Accounting For Income Taxes

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Accounting For Income Taxes

NOTE 6 – ACCOUNTING FOR INCOME TAXES

The Company and its wholly owned subsidiaries file consolidated federal and state income tax returns. Pursuant to tax allocation agreements, 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 in taxable year 2009 and California state income tax authorities for tax returns filed starting in taxable year 2008. On October 7, 2011, the Company received a letter from the Internal Revenue Service stating that its review and examination of the Company’s 2009 federal income tax return had been completed and that there were no changes to the reported tax. The Company has been notified by the California Franchise Tax Board that the California state income tax returns for the 2009 and 2010 tax years have been selected for examination.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Since the adoption of ASC 740 and as of September 30, 2012, the Company had no unrecognized tax benefits and no additional liabilities or reduction in deferred tax asset. In addition, the Company had not incurred 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.