Federal Tax

Taxation of Domestic Insurance Companies (Portfolio 201)

  • Taxation of Domestic Insurance Companies addresses the tax rules that explain how insurance companies are taxed under federal law and summarizes the rules that determine life insurance company taxable income (LICTI).

Description

Tax Management Portfolio, Taxation of Domestic Insurance Companies, No. 201, provides the content needed to understand how insurance companies are taxed under Subchapter L, and examines other Code provisions that have an impact.The Portfolio explains the various tax rules that apply to domestic insurance companies, including provisions found in the Code, Treasury Regulations, other government pronouncements, and court decisions. It covers common interpretations that can assist when the law is not complete, provides historical context, and breaks out key concepts that apply to many of the tax rules for domestic insurance companies.

In addition, the Portfolio discusses:

  •  Special tax rules involving reinsurance transactions and deferred acquisition cost (DAC) rules under §848
  •  The tax rules of specific items that influence LICTI, including reserves, separate accounts, policyholder dividends, and proration rules
  •  The taxation of property and casualty and other nonlife insurers
  •  Special tax issues that influence the tax treatment of insurance companies
  •  Tax benefits provided to Blue Cross/Blue Shield organizations taxable under §833 and certain HMOs
  •  Corporate tax issues unique to insurance companies, including the life-nonlife consolidated return rules

Note: This Portfolio only addresses the domestic tax treatment of insurance companies. Provisions that relate to foreign insurance companies and transactions of U.S. insurance companies outside of the United States are not included.

Table of Contents

I. Separate Tax Rules for Insurance Companies

A. Unique Characteristics of Insurance Companies
B. Applying Characteristics of Insurance Companies to Tax Policy Goals

II. Insurance

A. In General
B. Self-Insurance and Captive Insurers
C. Characterization of Other Arrangements and Contracts
D. Commercial-Type Insurance

III. Insurance Companies: Organization and Operation

A. Definition of an Insurance Company
B. Qualification as Insurance Company
C. Changes, Rehabilitation, and Termination

IV. Life Insurance Company Taxable Income

A. Insurance Company Taxable Income
B. Accounting Rules

V. Reinsurance Transactions and DAC

A. Reinsurance Transactions
B. Section 845
C. Deferred Acquisition Costs Under §848

VI. Life Insurance Company Reserves

A. The Need for Life Insurance Company Reserve Rules
B. The Definition of Life Insurance Reserves – §816(b)
C. Reserve Computation Rules
D. Special Adjustments to Reserves

VII. Separate Accounts

A. In General
B. Diversification Requirements
C. Applying Subchapter L to Variable Contracts
D. Modified Guaranteed Contracts

VIII. Policyholder Dividends

A. Section 808
B. Prior §809 

IX. Proration

A. Tax-Exempt Interest
B. Dividend Distributions – §805(a)(4)

X. Property and Casualty Insurance Companies

A. Taxable Income
B. Other Property and Casualty Insurance Companies

XI. Special Health Insurance Providers

A. In General
B. Blue Cross and Blue Shield Organizations
C. Tax-Exempt HMOs

XII. Corporate Taxation of Insurance Companies

A. Special Corporate Tax Rules for Insurance Companies
B. Life-Nonlife Consolidated Return Rules

Table of Worksheets

Emanuel Burstein
Emanuel Burstein
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