NOTE 12 – INCOME TAXES

The following table reconciles the statutory federal income tax rate to the Company’s effective tax rate for the periods presented:


	For the years ended December 31,
	2013			2012			2011
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Increases (decreases) resulting from:
Disallowed meals & entertainment		0.4	%		0.6	%		0.6	%
Disallowed compensation		2.3	%		3.2	%		2.3	%
Fines and penalties		0.4	%		—			—
True-up of prior year tax returns		(0.6	%)		—			—
State income tax, net of federal tax benefit (1)		3.6	%		3.6	%		3.6	%
Other, net (2)		0.2	%		(0.1	%)		(1.1	%)

Effective tax rate		41.3	%		42.3	%		40.4	%

(1)	Included in income tax is Florida income tax at a statutory rate of 5.5%.

(2)	For 2011, other represents true-ups recorded upon completion of prior years tax returns, partially offset by estimates of penalties and interest for current year underpayment of estimated taxes.

Deferred income taxes represent the temporary differences between the GAAP and tax basis of the Company’s assets and liabilities. The tax effects of temporary differences are as follows as of the periods presented (in thousands):


	As of December 31,
	2013			2012
Deferred income tax assets:
Unearned premiums	$	10,976		$	11,430
Advanced premiums		1,742			1,132
Unpaid losses and LAE		2,598			3,449
Regulatory assessments		345			2,447
Share-based compensation		1,459			3,048
Accrued wages		255			778
Allowance for uncollectible receivables		172			205
Additional tax basis of securities		45			573
Change in unrealized losses on investments		—			2,782
Capital loss carryforwards		1,149			—

Total deferred income tax assets		18,741			25,844

Deferred income tax liabilities:
Deferred policy acquisition costs, net		(6,133	)		(6,666	)
Prepaid expenses		(548	)		—
Other comprehensive income		(9	)		—

Total deferred income tax liabilities		(6,690	)		(6,666	)

Net deferred income tax asset	$	12,051		$	19,178

A valuation allowance is deemed unnecessary as of December 31, 2013 and 2012, respectively, because management believes it is probable that the Company will generate taxable income sufficient to realize the tax benefits associated with the net deferred income tax asset shown above in the near future.

Liabilities for unrecognized tax benefits, if any, are recorded in accordance with issued FASB guidance on Accounting for Uncertainty in Income Taxes. The Company recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

The Company filed a consolidated federal income tax return for the fiscal years ended December 31, 2012, 2011, and 2010 and intends to file the same for the year ended December 31, 2013. The tax allocation agreements between the Company and the Insurance Entities provide that they will incur income taxes based on a computation of taxes as if they were stand-alone taxpayers. The computations are made utilizing the financial statements of the Insurance Entities prepared on a statutory basis of accounting and prior to consolidating entries which include the conversion of certain balances and transactions of the statutory financial statements to a U.S. GAAP basis.

Tax years that remain open for purposes of examination of its income tax liability due to taxing authorities, include the years ended December 31, 2012, 2011 and 2010.