Income Tax

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

INCOME TAXES

Our provision for income taxes may not have the customary relationship of taxes to income. CICA Ltd., a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes. As a result, the insurance activity of CICA Ltd. is subject to Subpart F of the IRC and is included in Citizens’ taxable income. For the three and nine months ended September 30, 2020, the Subpart F income inclusion generated $0.8 million and $2.2 million of federal income tax expense, respectively. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:

Three Months Ended September 30,	2020				2019
(In thousands, except for %)	Amount		%		Amount		%
Federal income tax expense:
Expected tax expense (benefit)	$	(1,716)	21.0	%	$	448	21.0	%
Foreign income tax rate differential	(687)		8.4	%	(521)		(24.4)	%
Tax-exempt interest and dividends-received deduction	(35)		0.4	%	(57)		(2.7)	%
Annualized effective tax rate adjustment	(646)		7.9	%	(1,796)		(84.2)	%
Adjustment of prior year taxes	98		(1.2)	%	1,923		90.2	%
Effect of uncertain tax position	630		(7.7)	%	(2,284)		(107.1)	%
Nondeductible costs to remediate tax compliance issue	(620)		7.6	%	(27)		(1.3)	%
CICA Ltd. Subpart F income	787		(9.6)	%	2,253		105.7	%
Nondeductible officer compensation	2,041		(25.0)	%	—		—	%
Other	(108)		1.3	%	147		6.9	%
Total federal income tax expense (benefit)	$	(256)	3.1	%	$	86	4.1	%

Nine Months Ended September 30,	2020				2019
(In thousands, except for %)	Amount		%		Amount		%
Federal income tax expense:
Expected tax expense (benefit)	$	(2,093)	21.0	%	$	172	21.0	%
Foreign income tax rate differential	(1,726)		17.3	%	(632)		(77.4)	%
Tax-exempt interest and dividends-received deduction	(113)		1.1	%	(175)		(21.4)	%
Annualized effective tax rate adjustment	200		(2.0)	%	1,468		179.7	%
Adjustment of prior year taxes	10		(0.1)	%	1,923		235.4	%
Effect of uncertain tax position	2,673		(26.8)	%	132		16.2	%
Nondeductible costs to remediate tax compliance issue	(620)		6.2	%	(27)		(3.3)	%
CICA Ltd. Subpart F income	2,180		(21.9)	%	3,848		471.0	%
Nondeductible officer compensation	2,042		(20.5)	%	—		—	%
Other	5		(0.1)	%	429		52.5	%
Total federal income tax expense (benefit)	$	2,558	(25.8)	%	$	7,138	873.7	%

Income tax expense consists of:

Nine Months Ended September 30,	2020		2019
(In thousands)
Federal income tax expense:
Current	$	2,944	6,580
Deferred	(386)		558
Total federal income tax expense	$	2,558	7,138

The components of deferred federal income taxes are as follows:

Net Deferred Tax Asset (Liability) (In thousands)	September 30, 2020		December 31, 2019
Deferred tax assets:
Future policy benefit reserves	$	2,722	2,641
Net operating and capital loss carryforwards	595		230
Accrued expenses	—		85
Investments	286		702
Deferred intercompany loss	2,637		3,539
Fixed assets	533		365
Lease liability	2,576		238
Other	792		250
Total gross deferred tax assets	10,141		8,050
Deferred tax liabilities:
Deferred policy acquisition costs, cost of insurance acquired and intangible assets	(8,465)		(8,417)
Unrealized gains on investments available-for-sale	(11,171)		(7,300)
Tax reserves transition liability	(3,923)		(4,483)
Right of use lease asset	(2,576)		(238)
Other	(36)		(40)
Total gross deferred tax liabilities	(26,171)		(20,478)
Net deferred tax liability	$	(16,030)	(12,428)