Note 10. Income Taxes

12 Months Ended

Dec. 31, 2014

Notes

Note 10. Income Taxes

Note 10.          Income Taxes

IHC and its subsidiaries file a consolidated Federal income tax return on a June 30 fiscal year. Prior to January 15, 2013, AMIC and its subsidiaries filed a separate consolidated Federal income tax return on a September 30 fiscal year. The provision for income tax expense (benefit) attributable to income from operations, as shown in the Consolidated Statements of Income, is as follows for the years indicated (in thousands):

		2014		2013		2012
CURRENT:
U.S. Federal	$	20	$	(1,500)	$	2,555
State and Local		743		1,206		648
		763		(294)		3,203
DEFERRED:
U.S. Federal		5,317		8,805		(1,188)
State and Local		311		(113)		(12)
		5,628		8,692		(1,200)
	$	6,391	$	8,398	$	2,003

            Taxes computed at the Federal statutory rate of 35% in 2014, 2013 and 2012, attributable to pretax income, are reconciled to the Company's actual income tax expense as follows for the years indicated (in thousands):

		2014		2013		2012
Tax computed at the statutory rate	$	8,159	$	8,279	$	8,615
Dividends received deduction and tax
exempt interest		(1,384)		(849)		(1,336)
State and local income taxes, net of Federal effect		685		710		414
Health insurance excise tax		696		-		-
Health insurer compensation limit		661		-		-
AMIC valuation allowance adjustment		(2,500)		-		(5,900)
Other, net		74		258		210
Income tax expense	$	6,391	$	8,398	$	2,003

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, 2014 and 2013 are summarized below (in thousands). 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, 2014 or 2013. The net deferred tax asset relative to AMIC included in other assets on IHC’s Consolidated Balance Sheets at December 31, 2014 and 2013 was $11,517,000 and $10,689,000, respectively.

		2014		2013
DEFERRED TAX ASSETS:
Deferred insurance policy acquisition costs	$	754	$	484
Unrealized losses on investment securities		54		5,398
Investment write-downs		222		222
Loss carryforwards		102,478		109,463
Insurance reserves		366		392
Other		5,790		7,222
Total gross deferred tax assets		109,664		123,181
Less AMIC valuation allowance		(73,849)		(76,911)
Net deferred tax assets		35,815		46,270
DEFERRED TAX LIABILITIES:
Deferred insurance policy acquisition costs		(10,712)		(10,376)
Insurance reserves		(6,856)		(6,183)
Unrealized gains on investment securities		(78)		-
Other		(12,702)		(13,805)
Total gross deferred tax liabilities		(30,348)		(30,364)
Net deferred tax asset	$	5,467	$	15,906

As of December 31, 2014, IHC and its non-life subsidiaries, excluding AMIC, had NOL carryforwards arising from limitations on offsetting non-life insurance company losses against life insurance company income. The non-life insurance company Federal NOL carryforwards amount to approximately $24,418,000 at December 31, 2014, which expire in varying amounts between 2029 and 2032. Madison National Life had Federal NOL carryforwards of approximately $4,392,000 at December 31, 2014 expiring in 2033 and 2034.

At December 31, 2014, AMIC had Federal NOL carryforwards of approximately $263,985,000 which expire in varying amounts through the year 2028 with a significant portion expiring in 2020. 

AMIC’s valuation allowance at December 31, 2014 and 2013 was primarily related to net operating loss carryforwards that, in the judgment of management, were not considered realizable. During the years ended December 31, 2014 and 2013, AMIC decreased its valuation allowance by $3,062,000 and $1,661,000, respectively. The valuation allowance decrease in the year ended December 31, 2014 included $2,500,000 for the projected utilization of Federal net operating losses allocated to 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, 2014. As of December 31, 2014, 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, 2014, 2013 and 2012 are insignificant.

Net cash payments (receipts) for income taxes were $(2,448,000), $(387,000) and $550,000 in 2014, 2013 and 2012, respectively.