(10) INCOME TAXES

Total income tax expense was allocated for the First Quarter of this year and last year as follows:

	Three Months Ended May 31,
	2013		2012
Income tax expense	$	929,661	$	598,932

Income tax expense was made up of the following components:

	Three Months Ended May 31,
	2013		2012
Current income tax expense (benefit)	$	964,091	$	(2,823,381)
Deferred tax expense (benefit)		(34,430)		3,422,313
Total income tax expense	$	929,661	$	598,932

Income tax expense differed from amounts computed by applying the Federal income tax rate to pre-tax earnings for the First Quarter of this year and last year, as a result of the following:

	Three Months Ended May 31,
	2013			2012
United States statutory rate		35.0	%		35.0	%
State income taxes		0.1	%		1.3	%
Permanent differences		0.5	%		0.3	%
Combined effective tax rate		35.6	%		36.6	%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

	May 31, 2013		Feb. 28, 2013
Deferred tax assets:
Impairment of investment in policies	$	290,069	$	305,251
Premium advances allowance		1,540,717		1,510,472
Deferred policy monitoring costs		1,158,532		1,128,832
Investment in securities		672,115		672,115
Charitable contributions		201,658		283,730
Contingency costs		22,109		25,942
Compensated absences		41,393		26,066
State taxes		1,566		23,889
		3,928,159		3,976,297
Valuation allowance		(643,403)		(643,403)
Net deferred tax assets		3,284,756		3,332,894
Deferred tax liabilities:
Settlement costs		(46,169)		(53,867)
Depreciation		(80,422)		(90,327)
Prepaid expenses		(17,500)		(43,750)
Unrealized revenues and brokerage fees		(270,996)		(309,711)
Loss on investment in trust		(13,340)		(13,340)
Net deferred tax liabilities		(428,427)		(510,995)
Total deferred tax asset, net	$	2,856,329	$	2,821,899
Summary of deferred tax assets:
Current	$	1,407,759	$	1,444,709
Non-current		1,448,570		1,377,190
Total deferred tax asset, net	$	2,856,329	$	2,821,899

Income Tax Overpayment. As a result of our operating losses for fiscal 2013, we recorded an income tax receivable for overpayment of Federal income taxes in prior years. As of May 31, 2013, and February 28, 2013, we had recorded $2,547,545 and $3,457,093 as the current income tax overpayment resulting from prior year operating losses.

Valuation Allowance. At February 29, 2012, we had a valuation allowance of $643,403 for capital losses resulting from other-than-temporary impairments. This amount represents capital losses that we were not able to deduct until we had corresponding capital gains to apply the losses against. We made no changes to the valuation allowance during the First Quarter of this year.

Tax Examination. The Internal Revenue Service is currently examining our Federal income tax returns for fiscal years 2010 and 2012. With few exceptions, we are no longer subject to Federal, state or local examinations by tax authorities for fiscal years 2009 and earlier.

Accounting for Uncertainty in Income Taxes. In June 2006, the FASB issued guidance contained in ASC 740, Income Taxes (formerly FIN 48). The guidance is intended to clarify the accounting for uncertainty in income taxes recognized in a company?s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under ASC 740, evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.