INCOME TAXES:

The income tax provision consisted of the following:



	Fiscal 2017			Fiscal 2016			Fiscal 2015

	(in thousands)
Current:
Federal	$	39,376		$	49,994		$	15,622
Foreign	266			260			210
State	4,877			5,654			1,683
Deferred:
Federal	(3,669		)	(8,483		)	(25,004		)
State	1,750			75			(9,411		)
Income tax provision (benefit)	$	42,600		$	47,500		$	(16,900	)

The foreign component of pre-tax income (loss), arising principally from operating foreign stores and other management and cost sharing charges we are required to allocate under U.S. tax law, for fiscal 2017, 2016 and 2015 was $0.1 million, $0.1 million and $(0.8) million, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective January 1, 2018. As a result, the Company’s blended federal tax rate for fiscal 2017 was 33.8%. In addition, the Company recognized a tax benefit in the fourth quarter related to adjusting its deferred tax balance to reflect the new corporate tax rate. As a result, income tax expense in the fourth quarter reflects a decrease in tax expense of $9.7 million, comprised of a $1.7 million reduction in income tax expense for the fiscal year ended February 3, 2018 and $8.0 million from the application of the newly enacted rates to existing deferred balances. As of February 3, 2018, the Company performed a preliminary analysis of information necessary to estimate the accounting for the impacts of the Tax Act. We will continue to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. Consequently, reasonable estimates of the impact of the Tax Act on the Company’s deferred tax balances and executive compensation deductions have been reported as provisional, as defined in Staff Accounting Bulletin No. 118. We expect to complete our analysis no later than the fourth quarter of fiscal 2018.

A reconciliation between the statutory federal income tax rate and the effective income tax rate follows:



	Fiscal 2017		Fiscal 2016		Fiscal 2015
Federal income tax rate (blended rate for fiscal 2017 due to the Tax Act)	33.8	%	35.0	%	35.0	%
State income tax, net of federal tax benefit	3.2		3.4		4.3
Impact of the Tax Act	(5.6	)	—		—
Excess share based compensation	0.9		—		—
Goodwill impairment	—		—		(124.2	)
Outside basis difference - Boston Proper sale	—		(2.8	)	165.2
Other state benefits associated with sale and liquidation of Boston Proper	—		(0.3	)	20.1
Enhanced charitable contribution	(1.1	)	(1.9	)	19.3
Executive compensation limitation	0.7		1.2		(7.3	)
Foreign losses with full valuation allowance	0.1		0.2		(2.9	)
Federal tax credits	(1.2	)	(0.5	)	3.4
Other items, net	(1.1	)	(0.1	)	0.4
Total	29.7	%	34.2	%	113.3	%

Deferred tax assets and liabilities are recorded due to different carrying amounts for financial and income tax reporting purposes arising from cumulative temporary differences. These differences consist of the following as of February 3, 2018 and January 28, 2017:



	February 3, 2018			January 28, 2017

	(in thousands)
Deferred tax assets:
Accrued liabilities and allowances	$	9,690		$	17,790
Accrued straight-line rent	13,364			20,361
Stock-based compensation	5,606			10,329
Property related	2,009			1,816
Charitable contribution limitation carryforwards	2,604			5,109
State tax credits and net operating loss carryforwards	5,548			5,105
Other	1,879			3,376
Total deferred tax assets	40,700			63,886
Valuation allowance	(444		)	(749		)
Net deferred tax assets	40,256			63,137

Deferred tax liabilities:
Other	(119		)	—
Prepaid expenses	(4,823		)	(2,976		)
Property related	(23,961		)	(43,271		)
Other intangible assets	(16,666		)	(24,197		)
Total deferred tax liabilities	(45,569		)	(70,444		)
Net deferred taxes	$	(5,313	)	$	(7,307	)

As of February 3, 2018, the Company had available for state income tax purposes net operating loss and tax credit carryovers which expire, if unused, in the years 2020 - 2035 and 2019 - 2026, respectively.

The Tax Act requires a one-time transition tax that is based on total post-1986 earnings and profits (“E & P”) previously deferred from U.S. income taxes. As the Company does not have material amounts of post-1986 E & P in its foreign subsidiaries, no one-time transition tax has been recorded in its fourth quarter provision.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. There were no significant undistributed foreign earnings at February 3, 2018, January 28, 2017 and January 30, 2016.

The Tax Act also subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q & A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects and has not yet determined its accounting policy. At February 3, 2018, since the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, the Company is unable to make a reasonable estimate and has not reflected any adjustments related to GILTI in its financial statements. The Company does not anticipate the impact of GILTI to be material.

Accumulated other comprehensive income is shown net of deferred tax assets and deferred tax liabilities. The amount is not significant at February 3, 2018 or January 28, 2017.

A reconciliation of the beginning and ending amounts of uncertain tax positions for each of fiscal 2017, fiscal 2016 and fiscal 2015 is as follows:



	Fiscal 2017			Fiscal 2016			Fiscal 2015

	(in thousands)
Balance at beginning of year	$	5,158		$	4,840		$	2,532
Additions for tax positions of prior years	—			1,280			2,618
Reductions for tax positions of prior years	(105		)	(1		)	(56		)
Additions for tax positions for the current year	289			246			259
Settlements/payments with tax authorities	(3,667		)	(850		)	—
Reductions due to lapse of applicable statutes of limitation	(153		)	(357		)	(513		)
Balance at end of year	$	1,522		$	5,158		$	4,840

At February 3, 2018, January 28, 2017 and January 30, 2016, balances included $1.2 million, $4.4 million and $4.0 million respectively, of unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate in future periods. We do not expect any events to occur that would cause a change to our unrecognized tax benefits or income tax expense within the next twelve months.

Our continuing practice is to recognize potential accrued interest and penalties relating to unrecognized tax benefits in the income tax provision. For fiscal 2017, 2016 and 2015, we accrued $0.1 million, $0.2 million and $0.2 million, respectively for interest and penalties. We had approximately $0.3 million, $0.5 million and $0.4 million, respectively for the payment of interest and penalties accrued at February 3, 2018, January 28, 2017 and January 30, 2016, respectively. The amounts included in the reconciliation of uncertain tax positions do not include accruals for interest and penalties.

In fiscal 2006, we began participating in the IRS’s real time audit program, Compliance Assurance Process (“CAP”). Under the CAP program, material tax issues and initiatives are disclosed to the IRS throughout the year with the objective of reaching an agreement as to the proper reporting treatment when the federal return is filed. Previous years through fiscal 2015 have been accepted. Fiscal 2016 is in the post-filing review process.

We are no longer subject to state and local examinations for years before fiscal 2011. Various state examinations are currently underway for fiscal periods spanning from 2011 through 2016; however, we do not expect any significant change to our uncertain tax positions within the next year.