Note 5 - Income Tax Provision

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 5. 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, 2022 and 2021, respectively, is summarized as follows:

	2021			2021
Loss before total federal income tax	$	(3,305,485	)	$	(346,187	)
Tax rate		21	%		21	%
Expected income tax benefit		(694,152	)		(72,700	)
Effect of tax-exempt income		(19,204	)		(19,588	)
Disallowed deductions		-			1,181
Change in unrealized - valuation allowance and unrealized gains		-			56,601
State income tax, net		66,793			-
Return-to-Provision adjustments		(25,529	)		20,471
Prior period adjustments		13,334			107,906
Change in valuation allowance		509,758			(774,413	)
Total	$	(149,000	)	$	(680,542	)

For the year ended December 31, 2022, the Company recognized total tax benefit of $(149,000). This benefit is comprised of current tax benefit of $(95,183) and a deferred tax benefit of $(53,817). For the year ended December 31, 2021, the Company recognized a 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).

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, 2022 and 2021 are summarized as follows:

Deferred Tax Assets	2022			2021
Net operating and capital loss carryforwards	$	2,364,039		$	2,271,246
Unamortized start-up costs		105,502			126,603
Policyowner benefit reserves		2,752,406			2,806,586
Unrealized Losses		1,367,975			-
Tax DAC		824,896			753,983
Deferred tax asset valuation allowance		(1,834,167	)		(1,324,409	)
		5,580,651			4,634,009
Deferred Tax Liabilities
GAAP DAC		1,177,664			1,334,524
Fixed assets		29,945			21,703
8 Year Spread		116,715			155,620
Value of business acquired		528,862			548,271
Other GAAP to Tax Differences		432,943			233,953
Unrealized gains		-			779,171
		2,286,129			3,073,241
Net Deferred Tax	$	3,294,522		$	1,560,767

The Company has federal net operating loss ("NOL") and capital loss carryforwards of $9,630,952 and $9,198,976 as of December 31, 2022 and 2021, 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.