Income Tax Disclosure [Text Block]

12 Months Ended

Dec. 31, 2019

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):

		2019		2018
CURRENT:
U.S. Federal	$	4,498	$	3,897
State and Local		729		528
		5,227		4,425
DEFERRED:
U.S. Federal		8,334		4,077
State and Local		(902)		(14)
		7,432		4,063
	$	12,659	$	8,488

Taxes computed at the Federal statutory rate of 21% attributable to pretax income for the years ended December 31, 2019 and 2018, respectively, are reconciled to the Company's actual income tax expense (benefit) as follows for the years indicated (in thousands):

		2019		2018
Tax computed at the statutory rate	$	5,323	$	7,884
Dividends received deduction and tax exempt interest		(128)		(187)
State and local income taxes, net of Federal effect		(132)		406
Health insurer compensation limit		583		665
Impact of enacted tax reform		-		1,190
AMIC valuation allowance adjustment		7,900		-
Share-based compensation		(993)		(844)
Other, net		106		(626)
Income tax expense (benefit)	$	12,659	$	8,488

In 2019, the Company increased AMIC’s valuation allowance by $7,900,000 to reflect a decrease in projected income and associated utilization of Federal net operating losses. This is largely due to the reorganization of the Specialty Health segment into specialty health and pet divisions, and the expansion of our D2C and tech-enabled operations in 2019, which reduced expected income over the remaining period that AMIC’s net operating loss carryforwards are available to offset income.

As a result of IHC’s June 30 fiscal tax year, the Tax Cuts and Jobs Act (the “Tax Act”) subjected IHC to a blended tax rate of 28% for its fiscal tax year ended June 30, 2018 causing a difference of $1,190,000 in expected tax expense (calculated using a statutory rate of 21%) for the calendar year ended December 31, 2018.

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, 2019 and 2018 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.

		2019		2018
DEFERRED TAX ASSETS:
Unrealized losses on investment securities	$	-	$	2,210
Investment write-downs		48		48
Loss carryforwards		23,612		25,708
Other		3,323		2,005
Total gross deferred tax assets		26,983		29,971
Less AMIC valuation allowance		(17,212)		(9,394)
Net deferred tax assets		9,771		20,577
DEFERRED TAX LIABILITIES:
Insurance reserves		(2,459)		(2,801)
Goodwill and intangible assets		(2,341)		(3,583)
Unrealized gains on investment securities		(338)		-
Other		(688)		(1,564)
Total gross deferred tax liabilities		(5,826)		(7,948)
Net deferred tax asset	$	3,945	$	12,629

At December 31, 2019, AMIC and its subsidiaries had Federal net operating loss carryforwards of approximately $114,531,000, which expire in varying amounts through the year 2034, with a significant portion expiring in 2020, and are limited in their utilization to future taxable income earned on a separate company basis.

AMIC’s valuation allowance at December 31, 2019 and 2018 is related to net operating loss carryforwards that, in the judgment of management, were not considered realizable. 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, 2019 or 2018.

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, 2019. As of December 31, 2019, 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, 2019 and 2018 are insignificant. Tax years ending June 30, 2016 and forward are subject to examination by the Internal Revenue Service. The Internal Revenue Service has completed its review of the Company’s 2015 consolidated income tax return with no changes in the Company’s reported tax, however, the New York State Department of Taxation and Finance has recently selected the Company’s 2015 and 2016 income tax returns for audit.

Net cash payments for income taxes were $966,000 and $1,303,000 in 2019 and 2018, respectively.