Income Taxes
Income tax expense (benefit) consists of:
|
| | | | | | | | | |
| Current | | Deferred | | Total |
Year ended March 31, 2017 | | | | | |
U.S. Federal | $ | 34,930,677 |
| | (14,658 | ) | | 34,916,019 |
|
State and local | 3,215,621 |
| | 25,852 |
| | 3,241,473 |
|
Foreign | 3,144,625 |
| | (905,280 | ) | | 2,239,345 |
|
| $ | 41,290,923 |
| | (894,086 | ) | | 40,396,837 |
|
| | | | | |
Year ended March 31, 2016 | |
| | |
| | |
|
U.S. Federal | $ | 44,781,123 |
| | (839,117 | ) | | 43,942,006 |
|
State and local | 4,866,596 |
| | 169,985 |
| | 5,036,581 |
|
Foreign | 1,630,565 |
| | (116,245 | ) | | 1,514,320 |
|
| $ | 51,278,284 |
| | (785,377 | ) | | 50,492,907 |
|
| | | | | |
Year ended March 31, 2015 | |
| | |
| | |
|
U.S. Federal | $ | 61,284,205 |
| | (3,524,067 | ) | | 57,760,138 |
|
State and local | 6,112,487 |
| | (411,543 | ) | | 5,700,944 |
|
Foreign | 1,631,605 |
| | 104,193 |
| | 1,735,798 |
|
| $ | 69,028,297 |
| | (3,831,417 | ) | | 65,196,880 |
|
Income tax expense was $40,396,837, $50,492,907 and $65,196,880, for the years ended March 31, 2017, 2016 and 2015, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income from continuing operations as a result of the following:
|
| | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Expected income tax | $ | 39,898,996 |
| | 48,260,962 |
| | 61,610,618 |
|
Increase (reduction) in income taxes resulting from: | |
| | |
| | |
|
State tax, net of federal benefit | 2,106,957 |
| | 3,273,778 |
| | 3,705,614 |
|
Insurance income exclusion | — |
| | — |
| | (73,826 | ) |
Uncertain tax positions | (1,015,222 | ) | | 1,624,865 |
| | 1,914,990 |
|
State tax adjustment for amended returns | 238,301 |
| | (370,659 | ) | | — |
|
Foreign income adjustments | (332,023 | ) | | (257,873 | ) | | (1,453,438 | ) |
Other, net | (500,172 | ) | | (2,038,166 | ) | | (507,078 | ) |
| $ | 40,396,837 |
| | 50,492,907 |
| | 65,196,880 |
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2017 and 2016 are presented below:
|
| | | | | | |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 28,125,727 |
| | 27,116,483 |
|
Unearned insurance commissions | 12,419,811 |
| | 12,840,362 |
|
Accrued expenses primarily related to employee benefits | 15,849,041 |
| | 13,743,022 |
|
Reserve for uncollectible interest | 1,125,188 |
| | 1,192,215 |
|
Other | — |
| | 259,822 |
|
| | | |
Gross deferred tax assets | 57,519,767 |
| | 55,151,904 |
|
Less valuation allowance | (1,274 | ) | | (1,274 | ) |
Net deferred tax assets | 57,518,493 |
| | 55,150,630 |
|
| | | |
Deferred tax liabilities: | |
| | |
|
Fair value adjustment for loans receivable | (9,450,239 | ) | | (9,269,247 | ) |
Property and equipment | (3,560,296 | ) | | (2,945,625 | ) |
Intangible assets | (2,341,393 | ) | | (2,050,975 | ) |
Deferred net loan origination costs | (1,985,387 | ) | | (1,977,619 | ) |
Prepaid expenses | (977,906 | ) | | (776,182 | ) |
Other | (178,203 | ) | | — |
|
Gross deferred tax liabilities | (18,493,424 | ) | | (17,019,648 | ) |
| | | |
Deferred income taxes, net | $ | 39,025,069 |
| | 38,130,982 |
|
The valuation allowance for deferred tax assets as of March 31, 2017, and 2016 was $1,274. The valuation allowance against the total deferred tax assets as of March 31, 2017, and 2016 relates to the state of Colorado net operating losses in the amount of $54,318 which expires in 2025. 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 periods in which those temporary differences become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets governed by the tax code. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the related temporary differences are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2017. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.
The Company is required to assess whether the earnings of the Company's Mexican foreign subsidiary will be permanently reinvested in the respective foreign jurisdiction or if previously untaxed foreign earnings of the Company will no longer be permanently reinvested and thus become taxable in the United States. If these earnings were ever repatriated to the United States, the Company would be required to accrue and pay taxes on the cumulative undistributed earnings. As of March 31, 2017, the Company has determined that approximately $26.1 million of cumulative undistributed net earnings, as well as the future net earnings, of the Mexican foreign subsidiaries will be permanently reinvested. At March 31, 2017, there was an unrecognized taxable temporary difference in the amount of $8.2 million related to investment in the Mexican subsidiaries.
As of March 31, 2017, 2016 and 2015, the Company had $8.9 million, $10.7 million and $8.6 million of total gross unrecognized tax benefits including interest, respectively. Of these totals, approximately $7.2 million, $8.2 million and $6.6 million, respectively, represents the amount of net unrecognized tax benefits that are permanent in nature and, if recognized, would affect the annual effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits at March 31, 2017, 2016 and 2015 are presented below:
|
| | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Unrecognized tax benefit balance beginning of year | $ | 9,395,413 |
| | 7,621,327 |
| | 5,810,712 |
|
Gross increases for tax positions of current year | (237,746 | ) | | 783,265 |
| | 2,209,048 |
|
Gross increases for tax positions of prior years | 637,166 |
| | 1,798,505 |
| | — |
|
Settlements with tax authorities | (2,403,982 | ) | | — |
| | — |
|
Lapse of statute of limitations | (125,885 | ) | | (807,684 | ) | | (398,433 | ) |
Unrecognized tax benefit balance end of year | $ | 7,264,966 |
| | 9,395,413 |
| | 7,621,327 |
|
At March 31, 2017, approximately $4.4 million of gross unrecognized tax benefits are expected to be resolved during the next 12 months through settlements with taxing authorities or the expiration of the statute of limitations. The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of March 31, 2017 and 2016, the Company had $1,641,916 and $1,312,129 accrued for gross interest, respectively, of which $658,891, $599,136, and $474,484 represented the current period expense for the periods ended March 31, 2017, 2016, and 2015.
The Company is subject to U.S. and Mexican income taxes, as well as various other state and local jurisdictions. With the exception of a few states, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013, although carryforward attributes that were generated prior to 2013 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.