[Federal Register Volume 65, Number 4 (Thursday, January 6, 2000)]
[Rules and Regulations]
[Pages 701-710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8857]
RIN 1545-AU60
Determination of Underwriting Income
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the
determination of underwriting income by insurance companies other than
life insurance companies. In computing underwriting income, non-life
insurance companies are required to reduce by 20 percent their
deductions for increases in unearned premiums. This requirement was
enacted as part of the Tax Reform Act of 1986. These regulations
provide guidance to non-life insurance companies for purposes of
determining the amount of unearned premiums that are subject to the 20
percent reduction rule.
DATES: The regulations are effective January 5, 2000.
FOR FURTHER INFORMATION CONTACT: Gary Geisler, (202) 622-3970 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
[[Page 702]]
Background
On January 2, 1997, the IRS published in the Federal Register a
notice of proposed rulemaking (REG-209839-96, 1997-1 C.B. 780 [62 FR
72]) proposing amendments to the Income Tax Regulations (26 CFR part 1)
under section 832(b) of the Internal Revenue Code. The IRS received a
number of written comments on the proposed regulations. On April 30,
1997, the IRS held a public hearing on the proposed regulations. After
consideration of all written and oral comments regarding the proposed
regulations, those regulations are adopted as revised by this Treasury
decision.
Explanation of Revisions and Summary of Comments Underwriting
Income
A non-life insurance company's underwriting income equals its
premiums earned on insurance contracts during the taxable year less its
losses incurred on insurance contracts and its expenses incurred.\1\
See section 832(b)(3). To compute premiums earned, the company starts
with the gross premiums written on insurance contracts during the
taxable year, subtracts return premiums and premiums paid for
reinsurance, and makes an adjustment to reflect the change in its
unearned premiums over the course of the taxable year. See section
832(b)(4). This computation results in premiums being recognized in
underwriting income over the term of the insurance contract, rather
than in the taxable year in which the premiums are billed or received
from the policyholder.
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\1\ For this purpose, expenses incurred generally refers to the
expenses reported on the company's annual statement approved by the
National Association of Insurance Commissioners (NAIC) and filed for
state insurance regulatory purposes, less expenses incurred which
are not allowed as deductions under section 832(c). See section
832(b)(6). Expenses incurred generally include premium acquisition
expenses attributable to unearned premiums on insurance contracts.
Prior to 1987, 100 percent of the change in unearned premiums
during the taxable year was taken into account as an increase or
decrease to written premiums in computing premiums earned. This
treatment ``generally reflect[ed]'' the accounting conventions (often
referred to as ``statutory accounting principles'') used to prepare a
non-life insurance company's annual statement for state insurance
regulatory purposes. See 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d
Sess. II-354 (1986), 1986-3 C.B. (Vol. 4) 354; S. Rep. No. 313, 99th
Cong., 2d Sess. 495 (1986), 1986-3 C.B. (Vol. 3) 495, H.R. Rep. No.
426, 99th Cong., 1st Sess. 668 (1985), 1986-3 C.B. (Vol. 2) 668.
Because unearned premiums are computed on the basis of the gross
premiums for an insurance contract, the amount of unearned premiums
reflects not only the portion of the gross premium allocable to future
insurance claims but also the portion allocable to the insurance
company's expenses and profit on the insurance contract.
In 1986, Congress determined that deferring unearned premium income
and currently deducting premium acquisition expenses attributable to
unearned premiums resulted in a mismatch of an insurance company's net
income and expense. Congress decided to require a better measurement of
net income for Federal income tax purposes. See H.R. Rep. No. 426,
1986-3 C.B. (Vol. 2) at 669; S. Rep. No. 313, 1986-3 C.B. (Vol. 3) at
496. Rather than defer the deduction for premium acquisition expenses
attributable to unearned premiums, Congress reduced by 20 percent the
adjustment for unearned premiums. For taxable years beginning on or
after January 1, 1993, a non-life insurance company's premiums earned
is an amount equal to: (1) its gross premiums written, less both return
premiums and premiums paid for reinsurance; plus (2) 80 percent of
unearned premiums at the end of the prior taxable year, less 80 percent
of unearned premiums at the end of the current taxable year. Section
832(b)(4). The acceleration of income that is typically generated by
the 20 percent reduction of unearned premiums is intended to be roughly
equivalent to denying current deductibility for the portion of the
insurance company's premium acquisition expenses allocable to the
unearned premiums. See 2 H.R. Conf. Rep. No. 841, 1986-3 C.B. (Vol. 4)
at 354-55; S. Rep. No. 313, 1986-3 C.B. (Vol. 3) at 495-98; H.R. Rep.
No. 426, 1986-3 C.B. (Vol. 2) at 668-70.
Role of the Annual Statement
The proposed regulations provide definitions of the items used to
determine premiums earned under section 832(b)(4) and timing rules for
taking these items into account for Federal income tax purposes. The
treatment provided in the proposed regulations would apply regardless
of the classification or method of reporting the items used on an
insurance company's annual statement.
Several comments questioned whether there is legal authority to
require an insurance company to use a method to calculate premiums
earned for Federal income tax purposes that differs from the method
that the company is permitted to use to calculate premiums earned on
its annual statement. As noted in the preamble to the proposed
regulations, the existing regulations under Sec. 1.832-4(a)(2) state
that the annual statement ``* * * insofar as it is not inconsistent
with the provisions of the Code * * *'' will be recognized and used as
a basis for computing the net income of a non-life insurance company.
Also, if statutory accounting principles permit alternative practices,
one or more of which do not clearly reflect income as defined by the
Code, the company is required for Federal income tax purposes to use a
method that clearly reflects income. Section 446(b) and Sec. 1.446-
1(a)(2).
Gross Premiums Written
The proposed regulations generally define gross premiums written as
the total amounts payable for insurance coverage under insurance or
reinsurance contracts issued or renewed during the taxable year. The
proposed regulations, however, do not address situations where the
amounts charged for insurance coverage may change due to increases or
decreases in coverage limits, additions or deletions in property or
risks covered, changes in location or status of insureds, or other
similar factors.
The final regulations define an insurance company's ``gross
premiums written'' on insurance contracts (which includes premiums
attributable to reinsurance contracts) as amounts payable for insurance
coverage for the effective periods of the contracts. The label placed
on a payment in a contract does not determine whether an amount is a
gross premiums written. The effective period of a contract is the
period over which one or more rates for insurance coverage are
guaranteed in the contract. If a new rate for insurance coverage is
guaranteed after the effective date of an insurance contract, the
making of the guarantee generally is treated as the issuance of a new
insurance contract with an effective period equal to the duration of
the new guaranteed rate for insurance coverage.
Under the final regulations, gross premiums written include: (1)
Additional premiums resulting from increases in risk exposure during
the effective period of an insurance contract; (2) amounts subtracted
from a premium stabilization reserve that are used to pay premiums; and
(3) consideration for assuming insurance liabilities under contracts
not issued by the insurance company (that is, a payment or transfer of
property in an assumption reinsurance transaction).
[[Page 703]]
Gross premiums written, however, do not include other items of gross
income described in section 832(b)(1)(C). To the extent that amounts
paid or payable to an insurance company with respect to an arrangement
are not gross premiums written, the insurance company may not treat
amounts payable to customers with respect to the applicable portion of
such arrangements as losses incurred described in section 832(b)(5).
Method of Reporting Gross Premiums Written
The proposed regulations provide that a non-life insurance company
reports the full amount of gross premiums written for an insurance
contract for the earlier of the taxable year which includes the
effective date of the contract or the year in which all or a portion of
the premium for the contract is received. A variety of comments were
received with respect to the application of this timing rule to
insurance contracts with installment premiums. In response to comments,
the final regulations provide a number of exceptions from the general
rule with respect to when an insurance company reports gross premiums
written.
Advance Premiums
Under the proposed regulations, a non-life insurance company that
receives a portion of the premium for an insurance contract prior to
the effective date of the contract includes the full amount of the
premium in gross premiums written for the taxable year during which the
portion of the premium was received.
Several comments addressed the treatment of advance premiums in the
proposed regulations. One comment endorsed the proposed treatment of
advance premiums, noting that it is proper under statutory accounting
principles to record the full amount of gross premiums written and
expenses incurred with respect to a casualty insurance policy for the
year in which an advance premium is received.\2\ Other comments argued
that since the policyholder may demand a refund of an advance premium
prior to the policy's effective date, the company should be permitted
to treat an advance premium as a nontaxable deposit until such time as
coverage begins under the contract. Alternatively, these comments urged
that the company be permitted to report only the advance premium
(rather than the entire gross premium for the contract) in gross
premiums written for the taxable year of receipt, and to report the
remainder of the gross premium for the taxable year that includes the
contract's effective date. These comments also indicated that companies
generally do not deduct the full amount of premium acquisition expenses
for the contract in the taxable year in which they receive advance
premiums.
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\2\ Prior to 1989, advance premiums were required to be reported
in written premiums and unearned premiums on a non-life insurance
company's annual statement. However, statutory accounting principles
were later modified to permit advance premiums to be accumulated in
a suspense account and reported as a write-in liability on the
annual statement. A company electing to use this alternative
treatment would not report advance premiums in either written
premiums or unearned premiums on its annual statement until the
effective date of the underlying coverage.
In response to comments, the final regulations permit an insurance
company that receives part of the gross premium for an insurance
contract prior to the effective date of the contract to report only the
advance premium (rather than the full amount of the gross premium
written for the contract) in gross premiums written for the taxable
year of receipt. The remainder of the gross premium for the insurance
contract is included in gross premiums written for the taxable year
which includes the effective date of the contract. This method of
reporting gross premiums written is available only if the company's
deduction for premium acquisition expenses attributable to the contract
does not exceed a limitation specified in the regulations, which is
intended to ensure that a company does not deduct premium acquisition
expenses attributable to an insurance contract more rapidly than the
company includes premiums for the insurance contract in its gross
premiums written. Companies that adopt this method of reporting gross
premiums written must use this method for all insurance contracts with
advance premiums.
Accident and Health Insurance Contracts
The proposed regulations have no special rules for determining
gross premiums written with respect to accident and health insurance
contracts. Several comments indicated that the longstanding practice of
insurance companies that issue accident and health insurance contracts
with installment premiums is to include amounts in gross premiums
written for the taxable year in which the installment premiums become
due under the contracts. These comments also stated that companies
generally do not deduct premium acquisition expenses allocable to
installment premiums not yet due or received with respect to accident
and health insurance contracts.
In response to comments, the final regulations permit a non-life
insurance company that either issues or proportionally reinsures
cancellable accident and health insurance contracts with installment
premiums to report the installment premiums in gross premiums written
for the earlier of the taxable year in which the installment premiums
become due under the terms of the contract or the taxable year in which
the installment premiums are received. This method of reporting gross
premiums written for cancellable accident and health insurance
contracts with installment premiums is available only if the company's
deduction for premium acquisition expenses attributable to those
contracts does not exceed the matching limitation specified in the
regulations. Companies that adopt this method of reporting gross
premiums written must use it for all cancellable accident and health
insurance contracts with installment premiums.
Multi-year Contracts With Installment Premiums
The final regulations also provide an exception with respect to the
reporting of gross premiums written for a multi-year insurance contract
for which the gross premium is payable in installments over the
effective period of the contract. Under the final regulations, a
company may treat this type of multi-year insurance contract as a
series of separate insurance contracts. The first insurance contract in
the series will be treated as having an effective period of 12 months.
Subsequent insurance contracts in the series will be treated as having
an effective period equal to the lesser of 12 months or the remainder
of the period for which the rates for insurance coverage are guaranteed
in the multi-year insurance contract. This method of reporting gross
premium written for a multi-year insurance contract with installment
premiums is available only if the company's deduction for premium
acquisition expenses attributable to the contract does not exceed the
matching limitation specified in the regulations. Companies that adopt
this method of reporting gross premiums written for a multi-year
insurance contract must use it for all multi-year contracts with
installment premiums.
Contracts That Give Rise to Life Insurance Reserves
Some insurance companies that are taxable under Part II of
Subchapter L
[[Page 704]]
issue or reinsure risks relating to guaranteed renewable accident and
health insurance contracts or other contracts that give rise to ``life
insurance reserves'' (as defined in section 816(b)). For these
companies, section 832(b)(4) provides that unearned premiums includes
the amount of the company's life insurance reserves, as determined
under section 807. However, under section 832(b)(7), the unearned
premiums for contracts giving rise to life insurance reserves are not
reduced by 20 percent. Instead, an amount of otherwise deductible
expenses equal to a percentage of the net premiums for the contracts
must be capitalized and amortized as specified policy acquisition
expenses under section 848.\3\ For purposes of determining the amount
of specified policy acquisition expenses under section 848, a non-life
insurance company computes net premiums for the contracts in accordance
with section 811(a). See section 848(d)(2). Thus, with respect to
contracts described in section 832(b)(7), a non-life insurance company
does not take into account unpaid premiums attributable to insurance
coverage not yet provided (such as deferred and uncollected premium
installments) in determining the amount of specified policy acquisition
expenses required to be amortized under section 848.
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\3\ Under section 848(e)(5), a contract that reinsures a
contract subject to section 848 is treated in the same manner as the
reinsured contract.
The proposed regulations do not provide special rules for
determining gross premiums written with respect to contracts described
in section 832(b)(7). Under the final regulations, a non-life insurance
company that issues or reinsures the risks related to a contract
described in section 832(b)(7) may report gross premiums written for
the contract in the manner required for life insurance companies under
sections 803 and 811. This method of reporting gross premiums written
for contracts described in section 832(b)(7) is available only if the
company also determines its deduction for premium acquisition expenses
for the contracts in accordance with section 811(a), as adjusted by the
amount required to be amortized under section 848 based on the net
premiums of the contracts. Thus, the final regulations ensure that the
rules for determining premium income and amortizing premium acquisition
expenses for contracts described in section 832(b)(7) operate
consistently, whether the issuing company is a non-life insurance
company or a life insurance company.
Fluctuating Risk Contracts
The method of reporting gross premiums written for certain
insurance contracts covering fluctuating risks is reserved in the
proposed regulations. Some comments requested that the final
regulations not address the method of reporting gross premiums written
for insurance contracts covering fluctuating risks, noting that the
method of recording gross written premiums for these policies for
annual statement reporting purposes was being considered by the NAIC as
part of its project to codify statutory accounting principles.
Subsequently, the NAIC issued guidance permitting an insurance company
for annual statement purposes to report written premiums on workers'
compensation policies (but not on other casualty contracts involving
``fluctuating risks,'' such as commercial automobile liability and
product liability policies) either on the effective date of the
insurance contract or based on installment billings to the
policyholder. By contrast, with respect to other types of casualty
insurance policies, the NAIC reaffirmed the general rule that gross
premiums with respect to these policies must be recorded on the annual
statement on the effective date of the insurance contract.
The final regulations do not permit a non-life insurance company to
report gross premiums written for a fluctuating risk contract based on
installment billings to the policyholder. Rather, the final regulations
require a company generally to report the gross premiums written for
the contract for the earlier of the taxable year which includes the
effective date of the contract or the year in which all or a portion of
the premium for the contract is received, with special rules for
advance premiums, cancellable accident and health contracts, multi-year
insurance contracts, and contracts described in section 832(b)(7). The
company reports any additional premiums resulting from an increase in
risk exposure in gross premiums written for the taxable year in which
the change in risk exposure occurs. Unless the increase in risk
exposure is of temporary duration, the company determines the
additional premium resulting from a change in risk exposure based on
the remainder of the effective period of the contract.
Return Premiums
The proposed regulations define return premiums as amounts (other
than policyholder dividends or claims and benefit payments) paid or
credited to the policyholder in accordance with the terms of an
insurance contract. Under the final regulations, return premiums are
amounts previously included in an insurance company's gross premiums
written, which are refundable to the policyholder (or the ceding
company with respect of a reinsurance agreement) if the amounts are
fixed by the insurance contract and do not depend on the experience of
the insurance company or the discretion of its management. This rule
incorporates a specific definition of policyholder dividends.
The final regulations list a number of items which are included in
return premiums, to the extent they have previously been included in
gross premiums written. These items include: (1) amounts that are
refundable due to policy cancellations or decreases in risk exposure
during the effective period of an insurance contract; (2) the unearned
portion of unpaid premiums for an insurance contract that is canceled
or for which there is a decrease in risk exposure during its effective
period; and (3) amounts that are either refundable or that reflect the
unearned portion of unpaid premiums for an insurance contract, arising
from the redetermination of the premium due to correction of posting or
other similar errors.
In addition, the final regulation provides timing rules for the
deduction of return premiums. If a contract is canceled, the return
premium arising from that cancellation is deducted in the taxable year
in which the contract is canceled. If there is a reduction in risk
exposure under an insurance contract that gives rise to a return
premium, such return premium is deductible in the taxable year in which
the reduction in risk exposure occurs.
Retrospectively Rated Insurance Contracts
The proposed regulations provide that gross written premiums
include an insurance company's estimate of additional premiums (retro
debits) to be received with regard to the expired portion of a
retrospectively rated insurance or reinsurance contract. The proposed
regulations also provide that return premiums include an insurance
company's estimate of amounts to be refunded to policyholders (retro
credits) with regard to the expired portion of a retrospectively rated
insurance or reinsurance contract. The proposed regulations, therefore,
would modify the treatment of retro credits under Sec. 1.832-
4(a)(3)(ii) of the existing regulations, which treat retro credits as
unearned premiums. At the option of the taxpayer, however, the proposed
[[Page 705]]
regulations permit a company to continue to include gross retro credits
(but not gross retro debits) in the amount of unearned premiums subject
to the 20 percent reduction under section 832(b)(4)(B).
A variety of comments were received with respect to the treatment
of retro debits and retro credits in the proposed regulations. Most
comments approved of the proposed rule to modify the treatment of retro
credits in Sec. 1.832-4(a)(3)(ii) and, instead, to permit retro credits
to be accounted for as part of return premiums. Some comments
contended, however, that the method of netting retro debits and retro
credits as an adjustment to unearned premiums was required under NAIC
accounting rules, prior case law, and the Service's published rulings
interpreting Sec. 1.832-4(a)(3)(ii). These comments argued that the
enactment of the 20 percent reduction rule in 1986 did not authorize
the Service to change the items included in unearned premiums,
including the historical treatment of retro debits and retro credits as
part of unearned premiums. Other comments contended that retro debits
(but not retro credits) should be discounted using the applicable
discount factors for unpaid losses under section 846. These comments
argued that there is a direct correlation between amounts reported by
an insurance company as retro debits and the company's related
liabilities for unpaid losses and unpaid loss adjustment expenses.
Therefore, the comments urged that, to achieve proper matching of these
items, a non-life insurance company should be permitted either to
report retro debits as a subtraction from unearned premiums or to
discount the retro debits using the applicable discount factors under
section 846 for the related line of business.
The treatment of retro debits and retro credits in the proposed
regulations was premised on the assumptions that retrospectively rated
arrangements could qualify as insurance contracts for tax purposes, and
that all amounts payable under such arrangements could be considered to
have been paid for insurance coverage. The final regulations provide
that gross premiums are amounts paid for insurance coverage. Similarly,
unearned premiums and return premiums only include amounts included in
gross written premiums. The final regulations also provide that retro
credits are not included in unearned premiums, and retro debits cannot
be subtracted from unearned premiums. The final regulations do not
permit amounts includable in gross premiums written to be discounted,
regardless of when such amounts are paid to the insurance company.
The final regulations do not provide any inference as to whether
some or all of a retrospective arrangement can qualify as an insurance
contract, or as to whether or the extent to which amounts paid or
payable to an insurance company with respect to a retrospective
arrangement are for insurance coverage.
Premium Stabilization Reserves
Several comments asked for clarification of the treatment of
premium stabilization reserves.\4\ As noted below, the final
regulations provide that retro credits are not unearned premiums for
Federal income tax purposes. Thus, retro credits added to premium
stabilization reserves are not unearned premiums for Federal income tax
purposes. The final regulations also provide that amounts withdrawn
from a premium stabilization reserve to pay premiums are included in
gross premiums written for the taxable year in which these amounts are
withdrawn from the stabilization reserve for that purpose.
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\4\ In Rev. Rul. 97-5, 1997-1 C.B. 136, the Service revoked Rev.
Rul. 70-480, 1970-2 C.B. 142, which had held that amounts held by a
non-life insurance company in a premium stabilization reserve funded
by retro credits are not unearned premiums under section 832(b)(4).
Rev. Rul. 97-5 reasoned that the assumption in Rev. Rul. 70-480 that
stabilization reserves are part of the insurance company's surplus
was erroneous.
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Unearned Premiums
The proposed regulations define unearned premiums as the portion of
the gross premiums written that is attributable to future insurance
coverage to be provided under an insurance or reinsurance contract. The
final regulations generally retain the rules relating to unearned
premiums. Consistent with the existing regulations under Sec. 1.801-
4(a), the final regulations provide that an insurance company must
exclude from unearned premiums amounts attributable to the net value of
risks reinsured with, or retroceded to, another insurance company. The
final regulations also provide that unearned premiums do not include a
liability established by an insurance company on its annual statement
to cover premium deficiencies.
The proposed regulations provide that an insurance company may
consider the incidence or pattern of the insured risks in determining
the portion of the gross premium written that is attributable to the
unexpired portion of the insurance coverage. The final regulations
clarify that, if the risk of loss under an insurance contract does not
vary significantly over the effective period of the contract, the
unearned premium attributable to the unexpired portion of the effective
period of the contract is determined on a pro rata basis. However, if
the risk of loss under an insurance contract varies significantly over
the effective period of the contract, the insurance company may
consider the pattern and incidence of the risk in determining the
portion of gross premium which are attributable to the unexpired
portion of the effective period of the contract, provided that the
company maintains sufficient information to demonstrate that its method
of computing unearned premiums accurately reflects the pattern and
incidence of the risk for the insurance contract.
Effective Date and Transition Rules
Under the proposed regulations, the new rules apply to the
determination of premiums earned for insurance contracts issued or
renewed during taxable years beginning after the date on which final
regulations are published in the Federal Register. Several comments
requested that the regulations permit an insurance company to adopt the
new rules for determining premiums earned as a change in method of
accounting deemed made with the Commissioners' consent, with audit
protection for prior years. These comments also urged that the
insurance company be given the option of either implementing the change
in method of accounting on a cut-off basis or spreading the section
481(a) adjustments resulting from the change over a number of years
consistent with the Commissioner's general administrative procedures
when a taxpayer files a request to change a method of accounting under
section 446(e).
In response to these comments, the final regulations permit
taxpayers to change their method of accounting for determining premiums
earned to comply with the final regulations under the automatic change
in method of accounting provisions of Rev. Proc. 99-49, 1999-52 I.R.B.
725, subject to certain limitations. A taxpayer makes the automatic
change in method of accounting on its Federal income tax return for the
first taxable year beginning after December 31, 1999. The scope
limitations in section 4.02 of Rev. Proc. 99-49 do not apply to a
taxpayer's automatic change in method of accounting pursuant to this
regulation. The timely duplicate filing requirement in section 6.02 of
Rev. Proc. 99-49 also
[[Page 706]]
does not apply to this change. If the taxpayer's method of computing
earned premiums was an issue under consideration (within the meaning of
section 3.09 of Rev. Proc. 99-49) on January 5, 2000, however, then the
audit protection rule in section 7.01 of Rev. Proc. 99-49 does not
apply to the taxpayer's change in method of accounting.
Special Analyses
It has been determined that this Treasury Decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and, because
these regulations do not impose on small entities a collection of
information requirement, the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis
is not required. Pursuant to section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking preceding these regulations was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information. The principal author of these regulations is
Gary Geisler, Office of the Assistant Chief Counsel (Financial
Institutions and Products), IRS. However, other personnel from the IRS
and Treasury Department participated in their development.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.832-4 is amended as follows:
1. Paragraph (a)(3) is revised.
2. Paragraphs (a)(4) and (a)(5) are redesignated as paragraphs
(a)(13) and (a)(14).
3. New paragraphs (a)(4) through (a)(12) are added.
The additions and revisions read as follows:
Sec. 1.832-4 Gross income.
(a) * * *
(3) Premiums earned. The determination of premiums earned on
insurance contracts during the taxable year begins with the insurance
company's gross premiums written on insurance contracts during the
taxable year, reduced by return premiums and premiums paid for
reinsurance. Subject to the exceptions in sections 832(b)(7),
832(b)(8), and 833(a)(3), this amount is increased by 80 percent of the
unearned premiums on insurance contracts at the end of the preceding
taxable year, and is decreased by 80 percent of the unearned premiums
on insurance contracts at the end of the current taxable year.
(4) Gross premiums written--(i) In general. Gross premiums written
are amounts payable for insurance coverage. The label placed on a
payment in a contract does not determine whether an amount is a gross
premium written. Gross premiums written do not include other items of
income described in section 832(b)(1)(C) (for example, charges for
providing loss adjustment or claims processing services under
administrative services or cost-plus arrangements). Gross premiums
written on an insurance contract include all amounts payable for the
effective period of the insurance contract. To the extent that amounts
paid or payable with respect to an arrangement are not gross premiums
written, the insurance company may not treat amounts payable to
customers under the applicable portion of such arrangements as losses
incurred described in section 832(b)(5).
(ii) Items included. Gross premiums written include--
(A) Any additional premiums resulting from increases in risk
exposure during the effective period of an insurance contract;
(B) Amounts subtracted from a premium stabilization reserve to pay
for insurance coverage; and
(C) Consideration in respect of assuming insurance liabilities
under insurance contracts not issued by the taxpayer (such as a payment
or transfer of property in an assumption reinsurance transaction).
(5) Method of reporting gross premiums written--(i) In general.
Except as otherwise provided under this paragraph (a)(5), an insurance
company reports gross premiums written for the earlier of the taxable
year that includes the effective date of the insurance contract or the
year in which the company receives all or a portion of the gross
premium for the insurance contract. The effective date of the insurance
contract is the date on which the insurance coverage provided by the
contract commences. The effective period of an insurance contract is
the period over which one or more rates for insurance coverage are
guaranteed in the contract. If a new rate for insurance coverage is
guaranteed after the effective date of an insurance contract, the
making of such a guarantee generally is treated as the issuance of a
new insurance contract with an effective period equal to the duration
of the new guaranteed rate for insurance coverage.
(ii) Special rule for additional premiums resulting from an
increase in risk exposure. An insurance company reports additional
premiums that result from an increase in risk exposure during the
effective period of an insurance contract in gross premiums written for
the taxable year in which the change in risk exposure occurs. Unless
the increase in risk exposure is of temporary duration (for example, an
increase in risk exposure under a workers' compensation policy due to
seasonal variations in the policyholder's payroll), the company reports
additional premiums resulting from an increase in risk exposure based
on the remainder of the effective period of the insurance contract.
(iii) Exception for certain advance premiums. If an insurance
company receives a portion of the gross premium for an insurance
contract prior to the first day of the taxable year that includes the
effective date of the contract, the company may report the advance
premium (rather than the full amount of the gross premium for the
contract) in gross premiums written for the taxable year in which the
advance premium is received. An insurance company may adopt this method
of reporting advance premiums only if the company's deduction for
premium acquisition expenses for the taxable year in which the company
receives the advance premium does not exceed the limitation of
paragraph (a)(5)(vii) of this section. A company that reports an
advance premium in gross premiums written under this paragraph
(a)(5)(iii) takes into account the remainder of the gross premium
written and premium acquisition expenses for the contract in the
taxable year that includes the effective date of the contract. A
company that adopts this method of reporting advance premiums must use
the method for all contracts with advance premiums.
(iv) Exception for certain cancellable accident and health
insurance contracts with installment premiums. If an insurance company
issues or proportionally reinsures a cancellable accident and health
insurance contract
[[Page 707]]
(other than a contract with an effective period that exceeds 12 months)
for which the gross premium is payable in installments over the
effective period of the contract, the company may report the
installment premiums (rather than the total gross premium for the
contract) in gross premiums written for the earlier of the taxable year
in which the installment premiums are due under the terms of the
contract or the year in which the installment premiums are received. An
insurance company may adopt this method of reporting installment
premiums for a cancellable accident and health insurance contract only
if the company's deduction for premium acquisition expenses for the
first taxable year in which an installment premium is due or received
under the contract does not exceed the limitation of paragraph
(a)(5)(vii) of this section. A company that adopts this method of
reporting installment premiums for a cancellable accident and health
contract must use the method for all of its cancellable accident and
health insurance contracts with installment premiums.
(v) Exception for certain multi-year insurance contracts. If an
insurance company issues or proportionally reinsures an insurance
contract, other than a contract described in paragraph (a)(5)(vi) of
this section, with an effective period that exceeds 12 months, for
which the gross premium is payable in installments over the effective
period of the contract, the company may treat the insurance coverage
provided under the multi-year contract as a series of separate
insurance contracts. The first contract in the series is treated as
having been written for an effective period of twelve months. Each
subsequent contract in the series is treated as having been written for
an effective period equal to the lesser of 12 months or the remainder
of the period for which the rates for insurance coverage are guaranteed
in the multi-year insurance contract. An insurance company may adopt
this method of reporting premiums on a multi-year contract only if the
company's deduction for premium acquisition expenses for each year of
the multi-year contract does not exceed the limitation of paragraph
(a)(5)(vii) of this section. A company that adopts this method of
reporting premiums for a multi-year contract must use the method for
all multi-year contracts with installment premiums.
(vi) Exception for insurance contracts described in section
832(b)(7). If an insurance company issues or reinsures the risks
related to a contract described in section 832(b)(7), the company may
report gross premiums written for the contract in the manner required
by sections 803 and 811(a) for life insurance companies. An insurance
company may adopt this method of reporting premiums on contracts
described in section 832(b)(7) only if the company also determines the
deduction for premium acquisition costs for the contract in accordance
with section 811(a), as adjusted by the amount required to be taken
into account under section 848 in connection with the net premiums of
the contract. A company that adopts this method of reporting premiums
for a contract described in section 832(b)(7) must use the method for
all of its contracts described in that section.
(vii) Limitation on deduction of premium acquisition expenses. An
insurance company's deduction for premium acquisition expenses (for
example, commissions, state premium taxes, overhead reimbursements to
agents or brokers, and other similar amounts) related to an insurance
contract is within the limitation of this paragraph (a)(5)(vii) if--
(A) The ratio obtained by dividing the sum of the company's
deduction for premium acquisition expenses related to the insurance
contract for the taxable year and previous taxable years by the total
premium acquisition expenses attributable to the insurance contract;
does not exceed
(B) The ratio obtained by dividing the sum of the amounts included
in gross premiums written with regard to the insurance contract for the
taxable year and previous taxable years by the total gross premium
written for the insurance contract.
(viii) Change in method of reporting gross premiums. An insurance
company that adopts a method of accounting for gross premiums written
and premium acquisition expenses described in paragraph (a)(5)(iii),
(iv), (v), or (vi) of this section must continue to use the method to
report gross premiums written and premium acquisition expenses unless
the company obtains the consent of the Commissioner to change to a
different method under section 446(e) and Sec. 1.446-1(e).
(6) Return premiums--(i) In general. An insurance company's
liability for return premiums includes amounts previously included in
an insurance company's gross premiums written, which are refundable to
a policyholder or ceding company, provided that the amounts are fixed
by the insurance contract and do not depend on the experience of the
insurance company or the discretion of its management.
(ii) Items included. Return premiums include amounts--
(A) Which were previously paid and become refundable due to policy
cancellations or decreases in risk exposure during the effective period
of an insurance contract;
(B) Which reflect the unearned portion of unpaid premiums for an
insurance contract that is canceled or for which there is a decrease in
risk exposure during its effective period; or
(C) Which are either previously paid and refundable or which
reflect the unearned portion of unpaid premiums for an insurance
contract, arising from the redetermination of a premium due to
correction of posting or other similar errors.
(7) Method of reporting return premiums. An insurance company
reports the liability for a return premium resulting from the
cancellation of an insurance contract for the taxable year in which the
contract is canceled. An insurance company reports the liability for a
return premium attributable to a reduction in risk exposure under an
insurance contract for the taxable year in which the reduction in risk
exposure occurs.
(8) Unearned premiums--(i) In general. The unearned premium for a
contract, other than a contract described in section 816(b)(1)(B),
generally is the portion of the gross premium written that is
attributable to future insurance coverage during the effective period
of the insurance contract. However, unearned premiums held by an
insurance company with regard to the net value of risks reinsured with
other solvent companies (whether or not authorized to conduct business
under state law) are subtracted from the company's unearned premiums.
Unearned premiums also do not include any additional liability
established by the insurance company on its annual statement to cover
premium deficiencies. Unearned premiums do not include an insurance
company's estimate of its liability for amounts to be paid or credited
to a customer with regard to the expired portion of a retrospectively
rated contract (retro credits). An insurance company's estimate of
additional amounts payable by its customers with regard to the expired
portion of a retrospectively rated contract (retro debits) cannot be
subtracted from unearned premiums.
(ii) Special rules for unearned premiums. For purposes of computing
``premiums earned on insurance contracts during the taxable year''
under section 832(b)(4), the amount of unearned premiums includes--
[[Page 708]]
(A) Life insurance reserves (as defined in section 816(b), but
computed in accordance with section 807(d) and sections 811(c) and
(d));
(B) In the case of a mutual flood or fire insurance company
described in section 832(b)(1)(D) (with respect to contracts described
in that section), the amount of unabsorbed premium deposits that the
company would be obligated to return to its policyholders at the close
of the taxable year if all its insurance contracts were terminated at
that time;
(C) In the case of an interinsurer or reciprocal underwriter that
reports unearned premiums on its annual statement net of premium
acquisition expenses, the unearned premiums on the company's annual
statement increased by the portion of premium acquisition expenses
allocable to those unearned premiums; and
(D) In the case of a title insurance company, its discounted
unearned premiums (computed in accordance with section 832(b)(8)).
(9) Method of determining unearned premiums. If the risk of loss
under an insurance contract does not vary significantly over the
effective period of the contract, the unearned premium attributable to
the unexpired portion of the effective period of the contract is
determined on a pro rata basis. If the risk of loss varies
significantly over the effective period of the contract, the insurance
company may consider the pattern and incidence of the risk in
determining the portion of the gross premium that is attributable to
the unexpired portion of the effective period of the contract. An
insurance company that uses a method of computing unearned premiums
other than the pro rata method must maintain sufficient information to
demonstrate that its method of computing unearned premiums accurately
reflects the pattern and incidence of the risk for the insurance
contract.
(10) Examples. The provisions of paragraphs (a)(4) through (a)(9)
of this section are illustrated by the following examples:
Example 1. (i) IC is a non-life insurance company which,
pursuant to section 843, files its returns on a calendar year basis.
IC writes a casualty insurance contract that provides insurance
coverage for a one-year period beginning on July 1, 2000 and ending
on June 30, 2001. IC charges a $500 premium for the insurance
contract, which may be paid either in full by the effective date of
the contract or in quarterly installments over the contract's one
year term. The policyholder selects the installment payment option.
As of December 31, 2000, IC collected $250 of installment premiums
for the contract.
(ii) The effective period of the insurance contract begins on
July 1, 2000 and ends on June 30, 2001. For the taxable year ending
December 31, 2000, IC includes the $500 gross premium, based on the
effective period of the contract, in gross premiums written under
section 832(b)(4)(A). IC's unearned premium with respect to the
contract was $250 as of December 31, 2000. Pursuant to section
832(b)(4)(B), to determine its premiums earned, IC deducts $200
($250 x .8) for the insurance contract at the end of the taxable
year.
Example 2. (i) The facts are the same as Example 1, except that
the insurance contract has a stated term of 5 years. On each
contract anniversary date, IC may adjust the rate charged for the
insurance coverage for the succeeding 12 month period. The amount of
the adjustment in the charge for insurance coverage is not
substantially limited under the insurance contract.
(ii) Under paragraph (a)(5)(i) of this section, IC is required
to report gross premiums written for the insurance contract based on
the effective period for the contract. The effective period of the
insurance contract is the period for which a rate for insurance
coverage is guaranteed in the contract. Although the insurance
contract issued by IC has a stated term of 5 years, a rate for
insurance coverage is guaranteed only for a period of 12 months
beginning with the contract's effective date and each anniversary
date thereafter. Thus, for the taxable year ending December 31,
2000, IC includes the $500 gross premium for the 12 month period
beginning with the contract's effective date in gross premiums
written. IC's unearned premium with respect to the contract was $250
as of December 31, 2000. Pursuant to section 832(b)(4)(B), to
determine its premiums earned, IC deducts $200 ($250 x .8) for the
insurance contract at the end of the taxable year.
Example 3. (i) The facts are the same as Example 1, except that
coverage under the insurance contract begins on January 1, 2001 and
ends on December 31, 2001. On December 15, 2000, IC collects the
first $125 premium installment on the insurance contract. For the
taxable year ended December 31, 2000, IC deducts $20 of premium
acquisition expenses related to the insurance contract. IC's total
premium acquisition expenses, based on the insurance contract's $500
gross premium, are $80.
(ii) Under paragraph (a)(5)(iii) of this section, IC may elect
to report only the $125 advance premium (rather than the contract's
$500 gross premium) in gross premiums written for the taxable year
ended December 31, 2000, provided that IC's deduction for the
premium acquisition expenses related to the insurance contract does
not exceed the limitation in paragraph (a)(5)(vii). IC's deduction
for premium acquisition expenses is within this limitation only if
the ratio of the insurance contract's premium acquisition expenses
deducted for the taxable year and any previous taxable year to the
insurance contract's total premium acquisition expenses does not
exceed the ratio of the amounts included in gross premiums written
for the taxable year and any previous taxable year for the contract
to the total gross premium written for the contract.
(iii) For the taxable year ended December 31, 2000, IC deducts
$20 of premium acquisition expenses related to the insurance
contract. This deduction represents 25% of the total premium
acquisition expenses for the insurance contract ($20/$80 = 25%).
This ratio does not exceed the ratio of the $125 advance premium to
the insurance contract's $500 gross premium ($125/$500 = 25%).
Therefore, under paragraph (a)(5)(iii) of this section, IC may elect
to report only the $125 advance premium (rather than the $500 gross
premium) in gross premiums written for the taxable year ending
December 31, 2000. IC reports the balance of the gross premium for
the insurance contract ($375) and deducts the remaining premium
acquisition expenses ($60) for the insurance contract in the taxable
year ending December 31, 2001.
Example 4. (i) The facts are the same as Example 3, except that
for the taxable year ending December 31, 2000, IC deducts $60 of
premium acquisition expenses related to the insurance contract.
(ii) For the taxable year ended December 31, 2000, IC deducted
75% of total premium acquisition expenses for the insurance contract
($60/$80 = 75%). This ratio exceeds the ratio of the $125 advance
premium to the $500 gross premium ($125/$500 = 25%). Because IC's
deduction for premium acquisition expenses allocable to the contract
exceeds the limitation in paragraph (a)(5)(vii) of this section,
paragraph (a)(5)(i) of this section requires IC to report the $500
gross premium in gross premiums written for the taxable year ending
December 31, 2000. IC's unearned premium with respect to the
contract was $500 as of December 31, 2000. Pursuant to section
832(b)(4)(B), to determine its premiums earned, IC deducts $400
($500 x .8) for the insurance contract at the end of the taxable
year.
Example 5. (i) IC is a non-life insurance company which,
pursuant to section 843, files its returns on a calendar year basis.
On August 1, 2000, IC issues a one-year cancellable accident and
health insurance policy to X, a corporation with 80 covered
employees. The gross premium written for the insurance contract is
$320,000. Premiums are payable in monthly installments. As of
December 31, 2000, IC has collected $150,000 of installment premiums
from X. For the taxable year ended December 31, 2000, IC has paid or
incurred $21,000 of premium acquisition expenses related to the
insurance contract. IC's total premium acquisition expenses for the
insurance contract, based on the $320,000 gross premium, are
$48,000.
(ii) Under paragraph (a)(5)(iv) of this section, IC may elect to
report only the $150,000 of installment premiums (rather than the
$320,000 estimated gross premium) in gross premiums written for the
taxable year ended December 31, 2000, provided that its deduction
for premium acquisition expenses allocable to the insurance contract
does not exceed the limitation in paragraph (a)(5)(vii). For the
taxable year ended December 31, 2000, IC deducts $21,000 of premium
acquisition expenses related to the insurance contract, or 43.75% of
total premium acquisition expenses for the insurance contract
($21,000/$48,000 = 43.75%). This ratio does not exceed
[[Page 709]]
the ratio of installment premiums to the gross premium for the
contract ($150,000/$320,000 = 46.9%). Therefore, under paragraph
(a)(5)(iv) of this section, IC may elect to report only $150,000 of
installment premiums for the insurance contract (rather than
$320,000 of gross premium) in gross premiums written for the taxable
year ending December 31, 2000.
Example 6. (i) IC is a non-life insurance company which,
pursuant to section 843, files its returns on a calendar year basis.
On July 1, 2000, IC issues a one-year workers' compensation policy
to X, an employer. The gross premium for the policy is determined by
applying a monthly rate of $25 to each of X's employees. This rate
is guaranteed for a period of 12 months, beginning with the
effective date of the contract. On July 1, 2000, X has 1,050
employees. Based on the assumption that X's payroll would remain
constant during the effective period of the contract, IC determines
an estimated gross premium for the contract of $315,000 (1,050
x $25 x 12 = $315,000). The estimated gross premium is payable by X
in equal monthly installments. At the end of each calendar quarter,
the premiums payable under the contract are adjusted based on an
audit of X's actual payroll during the preceding three months of
coverage.
(ii) Due to an expansion of X's business in 2000, the actual
number of employees covered under the contract during each month of
the period between July 1, 2000 and December 31, 2000 is 1,050
(July), 1,050 (August), 1,050 (September), 1,200 (October), 1,200
(November), and 1,200 (December). The increase in the number of
employees during the year is not attributable to a temporary or
seasonal variation in X's business activities and is expected to
continue for the remainder of the effective period of the contract.
(iii) Under paragraph (a)(5)(i) of this section, IC is required
to report gross premiums written for the insurance contract based on
the effective period of the contract. The effective period of X's
contract is based on the 12 month period for which IC has guaranteed
rates for insurance coverage. Under paragraph (a)(5)(ii), IC must
also report the additional premiums resulting from the change in
risk exposure under the contract for the taxable year in which the
change in such exposure occurs. Unless the change in risk exposure
is of temporary duration, the additional gross premiums are included
in gross premiums written for the remainder of the effective period
of the contract. Thus, for the taxable year ending December 31,
2000, IC reports gross premiums written of $348,750 with respect to
the workers' compensation contract issued to X, consisting of the
sum of the initial gross premium for the contract ($315,000) plus
the additional gross premium attributable to the 150 employees added
to X's payroll who will be covered during the last nine months of
the contract's effective period (150 x $25 (monthly premium) x 9 =
$33,750). IC's unearned premium with respect to the contract was
$180,000 as of December 31, 2000, which consists of the sum of the
remaining portion of the original gross premium ($315,000 x 6/12 =
$157,500), plus the additional premiums resulting from the change in
risk exposure ($33,750 x 6/9 = $22,500) that are allocable to the
remaining six months of the contract's effective period. Pursuant to
section 832(b)(4)(B), to determine its premiums earned, IC deducts
$144,000 ($180,000 x .8) for the insurance contract at the end of
the taxable year.
Example 7. (i) The facts are the same as Example 6, except that
the increase in the number of X's employees for the period ending
December 31, 2000 is attributable to a seasonal variation in X's
business activity.
(ii) Under paragraph (a)(5)(ii) of this section, for the taxable
year ending December 31, 2000, IC reports gross premiums written of
$326,500, consisting of the sum of the initial gross premium for the
contract ($315,000) plus the additional premium attributable to the
temporary increase in risk exposure during the taxable year (150
x $25 x 3 = $11,250). The unearned premium that is allocable to the
remaining six months of the effective period of the contract is
$157,500. Pursuant to section 832(b)(4)(B), to determine its
premiums earned, IC deducts $126,000 ($157,500 x .8) for the
insurance contract at the end of the taxable year.
Example 8. (i) IC, a non-life insurance company, issues a
noncancellable accident and health insurance contract (other than a
qualified long-term care insurance contract, as defined in section
7702B(b)) to A, an individual, on July 1, 2000. The contract has an
entry-age annual premium of $2,400, which is payable by A in equal
monthly installments of $200 on the first day of each month of
coverage. IC incurs agents' commissions, premium taxes, and other
premium acquisition expenses equal to 10% of the gross premiums
received for the contract. As of December 31, 2000, IC has collected
$1,200 of installment premiums for the contract.
(ii) A noncancellable accident and health insurance contract is
a contract described in section 832(b)(7). Thus, under paragraph
(a)(5)(vi) of this section, IC may report gross premiums written in
the manner required for life insurance companies under sections 803
and 811. Accordingly, for the taxable year ending December 31, 2000,
IC may report gross premiums written of $1,200, based on the
premiums actually received on the contract. Pursuant to section
(a)(5)(vi) of this section, IC deducts a total of $28 of premium
acquisition costs for the contract, based on the difference between
the acquisition costs actually paid or incurred under section 811(a)
($1,200 x .10 = $120) and the amount required to be taken into
account under section 848 in connection with the net premiums for
the contract ($1,200 x .077 = $92).
(iii) Under paragraph (a)(8)(ii)(A) of this section, IC includes
the amount of life insurance reserves (as defined in section 816(b),
but computed in accordance with section 807(d) and sections 811(c)
and (d)) in unearned premiums under section 832(b)(4)(B). Section
807(d)(3)(A)(iii) requires IC to use a two-year preliminary term
method to compute the amount of life insurance reserves for a
noncancellable accident and health insurance contract (other than a
qualified long-term care contract). Under this tax reserve method,
no portion of the $1,200 gross premium received by IC for A's
contract is allocable to future insurance coverage. Accordingly, for
the taxable year ending December 31, 2000, no life insurance
reserves are included in IC's unearned premiums under section
832(b)(4)(B) with respect to the contract.
Example 9. (i) IC, a non-life insurance company, issues an
insurance contract with a twelve month effective period for $1,200
on December 1, 2000. Immediately thereafter, IC reinsures 90% of its
liability under the insurance contract for $900 with IC-2, an
unrelated and solvent insurance company. On December 31, 2000, IC-2
has an $825 unearned premium with respect to the reinsurance
contract it issued to IC. In computing its earned premiums, pursuant
to section 832(b)(4)(B), IC-2 deducts $660 of unearned premiums
($825 x .8) with respect to the reinsurance contract.
(ii) Under paragraph (a)(8)(i) of this section, unearned
premiums held by an insurance company with regard to the net value
of the risks reinsured in other solvent companies are deducted from
the ceding company's unearned premiums taken into account for
purposes of section 832(b)(4)(B). If IC had not reinsured 90% of its
risks, IC's unearned premium for the insurance contract would have
been $1,100 ($1,200 x 11/12) and IC would have deducted $880
($1,100 x .8) of unearned premiums with respect to such contract.
However, because IC reinsured 90% of its risks under the contract
with IC-2, as of December 31, 2000, the net value of the risks
retained by IC for the remaining 11 months of the effective period
of the contract is $110 ($1,100--$990). For the taxable year ending
December 31, 2000, IC includes the $1,200 gross premium in its gross
premiums written and deducts the $900 reinsurance premium paid to
IC-2 under section 832(b)(4)(A). Pursuant to section 832(b)(4)(B),
to determine its premiums earned, IC deducts $88 ($110 x .8) for
the insurance contract at the end of the taxable year.
(11) Change in method of accounting--(i) In general. A change in
the method of determining premiums earned to comply with the provisions
of paragraphs (a)(3) through (a)(10) of this section is a change in
method of accounting for which the consent of the Commissioner is
required under section 446(e) and Sec. 1.446-1(e).
(ii) Application. For the first taxable year beginning after
December 31, 1999, a taxpayer is granted consent of the Commissioner to
change its method of accounting for determining premiums earned to
comply with the provisions of paragraphs (a)(3) through (a)(10) of this
section. A taxpayer changing its method of accounting in accordance
with this section must follow the automatic change in accounting
provisions of Rev. Proc. 99-49, 1999-52 I.R.B. 725 (see
Sec. 601.601(d)(2) of this chapter), except that--
[[Page 710]]
(A) The scope limitations in section 4.02 of Rev. Proc. 99-49 shall
not apply;
(B) The timely duplicate filing requirement in section 6.02(2) of
Rev. Proc. 99-49 shall not apply; and
(C) If the method of accounting for determining premiums earned is
an issue under consideration within the meaning of section 3.09 of Rev.
Proc. 99-49 as of January 5, 2000, then section 7.01 of Rev. Proc. 99-
49 shall not apply.
(12) Effective date. Paragraphs (a)(3) through (a)(11) of this
section are applicable with respect to the determination of premiums
earned for taxable years beginning after December 31, 1999.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Approved: December 23, 1999.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 00-13 Filed 1-5-00; 8:45 am]
BILLING CODE 4830-01-U