[Federal Register Volume 62, Number 1 (Thursday, January 2, 1997)]
[Proposed Rules]
[Pages 72-76]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32520]
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DEPARTMENT OF THE TREASURY
26 CFR Part 1
[REG-209839-96]
RIN 1545-AU60
Determination of Earned Premiums
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to the
requirement that insurance companies other than life insurance
companies 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 are necessary in order to provide
guidance to nonlife insurance companies that are subject to the 20
percent reduction rule. This document also contains a notice of a
public hearing on the proposed regulations.
DATES: Written comments must be received by April 2, 1997. Requests to
speak and outlines of oral comments to be discussed at the public
hearing scheduled for April 30, 1997 at 10:00 a.m. must be received by
April 2, 1997.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209839-96), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209839-96), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers may submit comments
electronically via the internet by selecting the ``Tax Regs'' option on
the IRS Home Page, or by submitting
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comments directly to the IRS internet site at http://
www.irs.ustreas.gov/prod/tax__regs/comments.html. The public hearing
will be held in the Auditorium, Internal Revenue Service Building, 1111
Constitution Avenue NW, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Gary
Geisler, (202) 622-3970; concerning submissions and the hearing,
Evangelista Lee, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
A nonlife insurance company's underwriting income equals its
premiums earned on insurance contracts during the taxable year less its
losses incurred and its expenses incurred. For taxable years beginning
on or after January 1, 1993, a company's premiums earned on insurance
contracts during the taxable year is an amount equal to the gross
premiums written on insurance contracts during the taxable year, less
return premiums and premiums paid for reinsurance, plus 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.
The gross premiums written for an insurance or reinsurance contract
is the total amount charged by the insurance company for the insurance
coverage provided under the contract, including amounts charged
covering the company's expenses and overhead. Written premiums are
generally recorded for the full term of coverage for the year in which
the contract is issued. Upon recording a written premium, the company
establishes an unearned premium liability to reflect the portion of the
written premium which relates to the unexpired portion of the insurance
coverage.
The term ``unearned premium'' historically referred to the portion
of the gross premiums written that would have to be returned to the
policyholder upon cancellation of the policy and that was in direct
proportion to the unexpired term of the policy. See, e.g., Buckeye
Union Casualty Co. v. Commissioner, 448 F.2d 228, 230 (6th Cir. 1971),
aff'g 54 T.C. 13, 20 n.5 (1970). Cases and rulings expanded this
definition to include premiums paid for a future benefit, the cost of
which was fixed when the policy was issued. See, e.g., Massachusetts
Protective Ass'n. v. United States, 114 F.2d 304 (1st Cir. 1940);
C.P.A. Co. v. Commissioner, 7 T.C. 912 (1946) (nonlife company), acq.
1947-1 C.B. 1; Rev. Rul. 55-705, 1955-2 C.B. 280. But cf. Bituminous
Casualty Corp. v. Commissioner, 57 T.C. 58 (1971), acq. in result 1973-
2 C.B. 1 (stating in dictum that ``unearned premiums'' had a
substantially broader definition than the one developed in the cases
and rulings cited above).
Prior to 1987, the increase in unearned premiums during the taxable
year was deducted from gross premiums written in the computation of
premiums earned. For example, if a company on September 1st issued a
one-year fire insurance policy with a premium of $1,200, the company on
that date would record a gross written premium of $1,200 and establish
a $1,200 unearned premium reserve. On December 31st, the company would
have earned one-third of the premium, $400, but would have an $800
unearned premium reserve liability for the remaining eight months of
coverage to be provided in periods after the close of the taxable year.
The subtraction of the full amount of unearned premiums from the gross
written premium ``generally reflect[ed]'' the accounting conventions
(often referred to as ``statutory accounting principles'') used to
prepare the annual statement for state insurance regulatory purposes. 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.
A nonlife company generally deducts expenses incurred in the
taxable year in which the expenses are reported on the company's annual
statement. These expenses include premium acquisition expenses
attributable to unearned premiums.
In 1986, Congress determined that the combination of deferring
unearned premiums and currently deducting premium acquisition expenses
attributable to unearned premiums under the accounting conventions used
to prepare a nonlife insurance company's annual statement resulted in a
mismatch of income and expense. Congress decided to require a better
measurement of income for Federal income tax purposes. 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 require a nonlife company to capitalize and
amortize premium acquisition expenses, Congress reduced by 20 percent
the current deduction for unearned premiums. See section 832(b)(4)(B);
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. This reduction in unearned premiums is sometimes
referred to as the ``20 percent haircut.'' The acceleration of income
as a result of the 20 percent haircut is intended to be roughly
equivalent to denying current deductibility for a portion of the
premium acquisition expenses.
Congress intended the 20 percent haircut to apply to all amounts
(other than life insurance reserves and title insurance reserves) that
were considered unearned premiums for Federal income tax purposes as of
1986. The House Report states that ``[a]ll items which are included in
unearned premiums under section 832(b) of present law are subject to
this reduction in the deduction.'' H.R. Rep. No. 426, 1986-3 C.B. (Vol.
2) at 669. In describing the House bill, the Conference Report
reiterates that ``[a]ll items which are included in unearned premiums
under section 832(b) of present law are subject to this reduction in
the deduction'' and describes the Senate amendment as ``the same as the
House bill, except that life insurance reserves which are included in
unearned premium reserves under section 832(b)(4) are not subject to
this reduction.'' 2 H.R. Conf. Rep. No. 841, 1986-3 C.B. (Vol. 4) at
354-55. The Report's description of the Conference agreement states
that the agreement ``follows the Senate amendment'' but ``provides
special treatment of title insurance unearned premium reserves.'' Id.
See sections 832(b) (7) and (8) for the rules applicable to life
insurance and title insurance reserves.
Following the imposition of the 20 percent haircut on unearned
premiums, the National Association of Insurance Commissioners (NAIC)
revised the statutory accounting principles used to prepare a nonlife
insurance company's annual statement. In general, these changes
permitted a nonlife company to defer recording written premiums and/or
to reduce the amount of unearned premiums reported on the company's
annual statement. The affected items included advance premiums,
additional premiums on retrospectively rated insurance policies, and
the reporting of written premiums for workers' compensation policies
and certain other casualty policies where the covered risk varies over
the policy term.
Prior to 1989, advance premiums were required to be reported in
written premiums and unearned premiums on the annual statement for the
year in which the advance premiums were received. However, statutory
accounting principles now permit advance premiums to be accumulated in
a suspense account and reported as a write-in liability on the annual
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statement. A company electing to use this alternative treatment would
not report advance premiums in either written premiums or unearned
premiums on the annual statement until the effective date of the
underlying coverage.
Statutory accounting principles also required a nonlife insurance
company to record an estimated liability for payment of return premiums
under retrospectively rated insurance policies (retro credits) as part
of the unearned premium liability. Estimates of additional premiums due
from insureds under these policies (retro debits) historically were not
taken into account except as an offset to the company's estimated
liability for payment of retro credits. Thus, retro debits were not
permitted to be shown as assets on the annual statement, and generally
were not included in written premiums prior to the year in which the
company billed the policyholder for these additional premiums.
Beginning in 1988, however, the NAIC permitted retro debits to be shown
in an insurance company's admitted assets, subject to certain
limitations. The NAIC currently has under consideration a proposal that
would require retro credits to be recorded as a write-in liability on
the annual statement, rather than as part of unearned premiums. This
proposal would also permit retro credits and retro debits to be taken
into account either as adjustments to written premiums or as
adjustments to earned premiums for purposes of determining underwriting
income on the annual statement.
A nonlife insurance company ordinarily reports the full amount of
premiums provided in a casualty insurance policy (including any
deferred premium installments) in written premiums and unearned
premiums for the year in which the policy is issued. However, for
workers' compensation policies and certain other casualty policies
where the covered risk varies over the policy term, some but not all
state insurance regulators permit written premiums to be recorded based
on installment billings to the policyholder. If the insurance company
issues these policies throughout the year, and the premiums for the
policies are billed monthly, the portion of the total written premiums
that would be shown as unearned premiums is substantially smaller than
would be the case if the written premiums and unearned premiums were
determined based on the entire policy term. The NAIC currently has
under consideration proposed guidance that would require the full
amount of the premiums provided in all casualty insurance policies to
be reported in written premiums and unearned premiums on the effective
date of the related coverage.
Section 832(b)(1)(A) provides that a nonlife insurance company's
income is computed on the basis of the underwriting and investment
exhibit of the annual statement approved by the NAIC. Some companies
assert that section 832(b)(1)(A) limits application of the 20 percent
haircut to the amount of unearned premiums reported on the annual
statement. Under this approach, a company that elects for annual
statement purposes to report advance premiums as a write-in liability,
to offset unearned premiums by retro debits, or to include deferred
premiums on policies covering fluctuating risks in written premiums
only when billed to the insured, reduces the amount of unearned
premiums subject to the 20 percent haircut.
The existing regulations under Sec. 1.832-4(a)(2) state that
``[t]he underwriting and investment exhibit[,] * * * 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 nonlife insurance
company].'' However, the regulations recognize that not all items of
the exhibit ``reflect * * * income as defined in the Code.'' Where
statutory accounting principles permit a company to elect among
alternative accounting practices, one or more of which do not clearly
reflect income as defined by the Code, the company is required for
Federal tax purposes to use a method that clearly reflects income.
Section 446(b) and Sec. 1.446-1(a)(2). Furthermore, an accounting
practice used on the annual statement, although specifically mandated
by statutory accounting principles, is not used for purposes of
computing taxable income if that practice is inconsistent with the
Code.
Overview of Proposed Regulations
The proposed regulations define gross premiums written, return
premiums, and unearned premiums for tax purposes. The proposed
regulations also provide rules for determining when gross premiums
written, return premiums, and unearned premiums are taken into account
for tax purposes. In this manner, the proposed regulations ensure that
items such as advance premiums and retrospective premium adjustments
are treated consistently for purposes of the 20 percent haircut on
unearned premiums.
Explanation of Provisions
The starting point for determining a nonlife insurance company's
premiums earned for tax purposes is the ``gross premiums written on
insurance contracts during the taxable year.'' Proposed Sec. 1.832-
4(a)(4)(i) defines ``gross premiums written on insurance contracts'' as
the total amounts charged by the insurance company for insurance
coverage under insurance or reinsurance contracts issued or renewed
during the taxable year. Thus, ``gross premiums written'' includes
collected and uncollected premiums.
Proposed Sec. 1.832-4(a)(4)(ii) addresses the treatment of retro
debits, which reflect estimates of additional premiums to be received
from the insured or the reinsured based on the insurance company's loss
experience during expired coverage periods. Thus, retro debits
represent additional gross premiums written rather than offsets to the
unearned premium liability for unexpired coverage periods. Treating
retro debits as offsets to unearned premiums would reduce the
acceleration of income under the 20 percent haircut, and would allow
some companies with retro debits exceeding their unearned premiums to
report a lesser amount of earned premiums for Federal income tax
purposes than for annual statement reporting purposes. This result is
contrary to the Congressional intent to accelerate the rate at which
premiums are earned for tax purposes in order to correct the
mismatching of income and expenses on the annual statement.
Accordingly, proposed Sec. 1.832-4(a)(4)(ii) requires retro debits to
be included in gross premiums written regardless of the manner in which
the retro debits are reported on the underwriting exhibit of the annual
statement.
Under section 832(b)(4)(A), an insurance company reduces the amount
of gross premiums written on insurance contracts during the taxable
year by return premiums and premiums paid for reinsurance. Proposed
Sec. 1.832-4(a)(5)(i) defines return premiums as amounts paid or
credited to the policyholder in accordance with the terms of an
insurance contract, other than policyholder dividends or claims and
benefit payments. Thus, return premiums include amounts paid or
credited to the policyholder with respect to endorsements and
modifications of the terms of coverage of an insurance contract. Return
premiums also include amounts returned or credited to the policyholder
on cancellation of an insurance contract, including the unearned
portion of any deferred or uncollected premiums previously included by
the company in gross premiums written and unearned premiums. Finally,
return premiums
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include amounts contractually required to be returned to the ceding
company under a reinsurance contract.
The proposed regulations modify the treatment of retro credits
under existing law for purposes of determining earned premiums. Since
1943, Sec. 1.832-4(a)(3)(ii) has provided that the liability for return
premiums under a retrospectively rated policy is included in a nonlife
company's unearned premiums for tax purposes. Although retro credits
were included in unearned premiums in 1986, these amounts are based on
an insured's loss experience during expired coverage periods, for which
the company has already earned the premium. For this reason, proposed
Sec. 1.832-4(a)(5)(ii) provides that a nonlife company's provision for
payment of a retro credit generally is included in return premiums that
reduce gross premiums written. However, proposed Sec. 1.832-4(a)(6)(iv)
gives a company the option to include retro credits in unearned
premiums to which the 20 percent haircut applies.
The proposed regulations provide timing rules with respect to when
a company reports gross premiums written and unearned premiums for tax
purposes. Proposed Sec. 1.832-4(a)(7) requires a company to report
gross premiums written with respect to an insurance or reinsurance
contract for the earlier of the taxable year which includes the
effective date of the contract or the taxable year in which all or a
part of the gross premium for the contract is received. Thus, the
company must report gross premiums written with respect to an insurance
contract for the year in which it collects an advance premium. By
requiring advance premiums to be included in gross premiums written and
unearned premiums, regardless of the manner in which the advance
premiums are recorded on the annual statement, the proposed regulations
ensure that the treatment of a nonlife insurance company's advance
premiums conforms with the treatment of advance premiums of a life
insurance company under section 807(e)(7).
The NAIC is considering proposed guidance that would require the
premium for the entire term of a property and casualty insurance
contract to be recorded as written premium on the effective date of the
contract. The proposed NAIC guidance rejects the previous NAIC position
that permitted written premiums for workers' compensation policies and
certain other casualty policies where the covered risk varies over the
policy term to be recorded when billed. For this reason, the method of
reporting gross premiums written for workers' compensation policies and
certain other casualty insurance policies covering fluctuating risks is
reserved in the proposed regulations.
Proposed Effective Date
The proposed regulations are proposed to apply to the determination
of premiums earned for insurance contracts issued or renewed in taxable
years beginning after the date on which final regulations are published
in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking 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
the regulations do not impose a collection of information on small
entitles, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and 8 copies) that are submitted timely to the IRS. All comments will
be available for public inspection and copying.
A public hearing has been scheduled for Wednesday, April 30, 1997
in the Auditorium, Internal Revenue Service Building, 1111 Constitution
Avenue NW, Washington DC. Because of access restrictions, visitors will
not be admitted beyond the Internal Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons that wish to present oral comments at the hearing must
submit written comments by April 2, 1997 and submit an outline of the
topics to be discussed and the time to be devoted to each topic (a
signed original and 8 copies) by April 2, 1997.
A period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
Drafting Information
The principal author of this regulation is Gary Geisler, Office of
Assistant Chief Counsel (Financial Institutions and Products). However,
other personnel from the IRS and Treasury Department participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be 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 (a)(9) and
(a)(10).
3. New paragraphs (a)(4) through (a)(8) 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 ceded reinsurance
premiums. 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 at the end of the preceding taxable year, and is decreased by
80 percent of the unearned premiums at the end of the taxable year.
(4) Gross premiums written--(i) In general. An insurance company's
``gross premiums written on insurance contracts during the taxable
year'' are the total amounts charged by the insurance company for
insurance coverage under insurance or reinsurance contracts issued or
renewed by the company during the taxable year.
(ii) Debits on retrospectively rated insurance policies. Gross
premiums written include an insurance company's estimate of the gross
additional premiums to be received from the insured or the reinsured
with respect to the expired portion of a retrospectively rated
insurance or reinsurance contract
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(retro debits). The retro debits are reported for the taxable year in
which the amounts can be reasonably estimated based on information used
to compute the insurance company's loss reserves. An insurance company
adjusts gross premiums written to reflect payments from the insured or
the reinsured with respect to retro debits, as well as changes in the
estimate of retro debits.
(5) Return premiums--(i) In general. Return premiums are amounts
paid or credited to the policyholder in accordance with the terms of an
insurance contract, other than policyholder dividends or claims and
benefit payments. For example, return premiums include amounts returned
or credited to the policyholder based on modifications of the terms of
an insurance contract. Return premiums also include amounts
contractually required to be returned to the ceding company pursuant to
a reinsurance contract.
(ii) Credits on retrospectively rated insurance policies. Except as
provided in paragraph (a)(6)(iv) of this section, return premiums
include an insurance company's estimate of the gross liability for
return premiums to be paid or credited to the insured or the reinsured
with respect to the expired portion of a retrospectively rated
insurance or reinsurance contract (retro credits). The retro credits
are included in return premiums for the taxable year in which the
insurance company's liability to pay or credit these amounts can be
reasonably estimated based on information used to compute the company's
loss reserves. An insurance company adjusts return premiums to reflect
payments made or amounts credited to the insured or the reinsured with
respect to retro credits, as well as changes in the estimate of retro
credits.
(iii) Unpaid premiums on cancelled policies. If an insurance
contract is cancelled, an insurance company includes in return premiums
the unearned portion of any deferred or uncollected premiums previously
included in gross premiums written and unearned premiums.
(6) Unearned premiums--(i) In general. The unearned premium for an
insurance or reinsurance contract is the portion of the gross premiums
written which is attributable to future insurance coverage to be
provided under the contract. An insurance company makes an appropriate
adjustment to its unearned premiums for an insurance or reinsurance
contract if the contract is reinsured with, or retroceded to, another
insurance company.
(ii) Special rules. In computing ``premiums earned on insurance
contracts during the taxable year,'' the amount of unearned premiums
includes--
(A) Life insurance reserves (as defined in section 816(b), but
computed in accordance with section 807(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 which the
company would be obligated to return to its policyholders at the close
of the taxable year if all its policies were terminated at that time;
(C) In the case of an interinsurer or reciprocal underwriter which
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;
(D) In the case of a title insurance company, its discounted
unearned premiums (computed in accordance with section 832(b)(8)); and
(E) Amounts treated as unearned premiums pursuant to the optional
treatment provided in paragraph (a)(6)(iv) of this section.
(iii) Method of determining unearned premiums. If the risk of loss
under an insurance or reinsurance contract arises uniformly over the
contract period, the unearned premium attributable to the portion of
the insurance coverage which has not expired is computed on a pro rata
basis. If the risk of loss does not arise uniformly over the contract
period, the insurance company may consider the pattern or incidence of
the risk in determining the portion of the gross premium written which
is attributable to the portion of the insurance coverage which has not
yet expired.
(iv) Option to include retro credits in unearned premiums. An
insurance company may include retro credits in unearned premiums under
section 832(b)(4) for its first taxable year beginning after the date
on which final regulations are published in the Federal Register. Any
company exercising this option must apply it consistently to all retro
credits with respect to retrospectively rated insurance or reinsurance
contracts issued or renewed during the taxable year and all subsequent
years.
(7) Method of reporting gross premiums written--(i) In general. An
insurance company reports gross premiums written with respect to an
insurance or reinsurance contract for the earlier of the taxable year
which includes the effective date of the contract or the taxable year
in which all or a part of the gross premium for the contract is
received.
(ii) Method of reporting gross premiums written on policies
covering fluctuating risks. [Reserved]
(iii) Examples. The provisions of this paragraph (a)(7) are
illustrated by the following examples:
Example 1. (i) IC is a nonlife insurance company which, pursuant
to section 843, files its returns on a calendar year basis. On July
1, 1998, IC issues a fire insurance policy to A, an individual. The
policy provides coverage for a one-year term beginning on July 1,
1998 and ending on June 30, 1999. The premium provided in the policy
is $500, which may be paid either in full on the policy effective
date or in quarterly installments of $125. A selects the installment
payment option. As of December 31, 1998, the policy issued to A
remains in force, and IC has collected a total of $250 of
installment premiums from A. Assume IC has issued no other policies.
(ii) For the taxable year ending December 31, 1998, IC reports
the $500 premium provided in A's policy in gross premiums written
under section 832(b)(4)(A). IC also claims a reduction under section
832(b)(4)(B) for 80% of the $250 of unearned premiums ($200)
associated with the policy at the end of the taxable year.
Example 2. (i) The facts are the same as Example 1, except that
the term of coverage for the fire insurance policy issued to A
begins on January 1, 1999 and ends on December 31, 1999. On December
15, 1998, IC receives $125 from A and agrees to apply this amount as
the first premium installment due on the policy.
(ii) Under paragraph (a)(7)(i) of this section, IC reports gross
premiums written for the policy issued to A for the taxable year in
which the advance premium is received. Thus, for the taxable year
ending December 31, 1998, IC includes $500 in its gross premiums
written under section 832(b)(4)(A). IC also claims a reduction under
section 832(b)(4)(B) for 80% of the $500 of unearned premiums ($400)
associated with the policy at the end of the taxable year.
(8) Effective date. Paragraphs (a)(3) through (a)(7) of this
section are applicable with respect 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.
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
[FR Doc. 96-32520 Filed 12-31-96; 8:45 am]
BILLING CODE 4830-01-U
