Income Taxes
The provision for income taxes is comprised of the following:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Current | | $ | 84,445 |
| | $ | 32,031 |
| | $ | 76,842 |
|
Deferred | | (167,059 | ) | | 53,481 |
| | 21,682 |
|
Total income tax provision | | $ | (82,614 | ) | | $ | 85,512 |
| | $ | 98,524 |
|
The following table presents a reconciliation between the statutory federal income tax rate and the Company’s effective federal income tax rate:
|
| | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Statutory federal income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
Income tax effect of: | | |
| | |
| | |
|
Federal tax rate change resulting from tax reform
| | (61.4 | )% | | — | % | | — | % |
Investment income not subject to federal tax | | (4.3 | )% | | (3.0 | )% | | (3.0 | )% |
Tax credits | | (0.3 | )% | | (6.9 | )% | | (0.2 | )% |
State income taxes, net of federal benefit | | 2.3 | % | | 2.3 | % | | 3.2 | % |
Other, net | | (0.1 | )% | | (0.4 | )% | | (0.9 | )% |
Effective federal income tax rate | | (28.8 | )% | | 27.0 | % | | 34.1 | % |
On December 22, 2017, H.R. 1, the Tax Reconciliation Act (the “Act”), was enacted. The legislation, which is generally effective for tax years beginning on January 1, 2018, represents significant U.S. tax reform and revises the Internal Revenue Code by, among other items, lowering the federal corporate income tax rate from 35% to 21% and modifying how the U.S. taxes multinational entities.
The decrease in the federal corporate income tax rate caused the Company to revalue its deferred tax balances at the new 21% rate, resulting in the recognition of a $175,842 deferred tax benefit and a 61.4% decrease to the Company’s 2017 overall effective income tax rate. The impact of tax reform recognized in Accumulated Other Comprehensive Income was $78,145. This balance was transferred to Retained Earnings on the Balance Sheet.
A reconciliation of unrecognized tax benefits is as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Balance, beginning of year | | $ | 17,268 |
| | $ | 23,093 |
| | $ | 26,890 |
|
Additions to tax positions in the current year | | 13,461 |
| | — |
| | 1,383 |
|
Additions to tax positions in the prior year | | — |
| | 1,902 |
| | 50 |
|
Reductions to tax positions from statutes expiring | | — |
| | (7,727 | ) | | (5,230 | ) |
Balance, end of year | | $ | 30,729 |
| | $ | 17,268 |
| | $ | 23,093 |
|
There were no tax benefits included in the unrecognized tax benefits of $30,729 at December 31, 2017, that would impact the annual effective tax rate. The Company anticipates a decrease in its unrecognized tax benefits of $8,000 to $10,000 in the next twelve months, primarily due to changes in the composition of the consolidated group.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in current income tax expense. The Company recognized an increase of $553 and decreases of $153, and $193 in interest and penalties related to the uncertain tax positions during the years ended December 31, 2017, 2016, and 2015, respectively. The Company had approximately $1,417 and $864 accrued for the payment of interest and penalties at December 31, 2017, and 2016, respectively.
The Company files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations by tax authorities for years 2013 and prior. Tax years 2014 through 2016 are open to federal examination by the I.R.S. The Company does not expect significant increases or decreases to unrecognized tax benefits relating to federal, state, or local audits.
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. The tax effect of temporary differences, which give rise to the deferred tax assets and liabilities, is as follows: |
| | | | | | | | | | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
| | Deferred | | Deferred | | Deferred | | Deferred |
| | tax asset | | tax liability | | tax asset | | tax liability |
Policyholder reserves | | $ | — |
| | $ | 146,294 |
| | $ | — |
| | $ | 278,632 |
|
Deferred acquisition costs | | — |
| | 20,405 |
| | — |
| | 28,071 |
|
Investment assets | | — |
| | 185,940 |
| | — |
| | 233,583 |
|
Policyholder dividends | | 5,244 |
| | — |
| | 8,583 |
| | — |
|
Net operating loss carryforward | | 32,662 |
| | — |
| | 96,693 |
| | — |
|
Pension plan accrued benefit liability | | 51,289 |
| | — |
| | 83,562 |
| | — |
|
Goodwill | | — |
| | 23,287 |
| | — |
| | 35,306 |
|
Experience rated refunds | | 9,988 |
| | — |
| | 6,654 |
| | — |
|
Tax credits | | 169,692 |
| | — |
| | 168,597 |
| | — |
|
Other | | 13,848 |
| | — |
| | 19,592 |
| | — |
|
Total deferred taxes | | $ | 282,723 |
| | $ | 375,926 |
| | $ | 383,681 |
| | $ | 575,592 |
|
The deferred tax amounts presented above with respect to investments, future policy benefits, and deferred acquisition costs include $141,458 and $172,405 related to amounts recognized through other comprehensive income at December 31, 2017, and 2016, respectively.
The Company, together with certain of its subsidiaries, and Lifeco U.S. have entered into an income tax allocation agreement whereby Lifeco U.S. files a consolidated federal income tax return. Under the agreement, these companies are responsible for and will receive the benefits of any income tax liability or benefit computed on a separate tax return basis.
As of December 31, 2017, the subsidiaries had net operating loss carry forwards expiring as follows:
|
| | | | |
Year | | Amount |
2023 | | 65,209 |
|
2028 | | 2,215 |
|
Total | | $ | 67,424 |
|
During the years ended December 31, 2017, 2016, and 2015, the Company generated $120, $215, and $3,295 of Guaranteed Federal Low Income Housing tax credit carryforwards, respectively. As of December 31, 2017, the total credit carryforward for Low Income Housing is $142,089. These credits will begin to expire in 2030.
The Company generated $3,474 of foreign tax credit during the year ended December 31, 2017. During the years ended December 31, 2010 through December 31, 2016, the Company generated credit carryforwards of $23,984. The Company determined in 2016 to amend its prior year previously filed federal income tax returns in order to elect to claim foreign tax credits in lieu of foreign tax expense. These credits will begin to expire in 2020.
Included in due from parent and affiliates at December 31, 2017, and 2016 is $41,694 and $35,093, respectively, of income taxes receivable primarily from Lifeco U.S. related to the consolidated income tax return filed by the Company and certain subsidiaries.
Included in the consolidated balance sheets at December 31, 2017, and 2016 is $5,845 and $7,819, respectively, of income taxes receivable in other assets primarily related to the separate state income tax returns filed by certain subsidiaries.