INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

4. INCOME TAXES

The valuation allowance against deferred taxes is a sensitive accounting estimate.  The Company follows the guidance of ASC 740, “Income Taxes,” which prescribes the liability method of accounting for deferred income taxes.  Under the liability method, companies establish a deferred tax liability or asset for the future tax effects of temporary differences between book and tax basis of assets and liabilities.

FASB ASC Topic 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The recognition threshold is based on a determination of whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.  Management believes the Company has no material uncertain income tax provisions at December 31, 2011 or 2010.

The Company’s Federal income tax returns are periodically audited by the Internal Revenue Service (“IRS”).  In February 2011, the federal income tax return for 2009 of UTG underwent an IRS examination.  The examination was closed with no adjustments to the return.  There is no examination ongoing currently, nor is management aware of any pending examination by the IRS.  The statutes of limitation for the assessments of additional tax are closed for all tax years prior to 2008.  Management believes that adequate provision has been made in the consolidated financial statements for any potential assessments that may result from future tax examinations and other tax-related matters for all open tax years.

At December 31, 2011 and 2010, respectively, the Company had gross deferred tax assets of $2,879,079 and $3,243,631, and gross deferred tax liabilities of $16,624,830 and $16,624,909, resulting from temporary differences primarily related to the life insurance subsidiaries.  Allowances are established as a result of uncertainty in the Company’s ability to utilize the loss carryforwards which is dependent on generating sufficient taxable income prior to expiration of the loss carryforward.  The Company has not experienced any reductions of deferred tax assets due to the lapse of applicable statute of limitations.

The Company classifies interest and penalties on underpayment of income taxes as income tax expense.  No interest or penalties were included in the reported income taxes for the years presented.  Tax years 2008 to current remain subject to examination.  The Company has no agreements of extension of the review period currently in effect.  The Company is not aware of any potential or proposed changes to any of its tax filings.

The companies of the group file separate federal income tax returns except for ACAP, AC, and Imperial Plan, which file a consolidated life/non-life federal income tax return.  Beginning in 2012, AC and Imperial Plan will also file separate federal income tax returns as a result of the merger of ACAP during 2011.

Life insurance company taxation is based primarily upon statutory results with certain special deductions and other items available only to life insurance companies.  Income tax expense (benefits) consists of the following components:

		2011		2010
Current tax	$	5,296,407	$	2,710,769
Deferred tax		(4,030,745)		(432,524)
	$	1,265,662	$	2,278,245

The expense for income differed from the amounts computed by applying the applicable United States statutory rate of 35% before income taxes as a result of the following differences:

		2011		2010
Tax computed at statutory rate	$	2,719,131	$	3,731,405
Changes in taxes due to:
Valuation allowance		0		(147,521)
Non-controlling interest		(65,334)		(276,185)
Small company deduction		(623,767)		(986,502)
Other		(764,368)		(42,952)
Income tax expense (benefit)	$	1,265,662	$	2,278,245

The following table summarizes the major components that comprise the deferred tax liability as reflected in the balance sheets:

		2011		2010
Investments	$	5,519,570	$	4,751,156
Cost of insurance acquired		4,496,193		4,927,048
Deferred policy acquisition costs		170,893		194,935
Management/consulting fees		(70,554)		(80,381)
Future policy benefits		2,447,327		2,671,913
Deferred gain on sale of subsidiary		2,312,483		2,312,483
Other liabilities		(120,039)		(304,229)
Federal tax DAC		(1,010,122)		(1,091,647)
Deferred tax liability	$	13,745,751	$	13,381,278