Note

. Federal Income Taxes

USAC files federal income taxes returns based on type of return. USAC files a consolidated corporate federal income tax return with USAMC and USAIC. USASLC, DCLIC, and USALSC-MT file a consolidated life insurance federal income tax return. Certain items included in income reported for financial statement purposes are

not

included in taxable income for the current period, resulting in deferred income taxes.

A reconciliation of federal income tax expense computed by applying the federal income tax rate of

21%

to income before federal income tax expense for the years ended

December 31, 2019

and

2018,

respectively, is summarized as follows:

		2019		2018
Income (loss) before total federal income tax	$	168,050	$	(456,136)
Tax Rate		21%		21%
Expected income tax expense (benefit)		35,291		(95,789)
Effect of tax-exempt income		(11,925)		(9,808)
Disallowed deductions		693		-
Other GAAP to tax differencees		(24,059)		105,597
Change in valuation allowance		(431,158)		-
Total income tax benefit	$	(431,158)	$	-

For the year ended

December 31, 2019,

the Company recognized a deferred tax benefit related to the reduction of its deferred tax asset valuation allowance. The net change in the allowance resulted in a net tax benefit of

$431,158.

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of

December 31, 2019

and

2018

are summarized as follows:

		12/31/2019		12/31/2018

Deferred Tax Assets
Net operating loss carryforwards	$	2,641,247	$	2,649,673
Unamortized Start-Up Costs		168,803		189,903
Policy owner benefit reserves		1,154,684		1,334,952
Unrealized Loss		-		458,730
Deferred tax asset valuation allowance		(2,423,438)		(4,179,283)
Deferred Tax Assets		1,541,296		453,975

Deferred Tax Liability
Deferred acquisition costs		227,921		306,614
Fixed assets		8,699		25,499
8 Year Spread		233,429		-
Value of business acquired		117,599		121,862
Unrealized Gain		522,490		-
		1,110,138		453,975

Net Deferred Tax Asset	$	431,158	$	-

As of

December 31, 2019,

the Company has net operating loss carryforwards of

$12,577,367

of which

$10,485,338

will expire between

2026

through

2037

and of which

$2,092,029

is indefinite. The Company had net operating loss carryforwards of

$12,617,489

as of

December 31, 2018.

The

2016

through

2019

U.S. federal tax years are subject to income tax examination by tax authorities. Penalties and interest assessed by taxing authorities are included in the provision for income taxes, if applicable. There were

interest or penalties paid during

2019

and

2018.