taxes consists of the following:

	Year Ended
	September 30, 2023		October 1, 2022
	(in thousands)
Current provision (benefit):
Federal	$	319	$	817
State and local	237		49
	556		866
Deferred provision (benefit):
Federal	(237)		173
State and local	(383)		409
	(620)		582
	$	(64)	$	1,448

The effective tax rate differs from the U.S. income tax rate as follows:

	Year Ended
	September 30, 2023		October 1, 2022
	(in thousands)
Provision at federal statutory rate (21%)	$	(1,139)	$	2,440
State and local income taxes, net of tax benefits	(241)		275
Goodwill impairment	419		—
Gain on forgiveness of PPP Loans	(57)		(432)
Tax credits	(961)		(998)
Income (loss) attributable to non-controlling interest	(120)		(188)
Changes in tax rates	49		22
Change in valuation allowance	1,866		149
Other	120		180
	$	(64)	$	1,448

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	September 30, 2023		October 1, 2022
	(in thousands)
Deferred tax assets:
State net operating loss carryforwards	$	5,170	$	5,293
Lease liabilities	22,072		22,570
Deferred compensation	376		336
Tax credits	2,483		2,269
Other	511		604
Deferred tax assets, before valuation allowance	30,612		31,072
Valuation allowance	(3,273)		(1,407)
Deferred tax assets, net of valuation allowance	27,339		29,665
Deferred tax liabilities:
Depreciation and amortization	(23,065)		(25,886)
Partnership investments	(188)		(271)
Prepaid expenses	(348)		(390)
Deferred tax liabilities	(23,601)		(26,547)
Net deferred tax assets	$	3,738	$	3,118

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative evidence including reversal of existing taxable temporary differences, forecasts of future earnings and the duration of statutory carryforward periods. The Company recorded a valuation allowance of $3,273,000 and $1,407,000 as of September 30, 2023 and October 1, 2022, respectively, attributable to certain federal tax credits and state and local net operating loss carryforwards which are not realizable on a more-likely-than-not basis. During the year ended September 30, 2023, the Company’s valuation allowance increased by approximately $1,803,000 related to certain general business credit carryforwards that are not expected to be realized on a more-likely-than-not basis. During the year ended October 1, 2022, the Company’s valuation allowance increased by approximately $149,000 as the Company determined that certain state net operating losses became unrealizable on a more-likely-than-not basis due to certain restaurant closures in the related period.

As of September 30, 2023, the Company had General Business Credit carryforwards of approximately $2,557,000 which expire through fiscal 2041. In addition, as of September 30, 2023, the Company has New York State net operating loss carryforwards of approximately $27,453,000 and New York City net operating loss carryforwards of approximately $24,933,000 that expire through fiscal 2041.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits excluding interest and penalties is as follows:

	September 30, 2023		October 1, 2022
	(in thousands)
Balance at beginning of year	$	159	$	120
Additions based on tax positions taken in current and prior years	26		39
Decreases based on tax positions taken in prior years	—		—
Balance at end of year	$	185	$	159

The entire amount of unrecognized tax benefits if recognized would reduce our annual effective tax rate. For the years ended September 30, 2023 and October 1, 2022, there are no amounts accrued for the payment of interest and penalties. The Company does not expect a significant change to its unrecognized tax benefits within the next 12 months.

The Company files tax returns in the U.S. and various state and local jurisdictions with varying statutes of limitations. The 2020 through 2023 fiscal years remain subject to examination by the Internal Revenue Service and most state and local tax authorities.