ACCOUNTING FOR TAXES

3 Months Ended

Mar. 31, 2022

ACCOUNTING FOR TAXES

ACCOUNTING FOR TAXES

NOTE 5 – ACCOUNTING FOR TAXES

The Company and its subsidiaries file consolidated federal and state income tax returns. Pursuant to a tax allocation agreement Crusader and AAC, 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 2018 and California state income tax authorities for tax returns filed starting at taxable year 2017. 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 direct written premium in all states where Crusader is admitted. Premium taxes are deferred and amortized as the related premium is earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.

As of March 31, 2022, and December 31, 2021, the Company had no unrecognized tax benefits or liabilities and, therefore, had not accrued interest and penalties related to unrecognized tax benefits or liabilities. However, if interest and penalties would need to be accrued related to unrecognized tax benefits or liabilities, such amounts would be recognized as a component of federal income tax expense.

As of March 31, 2022, the Company had deferred tax assets of $9,529,432 generated from $45,378,251 of federal net operating loss carryforwards that will begin to expire in 2035 and deferred tax assets of $2,458,655 generated from state net operating loss carryforwards which begin to expire in 2028. In connection with preparation of its consolidated financial statements, the Company periodically performs an analysis of future income projections to determine the adequacy of the valuation allowance. In light of the net losses that were generated in recent years, for the periods ended March 31, 2022 and December 31, 2021, the Company has established a full valuation allowance against all deferred tax assets in the amount of $13,049,316 and $11,939,459, respectively, as in management’s judgement they will not more-likely-than-not be realized.