Note 6 – Income Taxes

The Company files income tax returns in the many jurisdictions in which it operates, including the U.S., several U.S. states and the People’s Republic of China. The statute of limitations varies by jurisdiction; tax years open to federal or state audit or other adjustment as of September 26, 2021 were the fiscal years ended March 28, 2021, March 29, 2020, March 31, 2019, April 1, 2018 and April 2, 2017.

After considering all relevant information regarding the calculation of the state portion of its income tax provision, the Company believes that the technical merits of the tax position that the Company has taken with respect to state apportionment percentages would more likely than not be sustained. However, the Company also realizes that the ultimate resolution of such tax position could result in a tax charge that is more than the amount realized based upon the application of the tax position taken. Therefore, the Company’s measurement regarding the tax impact of the revised state apportionment percentages resulted in the Company recording discrete reserves for unrecognized tax liabilities of $22,000 and $20,000 during the three months ended September 26, 2021 and September 27, 2020, respectively, and $45,000 and $33,000 during the six months ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements of income.
 

The Company’s policy is to accrue interest expense and penalties as appropriate on any estimated unrecognized tax liabilities as a charge to interest expense in the Company’s consolidated statements of income. The Company accrued interest expense and penalties on the unrecognized tax liabilities for which the relevant statute of limitations remained unexpired of $12,000 and $14,000 during the three-month periods ended September 26, 2021 and September 27, 2020, respectively, and $26,000 and $31,000 during the six-month periods ended September 26, 2021 and September 27, 2020, respectively, in the accompanying unaudited condensed consolidated statements.

In August 2020, the Company was notified by the Franchise Tax Board of the State of California of its intention to examine the Company’s California income tax returns for the fiscal years ended March 31, 2019, April 1, 2018 and April 2, 2017. Further, in February 2021, the Company was notified by the U.S. Internal Revenue Service of its intention to examine the Company’s amended federal income tax return for the fiscal year ended April 2, 2017. The ultimate resolution of these examinations could include administrative or legal proceedings. Although management believes that the calculations and positions taken on these income tax returns and all other filed income tax returns are reasonable and justifiable, the outcome of these or any other examination could result in an adjustment to the position that the Company took on such income tax returns.

The Company recorded discrete income tax benefits of $28,000 and $72,000 during the three and six-month periods ended September 26, 2021, respectively, to reflect the aggregate effect of the excess tax benefits arising from the exercise of stock options and the vesting of non-vested stock. The Company recorded discrete income tax charges of $4,000 during each of the three and six-month periods ended September 27, 2020 to reflect the net effects of the tax shortfalls arising from the exercise of stock options and the vesting of non-vested stock.