Instructions For Form 1120-Pc - 2006 (Page 16 of 20) in pdf

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Noncancelable accident and health

Worksheet for Schedule C, line 23

Keep for Your Records

insurance,

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Cancelable accident and health

1. Refigure the amount from Schedule A, line 35 or Schedule B, line

insurance, and

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19, whichever applies, without any domestic production activities

International and reinsurance lines of

deduction, any adjustment under section 1059, and without any

business.

capital loss carryback to the tax year under section 1212(a)(1) . .

With regard to the special rules for

2. Enter the sum of the amounts from line 22, column (b) (without

discounting unpaid losses on accident

regard to wholly owned foreign subsidiary dividends) and line 9,

and health insurance (other than disability

column (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

income insurance), unpaid losses are

3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

assumed to be paid in the middle of the

year following the accident year.

4. Multiply line 3 by 80% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Add lines 16, 19, 21, and 22 (without regard to FSC dividends),

Generally, the amount of undiscounted

column (b), and the portion of the deduction on line 17, column

unpaid losses means the unpaid losses

(b), that is attributable to dividends received from

and unpaid loss adjustment expenses

20%-or-more-owned corporations . . . . . . . . . . . . . . . . . . . . . .

shown in the annual statement. However,

6. Enter the smaller of line 4 or line 5. If line 5 is greater than line 4,

see Regulations section 1.846-1(a)(1)

referring to Regulations section

stop here; enter the amount from line 6 on line 23, column (b),

1.832-4(b) relating to the determination of

and do not complete the rest of this worksheet . . . . . . . . . . . . .

unpaid losses.

7. Enter the total amount of dividends received from

20%-or-more-owned corporations that are included on lines 2, 3,

Under section 832(b)(5)(A), unpaid

5, 7, and 8 (without regard to FSC dividends), column (b) . . . . .

losses must be adjusted to take into

account estimated recoveries due to

8. Subtract line 7 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

salvage and reinsurance for those losses.

9. Multiply line 8 by 70% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

If the amounts shown in the annual

10. Subtract line 5 from line 23, column (b) (without regard to FSC

statement were determined on a

dividends) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

discounted basis and if the extent to

11. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . .

which these losses were discounted can

12. Dividends-received deduction after limitation (section

be determined on the basis of information

246(b)). Add lines 6 and 11. Enter the result here and on line 23,

disclosed on or with the annual

column (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

statement, the amount of the

undiscounted unpaid losses must be

recomputed to eliminate any reduction

2. All unearned premiums of a Blue

caused by such discounting. In no event

Cross or Blue Shield organization to

Schedule F—Losses

can the amount of discounted unpaid

which section 833 applies.

losses with respect to any line of business

Incurred

for an accident year exceed the total

Lines 2b and 4b. Include on lines 2b and

amount of unpaid losses with respect to

Line 1. Losses paid. Enter the total

4b, 90% of unearned premiums for

any line of business for an accident year

losses paid on insurance contracts during

insurance against default in the payment

as reported on the annual statement. Also

the tax year less salvage and reinsurance

of principal or interest on securities

see Regulations section 1.832-4(d)

recovered during the tax year.

described in section 165(g)(2)(C) (relating

regarding increasing unpaid losses shown

to worthless securities) with maturities of

Lines 2a and 4a. Unpaid losses on life

on the annual statement by salvage

more than 5 years.

insurance contracts. Unpaid losses

recoverable. Also see Rev. Proc. 92-77,

must be adjusted for recoveries of

1992-2 C.B. 454.

Lines 2c and 4c. The amount of

reinsurance. The amounts of expected

discounted unearned premiums at the

The applicable interest rate for each

recoveries should be estimated based on

end of any tax year must be the present

calendar year and the applicable loss

the facts in each case and the

value of those premiums (as of such time

payment pattern for each accident year

corporation’s experience with similar

and separately with respect to premiums

for each line of business are determined

cases. See Regulations section

received in each calendar year)

by the IRS. The applicable interest rate

1.832-4(b).

determined by using:

and loss payment patterns for 2006 are

1. The amount of the undiscounted

published in Rev. Proc. 2007-09, 2007-3

Lines 2b and 4b. Discounted unpaid

unearned premiums at such time;

I.R.B. 278. The applicable interest rate

losses outstanding. Enter all

2. The applicable interest rate; and

and loss payment patterns for 2004 and

discounted unpaid losses as defined in

3. The applicable statutory premium

2005 are published in Rev. Proc.

section 846.

recognition pattern.

2004-69, 2004-49 I.R.B. 906, and Rev.

Section 846 provides that the amount

Proc. 2005-72, 2005-49 I.R.B. 1078,

Lines 2d and 4d. Include on lines 2d and

of discounted unpaid losses must be

respectively.

4d, 80% of the total of all unearned

figured separately by each line of

Corporations having sufficient

premiums not reported on lines 2a

business (multiple peril lines must be

historical experience to determine a loss

through 2c, or 4a through 4c,

treated as a single line of business) and

payment pattern may, under certain

respectively.

by each accident year and must be equal

circumstances, elect under section 846(e)

to the present value of those losses

A reciprocal or interinsurer required

to use their own historical experience

determined by using the:

under state law to reflect unearned

(instead of the loss payment patterns

1. Amount of the undiscounted unpaid

premiums on its annual statement net of

determined by the IRS). If this election is

losses,

premium acquisition expenses should

made, the loss payment patterns will be

increase its unearned premiums by the

2. Applicable interest rate, and

based on the most recent calendar year

amount of such acquisition expenses

3. Applicable loss payment pattern.

for which an annual statement was filed

prior to making the computation on lines

before the beginning of the accident year.

2d and 4d. See section 832(b)(7)(E).

Special rules apply with respect to:

The election will not apply to any

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Line 6. Transitional adjustments apply to

Unpaid losses related to disability

international or reinsurance line of

companies which become taxable under

insurance (other than credit disability

business. If the corporation makes this

section 831(a). See section 832(b)(7)(D).

insurance),

election, check the “Yes” column for

-16-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 16

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