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Note 14: Income Taxes
 12 Months Ended
Dec. 31, 2018
Notes  
Note 14: Income Taxes

Note 14:    Income Taxes

The Company files a consolidated federal income tax return.  As of December 31, 2018 and 2017, retained earnings included approximately $17.5 million for which no deferred income tax liability had been recognized.  This amount represents an allocation of income to bad debt deductions for tax purposes only for tax years prior to 1988.  If the Bank were to liquidate, the entire amount would have to be recaptured and would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.  The unrecorded deferred income tax liability on the above amount was approximately $3.9 million at both December 31, 2018 and 2017, respectively.

 

During the years ended December 31, 2018, 2017 and 2016, the provision for income taxes included these components:

 

 

2018

 

2017

 

2016

 

(In Thousands)

 

 

 

 

 

 

Taxes currently payable

$             19,291

 

$                9,335

 

$             20,137

Deferred income taxes

                (4,450)

 

               11,528

 

                (3,621)

Adjustment of deferred tax asset or liability for enacted changes in tax laws

                        —

 

                (2,105)

 

                        —

 

 

 

 

 

 

Income taxes

$             14,841

 

$             18,758

 

$             16,516

 

 

 

The tax effects of temporary differences related to deferred taxes shown on the statements of financial condition were:

 

 

December 31,

 

 

2018

 

2017

 

(In Thousands)

 

 

 

 

 

Deferred tax assets

 

 

 

Allowance for loan losses

  $                8,758

 

  $                8,154

Tax credit carryforward

                          —

 

                    5,816

Interest on nonperforming loans

                       320

 

                       288

Accrued expenses

                       726

 

                       684

Write-down of foreclosed assets

                       600

 

                    1,694

Write-down of fixed assets

                       191

 

                       207

Difference in basis for acquired assets and liabilities

                    4,031

 

                    4,725

 

                  14,626

 

                  21,568

 

 

 

 

Deferred tax liabilities

 

 

 

Tax depreciation in excess of book depreciation

                  (5,409)

 

                  (4,483)

FHLB stock dividends

                     (798)

 

                     (356)

Partnership tax credits

                     (404)

 

                     (706)

Prepaid expenses

                     (569)

 

                     (775)

Unrealized gain on available-for-sale securities

                        (83)

 

                     (435)

Book revenue in excess of tax revenue

                          —

 

                (12,177)

Unrealized gain on cash flow derivatives

                  (2,761)

 

                          —

Other

                      (113)

 

                      (190)

 

                (10,137)

 

                (19,122)

 

 

 

 

Net deferred tax asset

  $                4,489

 

  $                2,446

 

 

 

Reconciliations of the Company’s effective tax rates from continuing operations to the statutory corporate tax rates were as follows:

 

 

2018

 

2017

 

2016

 

 

 

 

 

 

Tax at statutory rate

            21.0%

 

            35.0%

 

            35.0%

Nontaxable interest and dividends

             (0.8)

 

             (1.6)

 

             (2.1)

Tax credits

             (3.4)

 

            (6.1)

 

             (7.3)

State taxes

              1.1

 

              1.1

 

              1.1

Initial impact of enactment of 2017 Tax Act

               0.0

 

             (0.4)

 

               0.0

Other

              0.2

 

            (1.3)

 

               0.0

 

 

 

 

 

 

 

           18.1%

 

           26.7%

 

           26.7%

 

 

The Tax Cuts and Jobs Act (“Tax Act”) was signed into law on December 22, 2017, making several changes to U. S. corporate income tax laws, including reducing the corporate Federal income tax rate from 35% to 21% effective for tax years beginning on or after January 1, 2018.  U. S. GAAP requires that the impact of the provisions of the Tax Act be accounted for in the period of enactment. The Company recognized the income tax effects of the Tax Act in its 2017 financial statements. The Tax Act is complex and required significant detailed analysis.  During the preparation of the Company’s 2017 income tax returns in 2018, no additional adjustments related to enactment of the Tax Act were identified. 

 

The Company and its consolidated subsidiaries have not been audited recently by the Internal Revenue Service (IRS) and, as such, tax years through December 31, 2005, have been closed without audit.  The Company, through one of its subsidiaries, is a partner in two partnerships which have been under Internal Revenue Service examination for 2006 and 2007.  As a result, the Company’s 2006 and subsequent tax years remain open for examination.  The examinations of these partnerships advanced during 2016, 2017, and 2018.  One of the partnerships has advanced to Tax Court and has entered a Motion for Entry of Decision with an agreed upon settlement.  The other partnership examination was recently completed by the IRS with no change impacting the Company’s tax positions.  The Company does not currently expect significant adjustments to its financial statements from the partnership matter at the Tax Court.

 

The Company is currently under State of Missouri income and franchise tax examinations for its 2014 through 2015 tax years.  The Company does not currently expect significant adjustments to its financial statements from this state examination.