Taxes on Income

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Taxes on Income

NOTE 16 - TAXES ON INCOME

The provision for taxes on income consists of the following:

	Year ended December 31
	2011	2010	2009
Current provision:
Federal	$1,670,957	$1,043,492	$1,541,835
State	8,982	8,931	8,920
Total federal and state	1,679,939	1,052,423	1,550,755
Deferred tax expense (benefit)	330,353	(160,994)	(314,152)
Provision for taxes	$2,010,292	$891,429	$1,236,603

The income tax provision reflected in the consolidated statements of operations is different than the expected federal income tax on income as shown in the following table:

	Year ended December 31
	2011	2010	2009
Computed income tax expense	$1,955,058	$1,094,997	$1,415,753
Tax effect of:
State tax, net of federal tax benefit	41,233	(220,490)	(297,887)
Other	14,001	16,922	118,737
Income tax expense per consolidated statements of operations	$2,010,292	$891,429	$1,236,603

The deferred tax benefit or expense related to the change in unrealized gains on securities classified as available-for-sale in the current period was a $665,296 deferred tax benefit for the year ended December 31, 2011, a $252,989 deferred tax benefit for the year ended December 31, 2010, and a $1,114,125 deferred tax expense for the year ended December 31, 2009.

The components of the net federal income tax asset included in the financial statements as required by the assets and liability method are as follows: 

	Year ended December 31
	2011	2010
Deferred tax assets
Discount on loss reserves	$1,331,432	$1,668,869
Unearned premiums	1,099,386	1,100,441
Unearned commission income	385,637	386,019
Unearned policy fee income	379,717	399,667
State income tax deductible in future periods	281,789	361,514
Bad debt reserve	477,096	475,747
Other	114,191	108,483
Total deferred tax assets	$4,069,248	$4,500,740
Deferred tax liabilities
Deferred acquisition costs	$1,748,455	$1,809,424
Unrealized gain on investments	494,343	1,159,639
State tax on undistributed insurance company earnings	409,005	367,382
Tax depreciation in excess of book depreciation	22,945	26,761
Other	-	77,977
Total deferred tax liabilities	$2,674,748	$3,441,183
Net deferred tax assets	$1,394,500	$1,059,557

Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.

The Company and its wholly owned subsidiaries file consolidated federal and state income tax returns. Pursuant to the tax allocation agreement, Crusader Insurance Company and American Acceptance Corporation are allocated taxes or tax credits in the case of losses, at current corporate rates based on their own taxable income or loss. The Company files income tax returns under U.S. federal and various state jurisdictions. The Company is subject to examination by U.S. federal income tax authorities for tax returns filed starting at taxable year 2007 and California state income tax authorities for tax returns filed starting at taxable year 2006. There are no ongoing examinations of income tax returns by federal or state tax authorities.

As a California insurance company, Crusader is obligated to pay a premium tax on gross premiums written in all states that Crusader is admitted. Premium taxes are deferred and amortized as the related premiums are earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.

As of December 31, 2011, the Company had no unrecognized tax benefits and no additional liabilities or reduction in deferred tax asset. In addition, the Company had not accrued interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.