Company: FMFG
Filing Date: 2025-03-13
Form Type: 10-K
Source: 0001437749-25-007333
Chunk: 33

Company: Farmers & Merchants Bancshares, Inc.
Filing Date: 2025-03-13
Form: 10-K
Item: Item 1
Chunk 33
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, no assurance can be given that our efforts were or will be successful. If we are unable to achieve these benefits, then we will likely suspend the operations of the Insurance Subsidiary.

It should be noted that the operation by financial holding companies of captive insurance companies having a structure similar to the Insurance Subsidiary and FCBI is a relatively new development. If we are not able to successfully manage the Insurance Subsidiary, then our financial condition and/or results of operations could be materially and adversely impacted.

Certain of our U. S. consolidated federal income tax returns are currently being audited.

In April 2018, we were notified by the IRS that our 2016 U. S. consolidated federal tax return was selected for audit. In April 2020, we were notified by the IRS that our 2017 and 2018 U. S. consolidated federal tax returns had also been selected for audit. As part of its audits, the IRS reviewed the deductions related to, and the income generated by, the Insurance Subsidiary. Following the completion of its audits, the IRS determined that it disagreed with our tax treatment of the Insurance Subsidiary in 2016, 2017 and 2018, and we have appealed such determination. Management cannot predict whether our appeal and defense of our tax positions will be successful. If our appeal is not successful, then we could be required to pay taxes, interest, and penalties totaling approximately $2.0 million as of December 31, 2024 for the tax years under audit and our taxable earnings and/or the effective tax rate on our future earnings could increase substantially, any of which could have a material adverse effect on our business, financial condition and results of operations. See Note 11 to the consolidated financial statements presented elsewhere in this report for further information about this risk.

In August 2023, the IRS notified us that our 2019 and 2020 U. S. consolidated federal tax returns had been selected for audit. In January 2023, the IRS notified us that our 2021 U. S. consolidated federal tax return had also been selected for audit. Management believes that the Insurance Subsidiary is the focus of these audits, but that might not be the case. Management cannot predict whether any of the tax positions taken in our 2019, 2020 or 2021 returns will be challenged by the IRS or, if challenged, whether we will be successful in defending those tax positions. If we