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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | CICA International and CICA Bermuda, wholly-owned subsidiaries of Citizens, are considered controlled foreign corporations for federal income tax purposes. As a result, the insurance activity of CICA International and CICA Bermuda are subject to Subpart F of the Internal Revenue Code ("IRC") and are included in Citizens’ taxable income. Due to the 0% enacted tax rate in Bermuda, there are no deferred taxes recorded for CICA Bermuda's temporary differences. CICA International has applied for a tax exemption decree from the Government of Puerto Rico which will freeze the income tax rate at 4% on any taxable earnings in excess of $1.2 million. For the year ended December 31, 2023, the Subpart F income inclusion generated $1.6 million of federal income tax expense and $2.1 million of federal income tax expense for the years ended December 31, 2022 and 2021. In connection with the transfer of CICA Bermuda’s business from a zero tax jurisdiction to CICA International’s 4% tax jurisdiction in Puerto Rico, certain opening tax assets and liabilities, mainly related to investments, DAC and reserves, were established. The net deferred tax asset of $1.4 million was recorded to retained earnings during 2023 in accordance with ASC Topic 805. 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 %) | 2023 |  | % |  | 2022 |  | % |  | 2021 |  | %
Expected tax expense (benefit) | $ | 5,497 |  |  | 21.0 | % |  | $ | 5,749 |  |  | 21.0 | % |  | $ | 6,406 |  |  | 21.0 | %
Change in valuation allowance | — |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — | %
Foreign income tax rate differential | (5,029) |  |  | (19.2) |  |  | (5,260) |  |  | (19.2) |  |  | (9,427) |  |  | (30.9) |
Tax-exempt interest and dividends-received deduction | (35) |  |  | (0.1) |  |  | (63) |  |  | (0.2) |  |  | (114) |  |  | (0.4) |
Adjustment of prior year taxes | — |  |  | — |  |  | — |  |  | — |  |  | (83) |  |  | (0.3) |
Effect of uncertain tax position | (971) |  |  | (3.7) |  |  | (1,185) |  |  | (4.3) |  |  | (43,834) |  |  | (143.7) |
Nondeductible costs to remediate tax compliance issue | — |  |  | — |  |  | — |  |  | — |  |  | (176) |  |  | (0.6) |
Compensation limitation under 162(m) and 280(g) | 80 |  |  | 0.3 |  |  | 67 |  |  | 0.2 |  |  | (21) |  |  | (0.1) |
Subpart F income | 1,595 |  |  | 6.1 |  |  | 2,053 |  |  | 7.5 |  |  | 2,102 |  |  | 6.9 |
PFIC QEF inclusions | 570 |  |  | 2.2 |  |  | — |  |  | — |  |  | — |  |  | — |
Puerto Rico income tax exclusion | (48) |  |  | (0.2) |  |  | — |  |  | — |  |  | — |  |  | — |
Rate differential on net operating loss carryback claim | — |  |  | — |  |  | — |  |  | — |  |  | 290 |  |  | 1.0 |
Goodwill impairment | — |  |  | — |  |  | — |  |  | — |  |  | 2,651 |  |  | 8.7 |
Other | 78 |  |  | 0.2 |  |  | 8 |  |  | — |  |  | 5 |  |  | — |
Total federal income tax expense (benefit) | $ | 1,737 |  |  | 6.6 | % |  | $ | 1,370 |  |  | 5.0 | % |  | $ | (42,201) |  |  | (138.4) | %
Income tax expense (benefit) consists of:
Years ended December 31, (In thousands) | 2023 |  | 2022 |  | 2021
Income tax expense (benefit): |  |  |  |  |
Current - normal operations | $ | 1,848 |  |  | 632 |  |  | (68) |
Current - UTP release impact | (971) |  |  | (1,185) |  |  | (43,834) |
Deferred | 860 |  |  | 1,923 |  |  | 1,701 |
Total income tax expense (benefit) | $ | 1,737 |  |  | 1,370 |  |  | (42,201) |
The components of deferred federal income taxes are as follows:
December 31, (In thousands) | 2023 |  | 2022
Deferred tax assets: |  |  |
Future policy benefit reserves | $ | 739 |  |  | — |
Net operating and capital loss carryforwards | 353 |  |  | 388 |
Accrued policyholder dividends and expenses | 218 |  |  | 134 |
Investments | — |  |  | 113 |
Deferred intercompany loss | 1,780 |  |  | 1,744 |
Unrealized losses on investments available-for-sale | 12,786 |  |  | 11,688 |
Accrued compensation | 379 |  |  | 360 |
Lease liability | 1,895 |  |  | 2,124 |
Fixed assets | 249 |  |  | 237 |
Other | 270 |  |  | 203 |
Total gross deferred tax assets | 18,669 |  |  | 16,991 |
Less: |  |  |
Valuation allowance | 4,468 |  |  | 4,238 |
Net deferred tax assets | 14,201 |  |  | 12,753 |
Deferred tax liabilities: |  |  |
DAC, COIA and intangible assets | (11,556) |  |  | (10,274) |
Future policy benefit reserves | — |  |  | (1,756) |
Unrealized gains on investments available-for-sale | (322) |  |  | — |
Tax reserves transition liability | (1,494) |  |  | (2,242) |
Right-of-use lease asset | (1,895) |  |  | (2,124) |
Other | (36) |  |  | (10) |
Total gross deferred tax liabilities | (15,303) |  |  | (16,406) |
Net deferred tax liability | $ | (1,102) |  |  | (3,653) |
A summary of the changes in the components of deferred federal and state income taxes is as follows:
December 31, (In thousands) | 2023 |  | 2022
Deferred federal and state income taxes: |  |  |
Balance January 1, | $ | (3,653) |  |  | 5,533 |
Deferred tax benefit (expense) | (860) |  |  | (1,923) |
Investments available-for-sale | 2,424 |  |  | 21,770 |
Change in valuation allowance | (230) |  |  | (4,238) |
Effects of unrealized gains (losses) on reserves | 1,217 |  |  | (24,795) |
Balance December 31, | $ | (1,102) |  |  | (3,653) |
The Company and our subsidiaries have no net operating loss carryforwards at December 31, 2023. The Company and our subsidiaries have capital loss carryforwards of $1.6 million at December 31, 2023, which begin expiring in 2026. At December 31, 2023 and 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 valuation allowances of $4.5 million and $4.2 million in other comprehensive income (loss) at December 31, 2023 and 2022. 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) | 2023 |  | 2022 |  | 2021
Balance January 1, | $ | 971 |  |  | 2,156 |  |  | 45,990 |
Reductions for tax positions of prior years | (971) |  |  | (1,185) |  |  | (43,834) |
Balance December 31, | $ | — |  |  | 971 |  |  | 2,156 |
This unrecognized tax benefit was reported in the balance of 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. There are no unrecognized tax benefits remaining as of December 31, 2023. The Company accrued an uncertain tax position of $1.0 million and $2.2 million at December 31, 2022 and 2021, respectively, which would have affected the effective tax rate if recognized. However, the Company released all of the remaining uncertain tax positions, including interest, during the fourth quarter of 2023 following the expiration of the statute of limitations on the tax year ended December 31, 2019. 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, $0.2 million and $9.5 million for the years ended December 31, 2023, 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, 2022, 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, 2023, the Company has an accrued tax refund remaining of $1.5 million. The American Rescue Plan Act of 2021 was enacted March 11, 2021 and the Inflation Reduction Act was enacted on August 16, 2022. 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 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 ending after December 31, 2019.

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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 -Topic 946 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Publisher FASB -URI https://asc.fasb.org//1943274/2147480990/946-20-50-13 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//740/tableOfContent Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 14 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-14 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 21 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-21 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 270 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482526/740-270-50-1 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 17 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482685/740-10-50-17 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-1 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 10 -Name Accounting Standards Codification -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479360/740-10-S99-2 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 740 -SubTopic 30 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147482603/740-30-50-2 + Details
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