INCOME TAXES

The income tax (benefit) provision is comprised of the following amounts (in thousands):



	Fiscal Year Ended January 28, 2017			Fiscal Year Ended January 30, 2016
Current:
Federal	$	—		$	22
State and local	329			429
	329			451
Deferred:
Federal	(7,782		)	(3,620		)
State and local	(1,112		)	(531		)
Foreign	(290		)	697
	(9,184		)	(3,454		)
Income tax benefit	(8,856		)	(3,003		)
Valuation allowance adjustment	8,656			3,454
Income tax (benefit) provision	$	(199	)	$	451

The income tax provision (benefit) differs from the amount obtained by applying the statutory Federal income tax rate to pretax income as follows (in thousands):



	Fiscal Year Ended January 28, 2017			Fiscal Year Ended January 30, 2016
(Benefit) at Federal statutory rates	$	(8,343	)	$	(3,927	)
Permanent adjustments	39			91
State tax, net of Federal benefit	(828		)	(203		)
Change in valuation allowance	8,656			3,454
Prior year adjustments	(29		)	1,033
Foreign rate differential	306			3
Other	—			—
Income tax (benefit) provision	$	(199	)	$	451

Net deferred tax liabilities, which are included in other long-term liabilities on the accompanying consolidated balance sheets as of January 28, 2017 and January 30, 2016, reflect the tax effect of the following differences between financial statement carrying amounts and tax bases of assets and liabilities as follows (in thousands):



	January 28, 2017			January 30, 2016
Assets:
Net operating loss and tax credit carryforwards	$	18,546		$	11,625
Foreign net operating loss carryforwards	2,722			2,432
Inventories	3,657			6,293
Property and equipment	7,860			5,972
Accounts receivable allowances	988			260
Goodwill and intangibles	174			102
Accrued interest	12,319			10,381
Deferred rent	3,387			3,489
Accrued expenses	4,398			4,139
Share-based compensation	2,827			3,021
Other	1,939			2,816
Total deferred tax assets	58,817			50,530
Valuation allowance	(57,859		)	(49,203		)
Net deferred tax assets	958			1,327
Liabilities:
Tradename	(2,872		)	(3,400		)
Intangibles	(958		)	(1,327		)
Total deferred tax liabilities, net	$	(2,872	)	$	(3,400	)

Management evaluates the Company’s deferred income tax assets and liabilities to determine whether or not a valuation allowance is necessary. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Realization of future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate future taxable income during those periods in which temporary differences become deductible and/or credits can be utilized. Based on the difficult retail and wholesale environment and the uncertainty as to when conditions will improve enough to enable the Company to utilize its deferred tax assets, the Company recorded a full valuation allowance against its deferred tax assets. The lack of practical tax-planning strategies available in the short-term and the lack of other objectively verifiable positive evidence supported the conclusion that a full valuation allowance against the Company’s Federal and state net deferred tax assets was necessary. In fiscal 2016 and 2015, the valuation allowance increased by approximately $8.7 million and $3.5 million, respectively. For U.S. Federal and State income tax purposes, the Company generated a taxable loss which will be carried forward and available to reduce future taxable income but overall, the Company’s deferred tax assets net with deferred tax liabilities, and before being reduced by the valuation allowance, increased.

As of January 28, 2017 and January 30, 2016, the Company had a deferred tax liability of approximately $2.9 million and $3.4 million, respectively, related to a tradename. Due to the uncertainty of when this deferred tax liability will be recognized, the Company was not able to offset its total deferred tax assets with this deferred tax liability. The deferred tax liability is included in other long-term liabilities on the accompanying consolidated balance sheets as of January 28, 2017 and January 30, 2016.

Based on available evidence, management concluded that a valuation allowance should be maintained against the Company’s deferred tax assets as of January 28, 2017 and January 30, 2016. If, in the future, the Company realizes taxable income on a sustained basis of the appropriate character and within the net operating loss carryforward period, the Company would reverse some or all of this valuation allowance, resulting in an income tax benefit. Further, changes in existing tax laws could also affect valuation allowance needs in the future.

As of January 28, 2017 and January 30, 2016, the Company’s United States and Puerto Rico net operating loss carryforwards, which approximate $47.5 million and $29.6 million, respectively, begin to expire in fiscal years 2030 and 2018, respectively. The Company has approximately $78.3 million of net operating loss carryforwards in various states expiring from 2017 through 2036 and may be subject to certain annual limitations.

GAAP prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in an income tax return. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. GAAP also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of January 28, 2017 and January 30, 2016, there was a liability of $1.4 million and $1.2 million, respectively, recorded for income tax associated with unrecognized tax benefits.

The Company accrues interest related to unrecognized tax benefits as well as any related penalties in income tax expense, which is consistent with the recognition of these items in prior reporting periods. Accrued interest and penalties were $1.0 million and $0.9 million as of January 28, 2017 and January 30, 2016, respectively.

The balance of unrecognized tax benefits, the amount of related interest and penalties we have provided and what we believe to be the range of reasonably possible changes in the next twelve months, were (in thousands):



	Fiscal Year Ended January 28, 2017		Fiscal Year Ended January 30, 2016
Unrecognized tax benefits	$	1,397	$	1,219
Portion if recognized would reduce tax expense and effective rate	1,397		1,219
Accrued interest on unrecognized tax benefits	786		717
Accrued penalties on unrecognized tax benefits	220		220

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):



	Fiscal Year Ended January 28, 2017		Fiscal Year Ended January 30, 2016
Balance at beginning of year	$	1,219	$	1,079
Additions for tax positions of the current year	132		162
Additions for tax positions of prior years	46		82
Reductions for tax positions of prior years	—		(104		)
Balance at end of year	$	1,397	$	1,219

The Company does not expect material adjustments to the total amount of unrecognized tax benefits within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.

The Company conducts business throughout the United States, Puerto Rico, Brazil and the U.S. Virgin Islands and, as a result, files income tax returns in the United States Federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. With few exceptions, the Company is no longer subject to U.S. Federal, state, local or Puerto Rico income tax examinations for fiscal years prior to 2008. State and foreign income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any Federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. The Company is currently not under examination.