Note 8. Income Tax Matters

Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2020 and December 31, 2019 are as follows:


	March 31, 2020		December 31, 2019
Deferred tax assets:
Loss carryforwards	$	427,075	$	436,777
Capitalized costs		210,030		221,918
Stock option granted		7,072		4,566
Unrealized losses on investments		5,568,896		—
Policy acquisition costs		1,728,134		1,468,030
Charitable contribution carryforward		1,230		1,020
Property and equipment		23,362		15,508
Benefit reserves		1,338,072		848,643
Total deferred tax assets		9,303,871		2,996,462
Less valuation allowance		(4,156,035)		(2,618,741)
Total deferred tax assets, net of valuation allowance		5,147,836		377,721
Deferred tax liabilities:
Unrealized losses on investments		4,880,173		116,088
Due premiums		84,076		81,789
Intangible assets		147,000		147,000
Policy loans		36,587		32,844
Property and equipment		—		—
Total deferred tax liabilities		5,147,836		377,721
Net deferred tax assets	$	—	$	—

At March 31, 2020 and December 31, 2019, the Company recorded a valuation allowance of $4,156,035 and $2,618,741, respectively, on the deferred tax assets to reduce the total to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income.

There was income tax expense of $407,916 for the three months ended March 31, 2020 and no income tax expense for the three months ended March 31, 2019. This differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% to pretax income, as a result of the following:


	Three months ended March 31,
	2020		2019
Computed expected income tax benefit	$	4,610,839	$	(313,954)
Increase (reduction) in income taxes resulting from:
Meals, entertainment and political contributions		2,611		2,583
Change in valuation allowance		(4,147,690)		234,398
Other		(57,844)		76,973
Subtotal of increases		(4,202,923)		313,954
Tax expense (benefit)		407,916		—

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss (“NOL”) carryforwards following a change of control, which occurred on June 28, 2018. As of March 31, 2020, the deferred tax assets included the expected tax benefit attributable to federal NOLs of $1,896,207. The federal NOLs generated prior to June 28, 2018 which are subject to Section 382 limitation can be carried forward. If not utilized, the NOLs of $890,636 prior to 2017 will expire through the year of 2032, and the NOLs generated from June 28, 2018 to March 31, 2020 do not expire and will carry forward indefinitely, but their utilization in any carry forward year is limited to 80% of taxable income in that year.

Loss carry forwards for tax purposes as of March 31, 2020, have expiration dates that range from 2024 through 2039.