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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | CICA International, a wholly-owned subsidiary of Citizens, is considered a controlled foreign corporation for federal income tax purposes. As a result, the insurance activity of CICA International is subject to Subpart F of the IRC and is included in Citizens’ taxable income. Due to the 0% enacted tax rate in Bermuda there are no deferred taxes recorded for CICA International's temporary differences. For both of the years ended December 31, 2022 and 2021, the Subpart F income inclusion generated $2.1 million of federal income tax expense. CICA PR, a wholly-owned subsidiary of Citizens, was formed in September 2022. CICA PR is considered a controlled foreign corporation for federal income tax purposes. CICA PR's insurance activity will be subject to Subpart F of the IRC and included in Citizens' taxable income. CICA PR's activity for the current period is immaterial to the financial statements as it was not operational until 2023. A reconciliation between the U.S. corporate income tax rate and the effective income tax rate is as follows:
Years ended December 31, (In thousands, except for %) | 2022 |  | % |  | 2021 |  | % |  |  |  |
Expected tax expense (benefit) | $ | (1,484) |  |  | 21.0 | % |  | $ | (1,404) |  |  | 21.0 | % |  |  |  |
Change in valuation allowance | 1 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Foreign income tax rate differential | 151 |  |  | (2.1) |  |  | (2,912) |  |  | 43.5 |  |  |  |  |
Tax-exempt interest and dividends-received deduction | (63) |  |  | 0.9 |  |  | (114) |  |  | 1.7 |  |  |  |  |
Adjustment of prior year taxes | — |  |  | — |  |  | (61) |  |  | 0.9 |  |  |  |  |
Effect of uncertain tax position | (1,185) |  |  | 16.8 |  |  | (43,834) |  |  | 655.4 |  |  |  |  |
Nondeductible costs to remediate tax compliance issue | — |  |  | — |  |  | (176) |  |  | 2.6 |  |  |  |  |
Compensation limitation under 162(m) and 280(g) | 67 |  |  | (0.9) |  |  | (21) |  |  | 0.3 |  |  |  |  |
Subpart F income | 2,053 |  |  | (29.1) |  |  | 2,102 |  |  | (31.4) |  |  |  |  |
Rate differential on net operating loss carryback claim | — |  |  | — |  |  | 295 |  |  | (4.4) |  |  |  |  |
Goodwill impairment | — |  |  | — |  |  | 2,651 |  |  | (39.6) |  |  |  |  |
Other | 31 |  |  | (0.5) |  |  | (1) |  |  | — |  |  |  |  |
Total federal income tax expense (benefit) | $ | (429) |  |  | 6.1 | % |  | $ | (43,475) |  |  | 650.0 | % |  |  |  |
Income tax expense (benefit) consists of:
Years ended December 31, (In thousands) | 2022 |  | 2021 |  |
Income tax expense (benefit): |  |  |  |  |
Current - normal operations | $ | 632 |  |  | (68) |  |  |
Current - UTP release impact | (1,185) |  |  | (43,834) |  |  |
Deferred | 124 |  |  | 427 |  |  |
Total income tax expense (benefit) | $ | (429) |  |  | (43,475) |  |  |
The components of deferred federal income taxes are as follows:
December 31, (In thousands) | 2022 |  | 2021
Deferred tax assets: |  |  |
Future policy benefit reserves | $ | 2,632 |  |  | 2,572 |
Net operating and capital loss carryforwards | 388 |  |  | 1,545 |
Accrued policyholder dividends and expenses | 134 |  |  | 115 |
Investments | 113 |  |  | 218 |
Deferred intercompany loss | 1,744 |  |  | 1,848 |
Unrealized losses on investments available-for-sale | 11,688 |  |  | — |
Accrued compensation | 360 |  |  | 337 |
Lease liability | 2,124 |  |  | 2,274 |
Other | 440 |  |  | 236 |
Total gross deferred tax assets | 19,623 |  |  | 9,145 |
Less: |  |  |
Valuation allowance | 4,238 |  |  | — |
Net deferred tax assets | 15,385 |  |  | 9,145 |
Deferred tax liabilities: |  |  |
DAC, COIA and intangible assets | (8,571) |  |  | (8,955) |
Unrealized gains on investments available-for-sale | — |  |  | (10,350) |
Tax reserves transition liability | (2,242) |  |  | (2,989) |
Right-of-use lease asset | (2,124) |  |  | (2,274) |
Other | (34) |  |  | (33) |
Total gross deferred tax liabilities | (12,971) |  |  | (24,601) |
Net deferred tax asset (liability) | $ | 2,414 |  |  | (15,456) |
A summary of the changes in the components of deferred federal and state income taxes is as follows:
December 31, (In thousands) | 2022 |  | 2021
Deferred federal and state income taxes: |  |  |
Balance January 1, | $ | (15,456) |  |  | (9,564) |
Deferred tax benefit (expense) | (124) |  |  | (427) |
Investments available-for-sale | 21,770 |  |  | (5,709) |
Change in valuation allowance | (4,238) |  |  | — |
Effects of unrealized gains on DAC, COIA and reserves | 462 |  |  | 244 |
Balance December 31, | $ | 2,414 |  |  | (15,456) |
The Company and our subsidiaries have net operating loss carryforwards of $0.9 million at December 31, 2022. The Company and our subsidiaries have capital loss carryforwards of $0.9 million at December 31, 2022, which begin expiring in 2026. At December 31, 2022, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety. Thus, the Company holds a $4.2 million valuation allowance in other comprehensive income (loss) at December 31, 2022. We did not hold any valuation allowances at December 31, 2021. The Company recognizes only the impact of tax positions that, based on their technical merits, are more likely than not to be sustained upon an audit by the taxing authority. A reconciliation of unrecognized tax benefits is as follows:
Years ended December 31, (In thousands) | 2022 |  | 2021 |  |
Balance at January 1, | $ | 2,156 |  |  | 45,990 |  |  |
Additions for tax positions of prior years | — |  |  | — |  |  |
Reductions for tax positions of prior years | (1,185) |  |  | (43,834) |  |  |
Balance December 31, | $ | 971 |  |  | 2,156 |  |  |
This unrecognized tax benefit is reported net in current federal income tax payable on the consolidated balance sheets. Included in these amounts are interest expense of $0.2 million and $0.4 million with respect to unrecognized tax benefits as of December 31, 2022 and 2021, respectively. The Company’s unrecognized tax benefits at December 31, 2022 would affect the effective tax rate if recognized. The Company accrued an uncertain tax position of $2.2 million at December 31, 2021. However, the Company released $1.2 million of this uncertain tax position, including interest, during the fourth quarter of 2022 following the expiration of the statute of limitations on the tax year ended December 31, 2018. The Company believes it is reasonably possible that the remaining uncertain tax benefits will decrease within the next twelve months. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. In the consolidated statements of operations and comprehensive income (loss), the amount of interest income recorded was $0.2 million and $9.5 million for the years ended December 31, 2022 and 2021, respectively. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in response to the COVID-19 pandemic. The CARES Act, among other things, permitted net operating losses incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. During the year ended December 31, 2021, the Company was able to claim a net refund for taxes paid in preceding years as a result of the CARES Act. As of December 31, 2022, the Company has an accrued tax refund remaining of $1.5 million. The Consolidated Appropriations Act was enacted on December 27, 2020 and the American Rescue Plan Act of 2021 was enacted March 11, 2021. These Acts did not have a material impact on the Company's financial statements. The Company's Federal income tax return is filed on a consolidated basis with the following entities: Citizens, Inc. CICA Life Insurance Company of America Citizens National Life Insurance Company Magnolia Guaranty Life Insurance Company Security Plan Life Insurance Company Security Plan Fire Insurance Company Computing Technology, Inc. The method of tax allocation among companies is subject to a written tax sharing agreement, approved by the Board of Directors, whereby allocation is made primarily on a separate return basis pursuant to the wait-and-see method. Under this method, consolidated group members are not given current credit or refunds for net operating losses until taxable income on a separate return basis is generated. Intercompany tax balances are settled at least annually. The Company and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various U.S. states. Our subsidiaries are subject to examination by U.S. tax authorities for tax years 2014 - 2016 and 2019 - 2021.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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