Income Tax Disclosure [Text Block]

12 Months Ended

Dec. 31, 2017

Notes

Income Tax Disclosure

Note 12.Income Taxes 

IHC and its subsidiaries file a consolidated Federal income tax return on a June 30 fiscal year.

The provision for income tax expense (benefit) attributable to income from continuing operations, as shown in the Consolidated Statements of Income, is as follows for the years indicated (in thousands):

		2017		2016		2015
CURRENT:
U.S. Federal	$	(4,077)	$	4,637	$	14,278
State and Local		29		473		1,012
		(4,048)		5,110		15,290
DEFERRED:
U.S. Federal		(9,780)		4,390		673
State and Local		34		55		(59)
		(9,746)		4,445		614
	$	(13,794)	$	9,555	$	15,904

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

		2017		2016		2015
Tax computed at the statutory rate	$	9,918	$	11,223	$	15,357
Dividends received deduction and tax
exempt interest		(423)		(641)		(796)
State and local income taxes, net of Federal effect		42		331		619
Subsidiary stock basis write-off		(11,589)		(3,903)		-
Health insurance excise tax		-		146		526
Health insurer compensation limit		192		594		379
Impact of enacted tax reform		9,402		-		-
AMIC valuation allowance adjustment		(20,261)		-		-
Sharebased compensation		(867)		-		-
Other, net		(208)		1,805		(181)
Income tax expense	$	(13,794)	$	9,555	$	15,904

As a result of the winding down of operations and dissolution of IHC Administrative Services, Inc. (“IHC AS”), a subsidiary of IHC, in 2017, the Company recognized an estimated $11,589,000 income tax benefit on a worthless stock deduction of $33,110,000 representing the Company’s tax basis in its unrecovered investment in IHC AS. In 2016, as a result of the dissolution of Health Plan Administrators, Inc. (“HPA”), a subsidiary of IHC, income tax benefits of approximately $3,903,000 were also recognized on a worthless stock deduction of $11,150,000 representing the Company’s tax basis in its unrecovered investment in HPA.

On December 22, 2017, President Trump enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the Federal corporate income tax rate from 35% to 21%. We are required to recognize the income tax effect of a change in tax rates in the period the tax rate change was enacted. As the result of IHC’s June 30 fiscal tax year, the Tax Act subjects IHC to a blended tax rate of 28% for its fiscal tax year ended June 30, 2018. Due to IHC’s NOL carryforward position at December 31, 2017, there was no impact of the Tax Act’s blended tax rate on current income tax expense for the year ended December 31, 2017. The Company recorded a one-time, non-cash charge to deferred income tax expense of $9,402,000 for the year ended December 31, 2017.

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, 2017 and 2016 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 and its subsidiaries, considered the reversal of deferred tax liabilities and projected future taxable income in determining that a valuation allowance was not necessary on their deferred tax assets at December 31, 2017 or 2016. The net deferred tax asset relative to AMIC and its subsidiaries included in other assets on IHC’s Consolidated Balance Sheets at December 31, 2017 and 2016 was $18,602,000 and $15,427,000, respectively.

		2017		2016
DEFERRED TAX ASSETS:
Unrealized losses on investment securities	$	1,222	$	3,851
Investment write-downs		48		596
Loss carryforwards		30,928		50,735
Other		1,938		4,322
Total gross deferred tax assets		34,136		59,504
Less AMIC valuation allowance		(9,394)		(35,918)
Net deferred tax assets		24,742		23,586
DEFERRED TAX LIABILITIES:
Deferred insurance policy acquisition costs		(105)		(114)
Insurance reserves		(3,252)		(4,947)
Goodwill and intangible assets		(4,115)		(5,274)
Other		(1,625)		(4,097)
Total gross deferred tax liabilities		(9,097)		(14,432)
Net deferred tax asset	$	15,645	$	9,154

As of December 31, 2017, IHC, excluding AMIC and its subsidiaries, had a Federal NOL carryforward of approximately $338,000 at December 31, 2017, which expires in 2037.

At December 31, 2017, AMIC and its subsidiaries had Federal SRLY NOL carryforwards of approximately $144,830,000, which expire in varying amounts through the year 2034, with a significant portion expiring in 2020. As a result of the Risk Solutions Sale and Coinsurance Transaction (see Note 3), AMIC utilized approximately $109,055,000 of its operating loss carryforwards in 2016.

In 2017, the Company decreased AMIC’s valuation allowance by $20,261,000 for an increase in projected income and associated utilization of Federal net operating losses allocated to operations and by $6,263,000 as a result of the change in enacted tax rates. AMIC’s valuation allowance at December 31, 2017 and 2016 was primarily related to net operating loss carryforwards that, in the judgment of management, were not considered realizable.

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, including AMIC and its subsidiaries, will realize the benefits of these net deferred tax assets recorded at December 31, 2017. As of December 31, 2017, IHC and its subsidiaries, and AMIC and its subsidiaries, 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, 2017, 2016 and 2015 are insignificant. Tax years ending June 30, 2014 and forward are subject to examination by the Internal Revenue Service. The Company’s 2015 consolidated income tax return was selected for examination by the Internal Revenue Service.

Net cash payments (receipts) for income taxes were $397,000, $12,585,000 and $10,974,000 in 2017, 2016 and 2015, respectively.