Note 8: Income Taxes

12 Months Ended

Dec. 31, 2012

Notes

Note 8: Income Taxes

8)   Income Taxes

The Company’s income tax liability (benefit) at December 31 is summarized as follows:

		December 31
		2012		2011
Current	$	613,328	$	(977,420)
Deferred		17,309,970		15,987,699
Total	$	17,923,298	$	15,010,279

Significant components of the Company’s deferred tax (assets) and liabilities at December 31 are approximately as follows:

		December 31
		2012		2011
Assets
Future policy benefits	$	(4,160,489)	$	(4,597,137)
Loan loss reserve		(2,353,765)		(1,210,791)
Unearned premium		(1,830,492)		(1,861,264)
Available for sale securities		(599,528)		(116,501)
Net operating loss		(1,099,500)		(1,235,365)
Deferred compensation		(1,238,270)		(766,503)
Deposit obligations		(1,060,205)		-
Other		(1,090,409)		(603,447)
Less: Valuation allowance		6,328,931		3,640,327
Total deferred tax assets		(7,103,727)		(6,750,681)
Liabilities
Deferred policy acquisition costs		9,945,683		9,526,785
Basis difference in property and equipment		5,739,272		3,917,124
Value of business acquired		3,341,888		4,077,709
Deferred gains		2,790,709		1,996,967
Trusts		1,599,657		2,385,770
Tax on unrealized appreciation		996,488		834,025
Total deferred tax liabilities		24,413,697		22,738,380
Net deferred tax liability	$	17,309,970	$	15,987,699

Life insurance companies with combined total assets less than $500 million receive a special deduction that lowers their effective tax rate. The Company’s combined tax assets exceed $500 million at December 31, 2012. Therefore, the Company’s valuation allowance related to the small life insurance company deduction has decreased. The remaining valuation allowance relates to differences between recorded deferred tax assets and liabilities and ultimate anticipated realization.

The valuation allowance increased $2,688,604 during 2012 and decreased $2,464,848 during 2011.

The Company paid  $1,900,000, $174,811, and $108,522 in income taxes for 2012, 2011 and 2010, respectively.

The Company’s income tax expense (benefit) is summarized as follows for the years ended December 31:

		2012		2011		2010
Current	$	2,707,962	$	130,526	$	171,133
Deferred		1,930,813		(192,731)		(829,929)
Total	$	4,638,775	$	(62,205)	$	(658,796)
The reconciliation of income tax expense at the U.S. federal statutory rates is as follows:

		2012		2011		2010
Computed expense at statutory rate	$	7,472,953	$	410,225	$	(370,403)
Special deductions allowed
small life insurance companies		-		(503,672)		(351,847)
Other, net		(2,834,178)		31,242		63,454
Tax expense (benefit)	$	4,638,775	$	(62,205)	$	(658,796)

At December 31, 2012, the Company had $376,799 of unrecognized tax benefits principally relating to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.  At December 31, 2012, the Company had $22,006 in interest and penalties related to unrecognized tax benefits. The Company accounts for interest expense and penalties for unrecognized tax benefits as part of its income tax provision.  Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2012, the Company does not expect any material changes to the estimated amount of unrecognized tax benefits in the next twelve months. Federal and state income tax returns for 2009 through 2012 are subject to examination by taxing authorities.