Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). The TCJA included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), deductions, credits and business-related exclusions.

The permanent reduction to the U.S. federal corporate income tax rate from 35 % to 21% was effective January 1, 2018. When a federal tax rate changes during a fiscal year, the Internal Revenue Code requires taxpayers to compute a weighted daily average rate for the fiscal year of enactment. As a result, the Company has calculated a U.S. federal statutory corporate income tax rate of 31.55% for the fiscal year ended March 31, 2018. The U.S. corporate federal statutory rate of 31.55% is the weighted daily average rate between the pre-enactment federal statutory rate of 35% and the post-enactment federal statutory rate of 21%.

The impact of changes in federal tax rates on deferred tax amounts and the effect of the Transition Tax are significant unusual or infrequent events which are recognized as discrete items in the Company’s income tax expense in the period in which the event occurs. The Company recorded a $10.5 million increase in tax expense related to the net impact of revaluing the U.S. deferred tax assets and liabilities in the third quarter of fiscal 2018. An adjustment was made in the third quarter of fiscal 2019 to record an $850.0 thousand tax benefit related to the revaluing of the U.S. deferred tax assets and liabilities due to additional analysis and change in estimate from the original calculation. The Company also recorded an increase in tax expense of $4.9 million related to the foreign “Transition Tax” during the final quarter of fiscal 2018.

During the first quarter of fiscal 2019, our former Mexican subsidiaries paid the Company a dividend of $17.1 million. The Company will no longer claim permanent reinvestment in the respective foreign jurisdiction. Because of the Transition Tax, the Company's tax basis was greater than its book basis. This difference was recognized during the first quarter of fiscal 2019 when the foreign subsidiaries were marked as held for sale. The recognition of the basis difference created a capital loss that the Company does not believe will be recognized in the carryforward period; therefore, a full tax valuation allowance was recorded against the recognized loss carryforward.

Income tax expense (benefit) from continuing operations consists of:



	Current			Deferred		Total
Year ended March 31, 2019
Continuing Operations- Federal	$	20,508,247		(1,833,943	)	18,674,304
Continuing Operations- State and local	(871,439		)	(1,821,808	)	(2,693,247	)
	$	19,636,808		(3,655,751	)	15,981,057

Year ended March 31, 2018
Continuing Operations- Federal	$	32,398,898		12,073,220		44,472,118
Continuing Operations- State and local	3,191,525			94,165		3,285,690
	$	35,590,423		12,167,385		47,757,808

Year ended March 31, 2017
Continuing Operations- Federal	$	34,930,677		(14,658	)	34,916,019
Continuing Operations- State and local	3,215,621			25,852		3,241,473
	$	38,146,298		11,194		38,157,492

Income tax expense from continuing operations was $16.0 million, $47.8 million, and $38.2 million, for the years ended March 31, 2019, 2018, and 2017, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 21% for fiscal 2019, 31.55% for fiscal 2018, and 35% for fiscal year 2017 to pretax income from continuing operations as a result of the following:



	2019			2018		2017
Expected income tax	$	18,874,500		30,556,455		37,081,756
Increase (reduction) in income taxes resulting from:
State tax (excluding state tax credits), net of federal benefit	1,576,915			2,249,055		2,106,957
State tax credits	(3,704,580		)	—		—
Revalue deferred tax assets and liabilities	(852,523		)	10,516,827		—
Foreign transition tax	—			4,854,640		—
Uncertain tax positions	(183,929		)	(340,993	)	(1,015,222	)
State tax adjustment for amended returns	—			—		238,301
Other, net	270,674			(78,176	)	(254,300	)
	$	15,981,057		47,757,808		38,157,492

Income tax expense (benefit) from discontinued operations was $626,583, ($243,321), and $2,239,345, for the years ended March 31, 2019, 2018, and 2017, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 21% for fiscal 2019, 31.55% for fiscal 2018 and 35% for fiscal year 2017 to pretax income from discontinued operations as a result of the following:



	2019			2018		2017
Expected income tax	$	491,783		1,373,566		2,817,240
Increase (reduction) in income taxes resulting from:
Foreign income adjustments	187,974			5,483		(332,023	)
Other, net	(53,174		)	(1,622,370	)	(245,872	)
	$	626,583		(243,321	)	2,239,345

The tax effects of temporary differences from continuing operations that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2019 and 2018 are presented below:



	2019			2018
Deferred tax assets:
Allowance for loan losses	$	20,162,369		16,263,086
Unearned insurance commissions	9,308,138			8,711,298
Accrued expenses primarily related to employee benefits	9,271,182			8,470,247
Reserve for uncollectible interest	1,011,584			795,259
Foreign tax credit carryforward	3,254,926			3,254,926
Capital loss carryforward	7,856,176			—
State net operating loss carryforwards	1,021,275			—

Gross deferred tax assets	51,885,650			37,494,816
Less valuation allowance	(11,112,376		)	(3,256,200	)
Net deferred tax assets	40,773,274			34,238,616

Deferred tax liabilities:
Fair value adjustment for loans receivable	(9,589,188		)	(6,556,078	)
Property and equipment	(2,426,786		)	(2,957,534	)
Intangible assets	(1,610,258		)	(1,592,173	)
Deferred net loan origination costs	(1,593,385		)	(1,402,733	)
Prepaid expenses	(1,054,110		)	(1,554,950	)
Other	(668,648		)	—
Gross deferred tax liabilities	(16,942,375		)	(14,063,468	)

Deferred income taxes, net	$	23,830,899		20,175,148

At March 31, 2019, the Company had state net operating loss carryforwards of approximately $25.9 million. A deferred tax asset of approximately $1.0 million has been recorded to reflect the benefit of these losses that the Company expects to be recognized. Approximately $1,000 of the state net operating loss carryforward will expire in 2025 with the remaining carryforward expiring between 2031 and 2038.

The valuation allowance for deferred tax assets increased by $7.9 million for the year ended March 31, 2019 when compared to March 31, 2018. The valuation allowance at March 31, 2019 and 2018 was $11.1 million and $3.3 million, respectively. The valuation allowance against the total deferred tax assets as of March 31, 2019 consisted of $1,274 related to state of Colorado net operating loss carryforwards in the amount of $54,318, which expire in 2025, a foreign tax credit carryforward of $3.3 million arising in relation to the Section 965 calculation ("Transition Tax") during fiscal 2018 which expires in 2028, and $7.9 million related to the $37.4 million capital loss carryforward from the sale of the Mexican operations in fiscal 2019 which expires in 2024. The Company does not expect to generate enough foreign source income or capital gains in future tax years to realize these tax attributes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets governed by the tax code. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the related temporary differences are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2019. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

As of March 31, 2019, 2018, and 2017, the Company had $5.8 million, $8.8 million, and $8.9 million of total gross unrecognized tax benefits including interest, respectively. Of these totals, approximately $5.4 million, $6.9 million, and $7.2 million, respectively, represents the amount of net unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits at March 31, 2019, 2018, and 2017 are presented below:



	2019			2018		2017
Unrecognized tax benefit balance beginning of year	$	6,946,229		7,264,966		9,395,413
Gross increases (decreases) for tax positions of current year	54,025			166,375		(237,746	)
Gross increases (decreases) for tax positions of prior years	(138,405		)	8,228		637,166
Settlements with tax authorities	(1,356,714		)	—		(2,403,982	)
Lapse of statute of limitations	(1,461,512		)	(493,340	)	(125,885	)
Unrecognized tax benefit balance end of year	$	4,043,623		6,946,229		7,264,966

At March 31, 2019, approximately $1.8 million of gross unrecognized tax benefits are expected to be resolved during the next 12 months through settlements with taxing authorities or the expiration of the statute of limitations. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2019, 2018, and 2017, the Company had $1.8 million, $1.9 million, and $1.6 million accrued for gross interest, respectively, of which $1.1 million, $0.4 million, and $0.7 million represented the current period expense for the periods ended March 31, 2019, 2018, and 2017.

The Company is subject to U.S. income tax, as well as various other state and local jurisdictions. With the exception of a few states, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014, although carryforward attributes that were generated prior to 2014 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.