INCOME TAXES:

The income tax provision consisted of the following:



	Fiscal 2018			Fiscal 2017			Fiscal 2016

	(in thousands)
Current:
Federal	$	5,903		$	39,376		$	49,994
State	3,378			4,877			5,654
Foreign	282			266			260
Total	9,563			44,519			55,908
Deferred:
Federal	(1,949		)	(3,669		)	(8,483		)
State	86			1,750			75
Total	(1,863		)	(1,919		)	(8,408		)
Income tax provision	$	7,700		$	42,600		$	47,500

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 2018, 2017 and 2016 was $(1.7) million, $0.1 million and $0.1 million, respectively.

On December 22, 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 2018 federal tax rate was 21% and blended federal tax rate for fiscal 2017 was 33.8%.

As a result of the Tax Act and in accordance with SEC Staff Accounting Bulletin 118, the Company recorded provisional tax expense in the fourth quarter of fiscal 2017 related to executive compensation and other deferred tax balances. During fiscal 2018, the Company made a $4.9 million reduction, or 11.2% benefit to the effective tax rate, to the provisional tax expense related to the acceleration of certain tax deductions into fiscal 2017 and the subsequent revaluation of the associated deferred tax liabilities to reflect the new rate. The change was a result of additional analysis, changes in interpretation and assumptions, as well as additional regulatory guidance that was issued.

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 any post-1986 E & P in its foreign subsidiaries, no one-time transition tax was recorded.

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 2, 2019, February 3, 2018 and January 28, 2017.

As of December 22, 2018, the Company has completed its accounting for the income tax effects of the Tax Act.

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



	Fiscal 2018		Fiscal 2017		Fiscal 2016
Federal income tax rate (blended rate for fiscal 2017 due to the Tax Act)	21.0	%	33.8	%	35.0	%
State income tax, net of federal tax benefit	5.7		3.2		3.4
Impact of the Tax Act	(11.2	)	(5.6	)	—
Excess share-based compensation	3.2		0.9		—
Outside basis difference - Boston Proper Sale	—		—		(2.8	)
Other state benefits associated with sale and liquidation of Boston Proper	—		—		(0.3	)
Enhanced charitable contribution	(3.0	)	(1.1	)	(1.9	)
Executive compensation limitations	2.1		0.7		1.2
Foreign losses with full Valuation Allowance	1.1		0.1		0.2
Federal tax credits	(1.1	)	(1.2	)	(0.5	)
Other items, net	—		(1.1	)	(0.1	)
Total	17.8	%	29.7	%	34.2	%

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 2, 2019 and February 3, 2018:



	February 2, 2019			February 3, 2018

	(in thousands)
Deferred tax assets:
Accrued liabilities and allowances	$	10,984		$	9,690
Accrued straight-line rent	12,302			13,364
Share-based compensation	5,936			5,606
Property related	1,881			2,009
Charitable contribution limitation carryforwards	4,400			2,604
State tax credits and net operating loss carryforwards	5,337			5,548
Other	2,681			1,879
Total deferred tax assets	43,521			40,700
Valuation allowance	(1,111		)	(444		)
Net deferred tax assets	42,410			40,256

Deferred tax liabilities:
Other	—			(119		)
Prepaid expenses	(1,760		)	(4,823		)
Property related	(26,733		)	(23,961		)
Other intangible assets	(17,416		)	(16,666		)
Total deferred tax liabilities	(45,909		)	(45,569		)
Net deferred taxes	$	(3,499	)	$	(5,313	)

As of February 2, 2019, the Company had available for state and local income tax purposes net operating losses and tax credit carryovers in the amounts of $21.8 million and $5.2 million, respectively, presented on a gross basis. The net operating losses and tax credit carryovers expire, if unused, in the years 2020 - 2035 and 2019 - 2027, respectively.

Accumulated other comprehensive income is shown net of deferred tax assets and deferred tax liabilities. The amount was not significant at February 2, 2019 or February 3, 2018.

A reconciliation of the beginning and ending amounts of uncertain tax positions for each of fiscal 2018, fiscal 2017 and fiscal 2016 is as follows:



	Fiscal 2018			Fiscal 2017			Fiscal 2016

	(in thousands)
Balance at beginning of year	$	1,522		$	5,158		$	4,840
Additions for tax positions of prior years	117			—			1,280
Reductions for tax positions of prior years	(24		)	(105		)	(1		)
Additions for tax positions for the current year	87			289			246
Settlements/payments with tax authorities	(197		)	(3,667		)	(850		)
Reductions due to lapse of applicable statutes of limitation	—			(153		)	(357		)
Balance at end of year	$	1,505		$	1,522		$	5,158

At February 2, 2019, February 3, 2018 and January 28, 2017, balances included $1.2 million, $1.2 million and $4.4 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 2018, 2017 and 2016, we accrued $0.1 million, $0.1 million and $0.2 million, respectively for interest and penalties. We had approximately $0.3 million, $0.3 million and $0.5 million, respectively for the payment of interest and penalties accrued at February 2, 2019, February 3, 2018 and January 28, 2017, 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 2016 have been accepted. Fiscal 2017 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 2012 through 2016; however, we do not expect any significant change to our uncertain tax positions within the next year.