Note 15 – Income Taxes

The components of income taxes for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

 

The Company’s income tax expense differed from the statutory federal rate of 35% for the years ended December 31, 2017, 2016 and 2015 as follows (in thousands):

 

Deferred tax assets (liabilities), net in the accompanying consolidated balance sheets as of December 31, 2017 and 2016 include the following amounts of deferred tax assets and liabilities (in thousands):

At December 31, 2017 and 2016, the accumulation of prior year’s earnings representing tax bad debt deductions was approximately $3.1 million for both years. If these tax bad debt reserves were charged for losses other than bad debt losses, the Company would be required to recognize taxable income in the amount of the charge. It is not expected that such tax‑restricted retained earnings will be used in a manner that would create federal income tax liabilities.

The Company had $70.1 million of federal net operating loss carryforwards expiring 2021 through 2034, $64.3 million of Illinois post-apportioned net operating loss carryforwards expiring 2022 through 2026, and $70.1 million of Missouri pre-apportioned net operating loss carryforwards expiring 2021 through 2034, at December 31, 2017. The utilization of the federal and Missouri net operating losses are subject to the limitations of IRC Section 382.

The Company has a federal alternative minimum tax credit carryforward of $3.7 million that can be carried forward indefinitely which became a refundable credit with the enactment of the Tax Cuts and Jobs Act on December 22, 2017. As of December 31, 2017 this credit is not reflected in deferred tax assets and is presented in income taxes receivable.

The Company has state tax credit carryforwards of $1.9 million with a five year carryforward period, and expiring between 2018 and 2022. Any amounts that are expected to expire before being fully utilized have been accounted for through a valuation allowance as discussed below.

As a result of the enactment of the Tax Cuts and Jobs Act (“H.R.1”) on December 22, 2017, the Company was required to write down deferred tax assets by $4.5 million.  Following the guidance of SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), the write down of the deferred tax assets was determined using reasonable estimates for certain effects of tax reform and has recorded the amount of the write down as a provisional amount. The Company continues to analyze H.R.1, including the impact on equity investments in partnerships, as well as the acquisition accounting of Centrue Financial Corporation, and expects any refinements to the provisional amounts to be made after the tax returns are complete but no later than December 22, 2018, which is the end of the one year measurement period under SAB 118.

We had no unrecognized tax benefits as of December 31, 2017 and 2016, and did not recognize any increase of unrecognized benefits during 2017 relative to any tax positions taken during the year.

Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in other income or expense; no such accruals existed as of December 31, 2017 and 2016.

Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. The Company has concluded, based on all available evidence, a valuation allowance is needed for the Company’s deferred tax asset related to state tax credit carryforwards.  A valuation allowance of $409,000 was established for the state tax credit carryforwards. For the Company’s remaining deferred tax assets, based on our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences.

The Company is subject to U.S. federal income tax as well as income tax of various states. Years that remain open for potential review by the Internal Revenue Service are 2014 through 2016 and for state taxing authorities are 2013 through 2016.