Entity information:
7.
Federal Income Taxes
 
FTFC files a consolidated federal income tax return with FTCC but does
not
file a consolidated tax return with TLIC or FBLIC. TLIC and FBLIC are taxed as life insurance companies under the provisions of the Internal Revenue Code. Life insurance companies must file separate tax returns until they have been a member of the consolidated filing group for
five
years. However, in
201
7
and
2016,
TLIC and FBLIC filed combined life insurance company
2016
and
2015
federal tax returns and intend to also file a combined life insurance company
2017
federal tax return for TLIC and FBLIC in
2018.
 
Certain items included in income reported for financial statement purposes are
not
included in taxable income for the current period, resulting in deferred income taxes.
 
A reconciliation
of federal income tax expense (benefit) computed by applying the federal income tax rate of
34
%
to income before federal income tax expense for the years ended
December 31, 2017
and
2016
is summarized as follows:
 
   
Years Ended December 31
,
  
   
201
7
    
201
6
  
Expected tax expens
e
   $
796,580
     $
822,726
  
                 
Net operating losse
s
    
649,460
      
(690,905
 )
Loss contingency accrued for lawsuit settlemen
t
    
385,331
      
-
  
Capital gain taxe
s
    
185,461
      
72,249
  
Future policy benefit
s
    
151,017
      
282,062
  
Value of life insurance business acquire
d
    
108,773
      
53,111
  
Deferred policy acquisition cost
s
    
(611,407
 )    
(651,873
 )
Small life insurance company deductio
n
    
(153,956
 )    
(62,303
 )
Accrual of discoun
t
    
(68,679
 )    
(183,393
 )
Adjustment of prior years' taxe
s
    
(23,068
 )    
(15,075
 )
Difference in book versus tax basis of available-for-sale fixed maturity securitie
s
    
(7,273
 )    
159,763
  
Othe
r
    
(38,720
 )    
42,681
  
                 
Total income tax expense (benefit
)
   $
1,373,519
     $
(170,957
 )
 
 
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company
’s deferred tax liabilities and assets as of
December 31, 2017
and
2016
are summarized as follows:
 
   
December 31
,
  
   
201
7
    
201
6
  
Deferred tax liabilities
:
                
Net unrealized investment gain
s
   $
1,265,569
     $
204,668
  
Available-for-sale fixed maturity securitie
s
    
89,439
      
232,889
  
Deferred policy acquisition cost
s
    
4,317,272
      
2,944,563
  
Reinsurance recoverabl
e
    
249,822
      
251,788
  
Investment real estat
e
    
38,700
      
35,940
  
Value of insurance business acquire
d
    
1,160,595
      
1,181,767
  
Due premium
s
    
26,036
      
25,914
  
Other asset
s
    
6,962
      
5,819
  
Othe
r
    
2,363
      
3,798
  
Total deferred tax liabilitie
s
    
7,156,758
      
4,887,146
  
Deferred tax assets
:
                
Policyholders' account balances and future policy benefit
s
    
2,308,001
      
1,965,397
  
Policy claim
s
    
13,993
      
25,983
  
Unearned investment incom
e
    
12,941
      
9,491
  
Available-for-sale equity securitie
s
    
51,554
      
48,945
  
Mortgage loan
s
    
42,175
      
7,578
  
Alternative minimum tax carryforwar
d
    
305,538
      
276,571
  
Net operating loss carryforwar
d
    
1,057,511
      
1,843,238
  
Net capital loss carryforwar
d
    
8,925
      
14,450
  
Dividend liabilit
y
    
10,823
      
10,652
  
Loss contingency accrued for lawsuit settlemen
t
    
385,331
      
-
  
Othe
r
    
6,962
      
5,821
  
Total deferred tax asset
s
    
4,203,754
      
4,208,126
  
Valuation allowanc
e
    
(8,925
 )    
(14,450
 )
Net deferred tax asset
s
    
4,194,829
      
4,193,676
  
Net deferred tax liabilitie
s
   $
2,961,929
     $
693,470
  
 
FTFC has net operating loss carryforwards of
$5,035,767
expiring in
2024
through
2033.
FTFC has capital loss carryforwards of
$42,500
expiring in
2018
that are subject to a full valuation allowance as of
December 31, 2017
and
2016
since it is
not
probable that the capital loss carryforwards will be utilized. During
2017,
FTFC utilized
$284,560
of the net operating loss carryforward existing as of
January 1, 2017
to offset
2017
federal taxable income. During
2016,
FTFC utilized
$299,347
of the net operating loss carryforward existing as of
January 1, 2016
to offset
2016
federal taxable income.
 
Due to FTFC
’s taxable income generated in
2017,
2016,
2015
and
2014
and FTFC’s projected taxable income in future years, the valuation allowance on FTFC’s net operating loss carryforward was reduced by
$1,699,953
during
2016
since it is probable the entire net operating loss carryforwards will be utilized.
 
 
 
During
201
7,
TLIC utilized the remaining
$116,225
net operating loss carryforwards originated from the acquisition of FLAC and existing as of
January 1, 2017
to offset a portion of
2017
federal taxable income. During
2016,
TLIC utilized
$135,000
of the net operating loss carryforward existing as of
January 1, 2016
to offset a portion of
2016
federal taxable income.
 
During
2017,
FBLIC utilized the remaining
$55,409
net operating loss carry forwards generated in
2016
and existing as of
January 1, 2017
to offset a portion of
2017
federal taxable income.
 
The Company has
no
known uncertain tax benefits within its provision for income taxes
beyond the
$1,834,910
loss contingency accrued for a lawsuit settlement. In addition, the Company does
not
believe it would be subject to any penalties or interest relative to any open tax years and, therefore, have
not
accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions.  The
2015
through
2017
U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.