Note 6. Income Taxes:

The Company is taxed as a C corporation for U.S. federal tax purposes.

During the years ended December 31, 2011, 2010 and 2009, the Company recorded $1,495, $506 and $9,522, respectively, of income tax expense for income and losses from continuing operations. The Company had taxable income from continuing operations before income taxes of $27,527, $16,503 and $142,720 in 2011, 2010, and 2009, respectively.

The provision for income taxes from continuing operations consists of the following for the years ended December 31, 2011, 2010 and 2009:

	2011		2010			2009
Federal	$	698	$	(329	)	$	1,819
State		797		835			7,703
	$	1,495	$	506		$	9,522
Current	$	1,495	$	506		$	9,522
Deferred		-		-			-
	$	1,495	$	506		$	9,522

Deferred tax assets and liabilities consisted of the following as of December 31, 2011 and 2010:

	2011			2010
Unrealized investment gains and losses	$	43,930		$	39,311
Accrued compensation		(644	)		2,273
Capital loss carry-forward		159,724			232,345
Other, net		17,675			10,302
Net operating loss		114,489			125,796
Unrealized gain on AFS securities		(15,731	)		(26,033	)
Valuation allowance		(319,443	)		(383,994	)
Net deferred tax asset	$	-		$	-

The provision (benefit) for income taxes results in effective tax rates that differ from the federal statutory rates. The reconciliation of the Company and its subsidiaries income tax attributable to net income (loss) computed at federal statutory rates to income tax expense was:

	December 31,
	2011			2010			2009
Federal income tax at statutory rate	$	5,853		$	9,482		$	49,055
State income taxes, net of federal benefit		1,357			2,115			(1,899	)
Executive compensation		1,075			1,057			263
Effect of stock based compensation		1,330			1,787			-
Refund claim due to change in tax law		-			-			(4,268	)
FIN 48 reserve, net of federal benefit		-			-			12,618
Expiration of capital loss carryover		66,439			-			-
Other, net		294			187			(662	)
Valuation allowance		(74,853	)		(14,122	)		(45,585	)
Total income tax provision	$	1,495		$	506		$	9,522

As of December 31, 2011 and 2010, the Company recorded $12,810 of unrecognized tax benefits, which are fully reserved, and represent its estimate of potential future tax benefits ranging up to that amount. The total amount of accrued interest and penalties as of December 31, 2011 was $1,779. At December 31, 2011, there are $12,810 of unrecognized tax benefits that if recognized would affect the annual effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2011		2010
Balance at January 1	$	12,810	$	12,810
Additions based on tax positions related to the current year		-		-
Additions for tax positions of prior years		-		-
Reductions for tax positions of prior years		-		-
Settlements		-		-
Balance at December 31	$	12,810	$	12,810

As of December 31, 2011 and 2010, the Company had an NCL carry-forward of $389,655 and $566,695, respectively, that can be used to offset future capital gains. These capital losses began to expire in 2011, with $162,046 expired in 2011, and will continue to expire annually until 2015. In addition, as of December 31, 2011 and 2010, the Company had an NOL carry-forward of $279,242 and $306,820, respectively, that can be used to offset future taxable income. The NOL carry-forward will begin to expire in 2027. The valuation allowance relates primarily to the ability to utilize these losses.

The Company is subject to examination by the U.S. Internal Revenue Service (IRS), and other taxing authorities in jurisdictions where the Company has significant business operations, such as Virginia. On July 12, 2011, the Company received a notification from the IRS stating that the congressional Joint Committee on Taxation had completed its consideration of the IRS' special report related to the IRS' examination of the Company's tax years 2006, 2007 and 2008 and has taken no exception to the conclusions reached by the IRS. There were no significant findings or disagreements on the tax positions taken by the Company as a result of these examinations.