Note 5 - Income Tax Provision

12 Months Ended

Dec. 31, 2023

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, 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, 2023 and 2022, respectively, is summarized as follows:

	2023			2022
Income (loss) before total federal income tax		625,729			(3,305,485	)
Tax rate		21	%		21	%
Expected income tax expense (benefit)		131,403			(694,152	)
Effect of tax-exempt income		(28,448	)		(19,204	)
Other		6,908			-
State income tax, net		25,749			66,793
Return-to-Provision adjustments		(89,557	)		(25,529	)
Prior period adjustments		2,741			13,334
Change in valuation allowance		(901,143	)		509,758
Total		(852,347	)		(149,000	)

For the year ended December 31, 2023, the Company recognized total tax benefit of $(852,347). This benefit is comprised of current tax expense of $0 and a deferred tax benefit of $(852,347). For the year ended December 31, 2022, the Company recognized a total tax benefit of $(149,000). 

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, 2023 and 2022 are summarized as follows:

	12/31/2023			12/31/2022
Deferred Tax Assets
Net operating and capital loss carryforwards		2,055,140			2,364,039
Unamortized start-up costs		84,402			105,502
Policyowner benefit reserves		2,353,584			2,752,406
Unrealized Losses		887,427			1,367,975
Tax DAC		903,654			824,896
Deferred tax asset valuation allowance		(341,684	)		(1,834,167	)
		5,942,523			5,580,651
Deferred Tax Liabilities
GAAP DAC		993,388			1,177,664
Fixed assets		89,760			29,945
8 Year Spread		77,810			116,715
Value of business acquired		509,454			528,862
Other GAAP to Tax Differences		383,203			432,943
Unrealized gains		-			-
		2,053,616			2,286,129
Net Deferred Tax		3,888,907			3,294,522

The Company has federal net operating loss ("NOL") and capital loss carryforwards of $7,425,956 and $9,630,952 as of December 31, 2023 and 2022, 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.

At December 31, 2023 the Company changed its tax reserve discounting methodology relating to the cash surrender value of life insurance policies. As a result of this change in method, the Company recognized an additional deferred tax benefit.