Note 18 Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Tax Disclosure [Text Block]

Note 18.          Income Taxes

IHC and its subsidiaries, excluding AMIC, file a consolidated Federal income tax return on a June 30 fiscal year. AMIC continues to file its own separate income tax return on a September 30 fiscal year and is not included in the consolidated tax return of IHC. The provision for income tax expense (benefit) attributable to income from continuing operations as shown in the Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 is as follows:

			2011		2010		2009
			(In thousands)
CURRENT:
	U.S. Federal	$	4,397	$	(2,973)	$	1,545
	State and Local		523		456		235
			4,920		(2,517)		1,780
DEFERRED:
	U.S. Federal		(912)		12,698		(9,997)
	State and Local		(276)		2,402		(2,452)
			(1,188)		15,100		(12,449)
		$	3,732	$	12,583	$	(10,669)

Income taxes recorded for the year ended December 31, 2011 includes a deferred income tax benefit of $2,319,000 associated with IHC’s investment in AMIC. As the result of management’s intention to adopt tax planning strategies to recover IHC’s investment in AMIC in a tax-free manner, the cumulative Federal and State deferred income tax liabilities established as of December 31, 2010 for temporary differences between IHC’s book value and tax basis in AMIC became permanent. Accordingly, IHC released its previously recorded deferred income tax liabilities and will not record deferred income taxes in future periods for any earnings or stockholders’ equity adjustments relating to IHC’s investment in AMIC.

Taxes computed at the Federal statutory rate of 35% in 2011, 2010 and 2009, attributable to pretax income from continuing operations, are reconciled to the Company's actual income tax expense on income from continuing operations as follows:

			2011		2010		2009
			(In thousands)
Tax computed at the statutory rate		$	6,474	$	12,688	$	(6,336)
Dividends received deduction and tax
	exempt interest		(600)		(1,816)		(2,025)
State and local income taxes, net of Federal effect			444		1,858		(1,442)
AMIC deferred income tax reversal			(2,319)		-		-
Other, net			(267)		(147)		(866)
Income tax expense		$	3,732	$	12,583	$	(10,669)

Deferred income tax expense for the year ended December 31, 2011 allocated to stockholders' equity (principally for net unrealized gains on investment securities) was $3,408,000, representing the increase in the related net deferred tax liability to $3,768,000 at December 31, 2011 from $360,000 at December 31, 2010.

Temporary differences between the Consolidated Financial Statement carrying amounts and tax bases of assets and liabilities that give rise to the deferred tax assets and liabilities at December 31, 2011 and 2010 are summarized below. The net deferred tax asset or liability is included in Other Assets or Other Liabilities, as appropriate, in the Consolidated Balance Sheets. IHC and its subsidiaries, excluding AMIC, have certain tax-planning strategies that were used in determining that a valuation allowance was not necessary on its deferred tax assets at December 31, 2011 or 2010. At December 31, 2011 and 2010, AMIC had net deferred tax assets of $8,030,000 and $9,227,000, respectively, net of a valuation allowance of $84,665,000 and $86,059,000, respectively.

				2011			2010
				(In thousands)
DEFERRED TAX ASSETS:
	Deferred insurance policy acquisition costs		$	1,996	$	2,612
	Unrealized losses on investment securities			197		771
	Investment write-downs			5,189		5,383
	Loss carryforwards			114,876		112,788
	Insurance reserves			1,269		-
	Other			4,407		7,109
		Total gross deferred tax assets		127,934		128,663
	Less valuation allowance			(84,665)		(86,059)
		Net deferred tax assets		43,269		42,604
DEFERRED TAX LIABILITIES:
	Deferred insurance policy acquisition costs			(9,942)		(11,868)
	Insurance reserves			(6,101)		(5,414)
	Investment in AMIC			-		(2,589)
	Unrealized gains on investment securities			(4,336)		-
	Other			(7,892)		(5,982)
		Total gross deferred tax liabilities		(28,271)		(25,853)
	Net deferred tax asset		$	14,998	$	16,751

As of December 31, 2011, IHC and its subsidiaries, excluding AMIC, had net operating tax loss carryforwards arising from limitations on offsetting non-life insurance company losses against life insurance company income. The non-life insurance company tax loss carryforwards amount to approximately $40,750,000 at December 31, 2011, which expire as follows (in thousands):

Tax Year:
2025	$	498
2026		1,865
2027		7,294
2028		3,317
2029		10,614
2030		10,470
2031		5,608
2032		1,084
	$	40,750

In addition, as of December 31, 2011, IHC and its subsidiaries, excluding AMIC, had capital tax loss carryforwards of approximately $7,500,000 expiring in 2014 and 2015 arising from excess capital losses realized by the life insurance company group.

At December 31, 2011, AMIC had federal NOL carryforwards of approximately $274,718,000 which expire as follows (in thousands):

Tax Year:
2019	$		16,675
2020			70,827
2021			142,530
2022			41,252
2023			528
2024			2
2025			-
2026			354
2027		-
2028		2
2029			1,372
2030			-
2031			1,176
	$		274,718

At December 31, 2011, AMIC also had NOL carryforwards of approximately $25,814,000 for state income tax purposes, primarily in the State of California.  Management believes that it is more likely than not that the state tax benefit of these net operating loss carryforwards will not be realized.

AMIC's ability to utilize its federal NOL carrryforwards would be substantially reduced if AMIC were to undergo an "ownership change" within the meaning of Section 382(g)(1) of the Internal Revenue Code. AMIC will be treated as having had an "ownership change" if there is more than a 50% increase in stock ownership during a three year '"testing period" by "5% stockholders." 

As the NOL carryforwards are utilized by IHC and AMIC, the amount of NOL carryforwards could be reduced upon audit by the IRS for those tax years open for assessment under the statute of limitations.

The Internal Revenue Service ("IRS") is currently auditing AMIC’s 2009 consolidated income tax return. Management believes that it has made adequate provision for all income tax uncertainties, such that the outcome of any unresolved issues or claims will not result in a material change to our financial position or results of operations.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management believes that it is more likely than not that IHC and its subsidiaries, and AMIC, will realize the benefits of these net deferred tax assets recorded at December 31, 2011. As of December 31, 2011, IHC and its subsidiaries, and AMIC, believe there were no material uncertain tax positions that would require disclosure under U.S. GAAP.

Interest expense and penalties for the years ended December 31, 2011, 2010 and 2009 are insignificant.

Net cash (receipts) payments for income taxes were $(3,626,000), $637,000 and $2,393,000 in 2011, 2010 and 2009, respectively.