Income Taxes

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 6. Income Taxes

Actual income tax expense (benefit) differs from the income tax expense computed by applying the applicable effective federal and state tax rates to income before income tax expense as follows:

($ in thousands)	Three months ended March 31,
	2023						2022
	Amount			%			Amount			%
Provision for taxes at U.S. statutory marginal income tax rate of 21%	$	284			21.0	%	$	(803	)		21.0	%
Valuation allowance for deferred tax assets deemed unrealizable		(284	)		(21.0	)%		798			(20.9	)%
Share-based compensation		-				%		5			(0.1	)%
Income tax benefit	$	–			–	%	$	-			-	%

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes as compared to the amounts used for income tax purposes. The Company’s gross deferred tax assets and liabilities are $9.1 million and $4.0 million as of March 31, 2023. The Company has recorded a valuation allowance against its deferred tax assets of $5.2 million, as of March 31, 2023, due to the uncertain nature surrounding our ability to realize these tax benefits in the future. Significant components of the Company’s net deferred tax assets are as follows:

(in thousands)
	As of March 31, 2023			As of December 31, 2022
Deferred income tax assets:
Net operating loss carryforward	$	4,339		$	4,171
Loss and loss adjustment expense reserves		36			39
Unearned premium reserves		274			287
Capital loss carryforward		4,157			4,313
Share-based compensation		294			242
Investments		5			5
Other		36			9
Deferred income tax assets	$	9,141		$	9,066
Less: Valuation allowance		(5,179	)		(5,463	)
Deferred income tax assets net of valuation allowance	$	3,962		$	3,603
Deferred income tax liabilities:
Investments	$	267		$	3,282
Deferred policy acquisition costs		3,695			321
Deferred income tax liabilities	$	3,962		$	3,603
Net deferred income tax asset (liability)	$	–		$	–

As of March 31, 2023, the Company had net operating loss carryforwards (“NOLs”) for federal income tax purposes of approximately $20.7 million, which will be available to offset future taxable income. Approximately $0.5 million expires on December 31, 2039, $0.1 million expires on December 31, 2040, and $1.6 million of the Company’s NOLs will expire on December 31, 2041. The remaining $18.4 million of the Company’s NOLs do not expire under current tax law. Additionally, the Company has approximately $19.8 million of capital loss carryforward that can only be used to offset capital gains and which will expire in December 2026 if not used prior.

As of March 31, 2023, the Company had no unrecognized tax benefits. The Company analyzed its tax positions in accordance with the provisions of Accounting Standards Codification Topic 740, Income Taxes, and has determined that there are currently no uncertain tax positions. The Company generally recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.