Instructions For Form 1120-Pc - 2006 (Page 17 of 20) in pdf

question 7 in Schedule I, Other

Schedule H—Special

Schedule I—Other

Information. For more information, see

section 846(e), Regulations section

Deduction and Ending

Information

1.846-2, and Rev. Proc. 92-76, 1992-2

C.B. 453.

Adjusted Surplus for

The following instructions apply to page 7,

Form 1120-PC. Complete all items that

Note. There is a special application of

Section 833 Organizations

apply to the corporation.

the “fresh start” provision for an insurance

company that is not subject to tax under

Line 5. Beginning adjusted surplus. If

Question 4

section 831(a) for its first tax year

the corporation was a section 833

Check the “Yes” box if:

beginning after December 31, 1986,

organization in 2005, it should enter the

•

The corporation is a subsidiary in an

because (1) it is described in section

amount from Schedule H, line 10, of its

affiliated group (defined below), but is not

501(c) or (2) it is subject to tax under

2005 Form 1120-PC.

filing a consolidated return for the tax year

section 831(b) on its investment income.

with that group, or

Generally, the adjusted surplus as of

•

If the insurance company later

The corporation is a subsidiary in a

the beginning of any tax year is an

becomes subject to tax under section

parent-subsidiary controlled group. For a

amount equal to the adjusted surplus as

831(a), the rules relating to the fresh start

definition of parent-subsidiary controlled

of the beginning of the preceding tax

under the discounting provisions are

group, see the instructions for Schedule

year:

applied by treating the last tax year before

O (Form 1120).

1. Increased by the amount of any

the year in which the insurance company

adjusted taxable income for the preceding

Any corporation that meets either of

becomes subject to tax under section

tax year or

the requirements above should check the

831(a) as the insurance company’s last

2. Decreased by the amount of any

“Yes” box. This applies even if the

tax year beginning before 1987. See

adjusted net operating loss for the

corporation is a subsidiary member of one

section 1010(e) of the Technical and

preceding tax year.

group and the parent corporation of

Miscellaneous Revenue Act of 1988 and

another.

Notice 88-100, 1988-2 C.B. 439.

If 2006 is the first tax year the taxpayer

Note. If the corporation is an “excluded

Lines 6 and 7. Estimated salvage and

qualifies as a section 833 organization,

member” of a controlled group (see

reinsurance recoverable. Enter on lines

see section 833(c)(3)(C) to determine the

section 1563(b)(2)), it is still considered a

6 and 7 the amount of estimated salvage

adjusted surplus as of the beginning of

member of a controlled group for this

and reinsurance recoverable. The amount

the 2006 tax year.

purpose.

of estimated salvage recoverable must be

For purposes of the computation of the

determined on a discounted basis. The

Affiliated group. An affiliated group is

adjusted surplus, the terms “adjusted

salvage discount factors for 2006 are

one or more chains of includible

taxable income” and “adjusted net

published in Rev. Proc. 2007-10, 2007-3

corporations (section 1504(a)) connected

operating loss” mean the taxable income

I.R.B. 289. The salvage discount factors

through stock ownership with a common

or the net operating loss, respectively,

for 2007 will be published in the Internal

parent corporation. The common parent

determined with the following

Revenue Bulletin when available. Also

must be an includible corporation and the

modifications:

see Regulations section 1.832-4.

following requirements must be met.

1. Without regard to the deduction

Line 9. Tax-exempt interest subject to

1. The common parent must own

determined under section 833(b)(1);

section 832(b)(5)(B). Enter the amount

directly stock that represents at least 80%

2. Without regard to any carryover or

of tax-exempt interest received or

of the total voting power and at least 80%

carryback to that tax year; and

accrued during the tax year on

of the total value of the stock of at least

3. By increasing gross income by an

investments made after August 7, 1986.

one of the other includible corporations.

amount equal to the net exempt income

For information regarding the

2. Stock that represents at least 80%

for the tax year.

determination of the acquisition date of an

of the total voting power and at least 80%

investment, see the instructions for

of the total value of the stock of each of

Line 6. Special deduction. The

Schedule C.

the other corporations (except for the

deduction for any tax year is limited to

common parent) must be owned directly

taxable income for that tax year

by one or more of the other includible

determined without regard to this

Schedule G—Other

corporations.

deduction.

Capital Losses

For this purpose, the term “stock”

Note. Under section 833(b)(4), any

generally does not include any stock that

Capital assets are considered sold or

determination under section 833(b) must

(a) is nonvoting, (b) is nonconvertible, (c)

exchanged to provide funds to meet

be made by only taking into account items

is limited and preferred as to dividends

abnormal insurance losses and to pay

from the health-related business of the

and does not participate significantly in

dividends and make similar distributions

corporation.

corporate growth, and (d) has redemption

to policyholders to the extent that the

Line 8a. Adjusted tax-exempt income.

and liquidation rights that do not exceed

gross receipts from their sale or exchange

Reduce the total tax-exempt interest

the issue price of the stock (except for a

are not more than the amount by which

received or accrued during the tax year

reasonable redemption or liquidation

the sum of dividends and similar

by any amount (not otherwise deductible)

premium). See section 1504(a)(4). See

distributions paid to policyholders, losses

which would have been allowable as a

section 1563(d)(1) for the definition of

paid, and expenses paid for the tax year

deduction for the tax year if such interest

stock for purposes of determining stock

is more than the total on line 9, Schedule

were not tax-exempt. Enter the result on

ownership above.

line 8a.

Total gross receipts from sales of

Question 6

capital assets (line 12, column (c)) must

Line 8b. Adjusted dividends-received

Check the “Yes” box if one foreign person

not be more than line 10. If necessary,

deduction. Reduce the total amount

owned at least 25% of (a) the total voting

the corporation may report part of the

allowed as a deduction under sections

power of all classes of stock of the

gross receipts from a particular sale of a

243, 244, and 245 by the amount of any

corporation entitled to vote, or (b) the total

capital asset on this schedule and the rest

decrease in deductions allowable for the

value of all classes of stock of the

on Schedule D (Form 1120). Otherwise,

tax year because of section 832(b)(5)(B)

corporation.

do not include on Schedule D (Form

when the decrease is caused by the

1120) any sales reported on this

deductions under sections 243, 244, and

The constructive ownership rules of

schedule.

245. Enter the result on line 8b.

section 318 apply in determining if a

-17-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2006 Page 17

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