Note 6 - Income Tax Provision

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 6.         Income Tax Provision

USAC files federal income tax returns based on the 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, 2021 and 2020, respectively, is summarized as follows:

	2021			2020
Income before total federal income tax	$	(346,187	)	$	299,175
Tax rate		21	%		21	%
Expected income tax expense (benefit)		(72,700	)		62,827
Effect of tax-exempt income		(19,588	)		(32,318	)
Disallowed deductions		1,181			1,012
Change in unrealized - valuation allowance and unrealized gains (losses)		56,601			148,778
Other GAAP to tax differences		-			4,043
Return-to-Provision adjustments		20,471			-
Prior period estimate adjustments		107,906			-
Change in valuation allowance		(774,413	)		(324,616	)
Total	$	(680,542	)	$	(140,274	)

For the year ended December 31, 2021, the Company recognized total tax benefit of $(680,542). This benefit is comprised of current tax expense of $473,730 and a deferred tax benefit of $(1,154,272). The Company recognized a deferred tax benefit of $774,413 related to the decrease of its deferred tax asset valuation allowance associated with net operating losses. For the year ended December 31, 2020, the Company recognized a total tax benefit of $140,274.

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 2021 and 2020 are summarized as follows:

Deferred Tax Assets	2021			2020
Net operating and capital loss carryforwards	$	2,271,246		$	2,111,431
Unamortized start-up costs		126,603			147,703
Policyowner benefit reserves		2,806,586			2,389,259
Goodwill		-			194,670
Tax DAC		753,983			775,734
Deferred tax asset valuation allowance		(1,324,409	)		(2,098,822	)
		4,634,009			3,519,975
Deferred Tax Liabilities
GAAP DAC		1,334,524			1,488,265
Fixed assets		21,703			8,821
8 Year Spread		155,620			194,524
Value of business acquired		548,271			567,679
Other GAAP to Tax Differences		233,953			-
Unrealized gains		779,171			1,017,429
		3,073,242			3,276,718
Net Deferred Tax	$	1,560,767		$	243,257

The Company has federal net operating loss ("NOL") and capital loss carryforwards of $9,198,976 and $10,054,432 as of December 31, 2021 and 2020, respectively. The federal NOLs generated in the years ended December 31, 2009 through 2017 will begin to expire in 2027 for federal income tax purposes. NOLs originating before January 1, 2018 are eligible to offset taxable income, if not otherwise limited under Internal Revenue Code ("IRC") section 382 limitations. NOLs generated after December 31, 2017, have an indefinite carryforward period and are subject to 80% deduction limitations based upon pre-NOL taxable income.

US Alliance Corporation

Notes to Consolidated Financial Statements