Income Tax

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Our provision for income taxes may not have the customary relationship of taxes to income. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:

Six Months Ended June 30,	2019					2018
(In thousands, except for %)	Amount			%		Amount			%
Federal income tax expense:
Expected tax expense (benefit)	$	(276	)	21.0	%	$	(322	)	21.0	%
Foreign income tax rate differential	(111		)	8.4	%	—			—	%
Annualized effective tax rate adjustment	3,264			(248.2	)%	974			(63.6	)%
Effect of uncertain tax position	2,416			(183.7	)%	1,664			(108.6	)%
Nondeductible costs to remediate tax compliance issue	—			—	%	(1,267		)	82.7	%
CICA Ltd. Subpart F income	1,595			(121.4	)%	—			—	%
Other	164			(12.4	)%	(60		)	3.9	%
Total federal income tax expense	$	7,052		(536.3	)%	$	989		(64.6	)%

A reconciliation of federal income tax expense above is computed by applying the federal income tax rate of 21% in 2019 and 2018 to income before federal income tax expense.

CICA Ltd., a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes. As a result, the insurance activity of CICA Ltd. is subject to Subpart F of the IRC and is included in Citizens’ taxable income. As of June 30, 2019, the Subpart F income inclusion generated $1.6 million of federal income tax expense.

Income tax expense consists of:

Six Months Ended June 30,	2019			2018
(In thousands)
Federal income tax expense:
Current	$	7,146		3,858
Deferred	(94		)	(2,869	)
Total federal income tax expense	$	7,052		989

The components of deferred federal income taxes are as follows:

Net Deferred Tax Asset (Liability) (In thousands)	June 30, 2019			December 31, 2018
Deferred tax assets:
Future policy benefit reserves	$	2,634		2,795
Net operating and capital loss carryforwards	193			191
Accrued expenses	13			30
Investments	1,890			1,841
Deferred intercompany loss	4,896			5,190
Other	748			309
Total gross deferred tax assets	10,374			10,356
Deferred tax liabilities:
Deferred policy acquisition costs, cost of customer relationships acquired and intangible assets	(8,703		)	(8,745	)
Unrealized gains on investments available-for-sale	(6,299		)	(1,968	)
Tax reserves transition liability	(4,517		)	(4,864	)
Other	(658		)	(488	)
Total gross deferred tax liabilities	(20,177		)	(16,065	)
Net deferred tax liability	$	(9,803	)	(5,709	)