Taxes on Income

12 Months Ended

Dec. 31, 2012

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
	2012			2011		2010
Federal:
Current	$	959,935		$	1,670,957	$	1,043,492
Deferred		60,600			276,145		182,012
Total	$	1,020,535		$	1,947,102	$	1,225,504
State:
Current	$	8,949		$	8,982	$	8,931
Deferred		(128,176	)		54,208		(343,006	)
Total	$	(119,227	)	$	63,190	$	(334,075	)
Total:
Current	$	968,884		$	1,679,939	$	1,052,423
Deferred		(67,576	)		330,353		(160,994	)
Total	$	901,308		$	2,010,292	$	891,429

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
	2012			2011		2010
Computed income tax expense	$	970,711		$	1,955,058	$	1,094,997
Tax effect of:
State tax, net of federal tax benefit		(78,259	)		41,233		(220,490	)
Other		8,856			14,001		16,922
Income tax expense	$	901,308		$	2,010,292	$	891,429

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
	2012		2011
Deferred tax assets
Discount on loss reserves	$	1,241,447	$	1,331,432
Unearned premiums		1,104,384		1,099,386
Unearned commission income		388,624		385,637
Unearned policy fee income		365,007		379,717
State income taxes		275,235		281,789
Bad debt reserve		430,944		477,096
Other		108,761		114,191
Total deferred tax assets	$	3,914,402	$	4,069,248
Deferred tax liabilities
Policy acquisition costs	$	1,588,442	$	1,748,455
Unrealized gains on investments		62,489		494,343
State tax on undistributed insurance company earnings		337,112		409,005
Depreciation and amortization		32,430		22,945
Total deferred tax liabilities	$	2,020,473	$	2,674,748
Net deferred tax assets	$	1,893,929	$	1,394,500

Although realization is not reasonably 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 2009 and California state income tax authorities for tax returns filed starting at taxable year 2008. 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, 2012, 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.