Note 6 – Income Taxes

UTG and UG file separate federal income tax returns.

Income tax expense (benefit) consists of the following components:

	2020			2019
Current tax	$	2,476,599		$	1,698,995
Deferred tax		(2,136,105	)		1,892,306
Income tax expense	$	340,494		$	3,591,301

The expense for income taxes differed from the amounts computed by applying the applicable United States statutory rate of 21% as of December 31, 2020 and 2019, before income taxes as a result of the following differences:

	2020			2019
Tax computed at statutory rate	$	536,982		$	4,239,316
Changes in taxes due to:
Non-controlling interest		(26,871	)		(68,280	)
Dividend received deduction		(155,597	)		(175,866	)
Other		(14,020	)		(403,869	)
Income tax expense	$	340,494		$	3,591,301

The following table summarizes the major components that comprise the net deferred tax liability as reflected in the balance sheets:

	2020			2019
Investments	$	10,918,449		$	10,983,955
Cost of insurance acquired		861,309			1,017,727
Management/consulting fees		(8,832	)		(9,147	)
Future policy benefits		(511,297	)		(460,923	)
Deferred gain on sale of subsidiary		1,387,490			1,387,490
Other assets (liabilities)		364,797			197,876
Reserves adjustment		240,266			288,320
Federal tax DAC		(256,468	)		(182,694	)
Deferred tax liability	$	12,995,714		$	13,222,604

At December 31, 2020 and 2019, the Company had gross deferred tax assets of $1,413,608 and $1,359,230, respectively, and gross deferred tax liabilities of $14,409,322 and $14,581,834, respectively, resulting from temporary differences primarily related to the life insurance subsidiary. A valuation allowance is to be provided when it is more likely than not that deferred tax assets will not be realized by the Company. No valuation allowance has been recorded (except as noted below) relating to the Company’s deferred tax assets since, in Management’s judgment, the Company will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.

The Company’s Federal income tax returns are periodically audited by the Internal Revenue Service (“IRS”). There are currently no examinations in process, nor is Management aware of any pending examination by the IRS. The Company follows the accounting guidance for uncertainty in income taxes using the provisions of Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. Such tax positions initially and subsequently need to be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company has evaluated its tax positions, expiring statutes of limitations, changes in tax law and new authoritative rulings and believes that no disclosure relative to a provision of income taxes is necessary, at this time, to cover any uncertain tax positions. Tax years that remain subject to examination are the years ended December 31, 2017, 2018, 2019 and 2020.

The Company classifies interest and penalties on underpayment of income taxes as income tax expense. No interest or penalties were included in the reported income taxes for the years presented. The Company is not aware of any potential or proposed changes to any of its tax filings.