Note 15: Income Tax

The provision for income taxes includes these components:





A reconciliation of income tax expense at the federal statutory rate to actual tax expense is shown below:





The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 reducing the Company’s federal corporate tax rate from 34% to 21%, effective January 1, 2018.  At December 31, 2017, the Company has substantially completed its accounting for the tax effects of enactment of the Tax Act. For deferred tax assets and liabilities, amounts were remeasured based on the rates expected to reverse in the future, which is now 21%. Based on this new law, we recorded an additional tax expense of $2.0 million due to the revaluation of the company’s deferred tax asset.  The Company continues to analyze certain aspects of the Tax Act and further refinements are possible, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. We do not expect these adjustments to materially impact our financial statements.

The components of the net deferred tax asset included on the consolidated balance sheets at December 31, were as follows:





The Company has unused business income tax credits of $2.1 million that will begin to expire in 2029 and a state net operating loss carryover of $17.9 million that will begin to expire in 2023.  In addition, the Company has an AMT credit carryover of $1.4 million with an unlimited carryover period.    Management believes that the Company will be able to utilize the benefits recorded for the state loss carryforwards and federal credits within the allotted time periods, except for the amount represented by the valuation allowance. The valuation allowance has been recorded for the possible inability to use a portion of the state net operating loss carryover.

Retained earnings include approximately $14.7 million for which no deferred income tax liability has been recognized.  This amount represents an allocation of income to bad debt deductions as of December 31, 1987 for tax purposes only.  Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which income would be subject to the then-current corporate income tax rate.  The unrecorded deferred income tax liability on the above amounts was approximately $3.1 million at December 31, 2017.



The Company’s federal and state income tax returns have been closed without audit by the IRS through the year ended December 31, 2013.