Income Taxes

At December 31, 2017 and 2016, the Company had current income taxes receivable of $214,000 and $110,000, respectively, included in other assets in the consolidated balance sheets.

The income tax expense (benefit) is comprised of the following (dollars in thousands):



	Year Ended December 31,
	2017			2016			2015
Current tax expense (benefit)	$	(28	)	$	70		$	48
Deferred tax expense (benefit)	(419		)	(147		)	—
Total income tax expense (benefit)	$	(447	)	$	(77	)	$	48

The income tax expense (benefit) differed from the amounts computed by applying the statutory U.S. federal income tax rate of 34% to pretax income as a result of the following (dollars in thousands):



	Year Ended December 31,
	2017			2016			2015
Income (loss) before income taxes	$	(22,054	)	$	(8,643	)	$	83
Statutory U.S. federal income tax rate	(7,498		)	(2,939		)	28
State income taxes, net of federal benefit	(106		)	(3		)	(72		)
Tax‑exempt investment income and dividend received deduction	(123		)	(106		)	(116		)
Nondeductible meals and entertainment	54			61			45
Valuation allowance on deferred tax assets	1,515			2,808			(2,050		)
Net operating loss write-off	—			—			2,150
Change in federal tax rate	5,612			—			—
Other	99			102			63
Income tax expense (benefit)	$	(447	)	$	(77	)	$	48
Effective tax rate	2.0		%	0.9		%	57.8		%

On December 22, 2017, the U.S. federal government enacted H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Act”). The Act provides for significant changes to corporate taxation including the decrease of the corporate tax rate from 34% to 21%. The Company has completed its analysis of the impact of the Act and has followed the additional guidance provided by the Security and Exchange Commission's Staff Accounting Bulletin No. 118. Management believes there are no material provisional balances as of December 31, 2017.

The Company has accounted for the impacts of the Act by remeasuring its deferred tax assets and liabilities at the 21% enacted tax rate. The approximate impact of the change in tax rate was a decrease in net deferred tax assets (before valuation allowance) of $5.6 million with a corresponding deferred income tax expense of $5.6 million. The valuation allowance also decreased by $5.7 million with a corresponding deferred income tax benefit of $5.7 million. Accordingly, the net deferred income tax impact on the results of operations relating to the Act was a $63,000 deferred tax benefit in 2017. The Company’s net deferred tax assets for the year ended December 31, 2016, remain at the previously enacted tax rate.

The Company has recorded a reasonable estimate for the impact of the Act on the discounted loss reserves included in the table, below. The Company will true-up the deferred tax asset for this item when the United States Treasury releases the 2018 discount factors. The corresponding deferred tax liability related to the transitional adjustment will be recognized over the next eight years beginning with the year ending December 31, 2018.

For the year ended December 31, 2015, the Company reconsidered how it presents deferred tax assets and the associated valuation allowance which are subject to permanent limitation and which will expire unused. As such, the 2015 valuation allowance and gross net operating loss deferred tax asset were reduced by $2.2 million to remove the deferred tax assets that would expire unused.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (dollars in thousands):



	December 31,
	2017			2016
Deferred tax assets:
Discounted unpaid losses and loss adjustment expenses	$	1,026		$	715
Unearned premiums	2,576			4,085
Net operating loss carryforwards	9,147			7,757
State net operating loss carryforwards	385			223
Other	135			203
Gross deferred tax assets	13,269			12,983
Less valuation allowance	(9,904		)	(8,389		)
Total deferred tax assets, net of allowance	3,365			4,594
Deferred tax liabilities:
Investment basis difference	19			45
Unrealized gains on investments	124			(156		)
Deferred policy acquisition costs	2,684			4,519
Intangible assets	107			163
Property and equipment	85			202
Other	461			—
Total deferred tax liabilities	3,480			4,773
Net deferred tax liability	$	(115	)	$	(179	)

The net deferred tax liability is recorded in Accounts payable and accrued expenses in the consolidated balance sheets.

As of December 31, 2017, the Company has net operating loss carryforwards for federal income tax purposes of $43.6 million, which expire in tax years 2029 through 2037. Of this amount, $15.1 million are limited in the amount that can be utilized in any one year and may expire before they are realized under Section 382 of the Internal Revenue Code. The Company has state net operating loss carryforwards of $11.0 million, which expire in tax years 2029 through 2037.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets under the guidance of ASC 740. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three‑year period ended December 31, 2017. Such objective evidence limits the Company's ability to consider other subjective evidence, such as management's projections for future growth.

Based on its evaluation, the Company has recorded a valuation allowance of $9.9 million and $8.4 million at December 31, 2017 and 2016, respectively, to reduce the deferred tax assets to an amount that is more likely than not to be realized based on the provisions in ASC 740. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence, such as the Company’s projections for growth.

The Company files consolidated federal income tax returns. For the years before 2014, the Company is no longer subject to U.S. federal examinations; however, the Internal Revenue Service has the ability to review years prior to 2014 to the extent the Company utilized tax attributes carried forward from those prior years. The statute of limitations on state filings is generally three to four years.