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## CITIZENS, INC. 

## GEOGRAPHIC INFORMATION 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(Continued) 

The following table sets forth the Company's annual total of earned premiums from geographic area for the years indicated: 

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## (9) INCOME TAXES 

Beginning in 2018, the statutory tax rate is 21%. Due to the reduced statutory tax rate under the Tax Cuts and Jobs Act ("Tax Act"), we were required to remeasure our deferred tax assets and liabilities using the lower rate at December 22, 2017, the date of enactment. This re- measurement resulted in a reduction of net deferred tax assets of $35.7 million, which includes a $4.7 million benefit related to deferred taxes previously recognized in accumulated other comprehensive income. In accordance with the SEC's Staff Accounting Bulletin No. 118 ("SAB 118"), the Company recorded provisional amounts related to the impacts of the Tax Act as of December 31, 2017, including but not limited to the change in corporate tax rate and immediate expensing of certain capital assets. During 2018, the provisional amounts were adjusted and finalized during the measurement period allowed by SAB 118 and had an immaterial impact on the 2018 income tax expense. 

CICA Ltd., 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 Ltd. is subject to Subpart F of the IRC and is included in Citizens’ taxable income and due to the 0% enacted tax rate in Bermuda there are no deferred taxes recorded for CICA Ltd.'s temporary differences. For the years ended December 31, 2019 and 2018, the Subpart F income inclusion generated $5.9 million and $18.4 million of federal income tax expense, respectively. The December 31, 2018 Subpart F income inclusion was largely driven by the impact of the novation transaction. The novation transaction also resulted in somewhat offsetting adjustments to the current tax liability for CICA, notably an increased amortization of DAC under Section 848 of the IRC, a reduction of premium income and a release of the $50.8 million uncertain tax position related to tax reserves on product qualification issues. 

Our federal income tax expense was $7.1 million, $13.1 million and $35.1 million in 2019, 2018 and 2017, respectively. This represents effective tax rates of 126.0%, 652.6% and (1,176.9)%, respectively. The high positive rate in 2018 was primarily due to the large Subpart F income inclusion following the novation transaction. The high negative effective tax rate in 2017 was primarily related to remeasurement of deferred income taxes under the Tax Act reform which went into effect on December 22, 2017. 

