Instructions For Form 1120-Pc - 2005 (Page 18 of 21) in pdf

1. Amount of the undiscounted unpaid

circumstances, elect under section 846(e)

are not more than the amount by which

losses,

to use their own historical experience

the sum of dividends and similar

2. Applicable interest rate, and

(instead of the loss payment patterns

distributions paid to policyholders, losses

3. Applicable loss payment pattern.

determined by the IRS). If this election is

paid, and expenses paid for the tax year

made, the loss payment patterns will be

is more than the total on line 9, Schedule

Special rules apply with respect to:

based on the most recent calendar year

•

Unpaid losses related to disability

for which an annual statement was filed

Total gross receipts from sales of

insurance (other than credit disability

before the beginning of the accident year.

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

insurance),

The election will not apply to any

•

not be more than line 10. If necessary,

Noncancelable accident and health

international or reinsurance line of

the corporation may report part of the

insurance,

business. If the corporation makes this

•

gross receipts from a particular sale of a

Cancelable accident and health

election, check the “Yes” column for

capital asset on this schedule and the rest

insurance, and

question 7 in Schedule I, Other

•

on Schedule D (Form 1120). Otherwise,

International and reinsurance lines of

Information. For more information, see

do not include on Schedule D (Form

business.

section 846(e), Regulations section

1120) any sales reported on this

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

With regard to the special rules for

schedule.

C.B. 453.

discounting unpaid losses on accident

and health insurance (other than disability

Note. There is a special application of

income insurance), unpaid losses are

the “fresh start” provision for an insurance

Schedule H—Special

assumed to be paid in the middle of the

company that is not subject to tax under

Deduction and Ending

year following the accident year.

section 831(a) for its first tax year

beginning after December 31, 1986,

Generally, the amount of undiscounted

Adjusted Surplus for

because (1) it is described in section

unpaid losses means the unpaid losses

Section 833 Organizations

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

and unpaid loss adjustment expenses

section 831(b) on its investment income.

shown in the annual statement. However,

Line 5. Beginning adjusted surplus. If

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

If the insurance company later

the corporation was a section 833

referring to Regulations section

becomes subject to tax under section

organization in 2004, it should enter the

1.832-4(b) relating to the determination of

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

amount from Schedule H, line 10, of its

unpaid losses.

under the discounting provisions are

2004 Form 1120-PC.

applied by treating the last tax year before

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

Generally, the adjusted surplus as of

the year in which the insurance company

losses must be adjusted to take into

the beginning of any tax year is an

becomes subject to tax under section

account estimated recoveries due to

amount equal to the adjusted surplus as

831(a) as the insurance company’s last

salvage and reinsurance for those losses.

of the beginning of the preceding tax

tax year beginning before 1987. See

If the amounts shown in the annual

year:

section 1010(e) of the Technical and

statement were determined on a

1. Increased by the amount of any

Miscellaneous Revenue Act of 1988 and

discounted basis and if the extent to

adjusted taxable income for the preceding

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

which these losses were discounted can

tax year or

be determined on the basis of information

Lines 6 and 7. Estimated salvage and

2. Decreased by the amount of any

disclosed on or with the annual

reinsurance recoverable. Enter on lines

adjusted net operating loss for the

statement, the amount of the

6 and 7 the amount of estimated salvage

preceding tax year.

undiscounted unpaid losses must be

and reinsurance recoverable. The amount

recomputed to eliminate any reduction

of estimated salvage recoverable must be

If 2005 is the first tax year the taxpayer

caused by such discounting. In no event

determined on a discounted basis. The

qualifies as a section 833 organization,

can the amount of discounted unpaid

estimated salvage discount factors for

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

losses with respect to any line of business

2005 are published in Rev. Proc.

adjusted surplus as of the beginning of

for an accident year exceed the total

2005-73, 2005-49 I.R.B. 1090. The 2006

the 2005 tax year.

amount of unpaid losses with respect to

estimated salvage and reinsurance rates

any line of business for an accident year

For purposes of the computation of the

will be published in the Internal Revenue

as reported on the annual statement. Also

adjusted surplus, the terms “adjusted

Bulletin when available. Also see

see Regulations section 1.832-4(d)

taxable income” and “adjusted net

Regulations section 1.832-4.

regarding increasing unpaid losses shown

operating loss” mean the taxable income

Line 9. Tax-exempt interest subject to

on the annual statement by salvage

or the net operating loss, respectively,

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

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

determined with the following

of tax-exempt interest received or

1992-2 C.B. 454.

modifications:

accrued during the tax year on

The applicable interest rate for each

1. Without regard to the deduction

investments made after August 7, 1986.

calendar year and the applicable loss

determined under section 833(b)(1);

For information regarding the

payment pattern for each accident year

2. Without regard to any carryover or

determination of the acquisition date of an

for each line of business are determined

carryback to that tax year; and

investment, see the instructions for

by the IRS. The applicable interest rate

3. By increasing gross income by an

Schedule C.

and loss payment patterns for 2005 are

amount equal to the net exempt income

published in Rev. Proc. 2005-72, 2005-49

for the tax year.

I.R.B. 1078. The applicable interest rates

Schedule G—Other

and loss payment pattern for 2003 and

Line 6. Special deduction. The

Capital Losses

2004 are published in Rev. Proc. 2004-9,

deduction for any tax year is limited to

taxable income for that tax year

2004-2 I.R.B. 275, and Rev. Proc.

Capital assets are considered sold or

determined without regard to this

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

exchanged to provide funds to meet

deduction.

respectively.

abnormal insurance losses and to pay

Corporations having sufficient

dividends and make similar distributions

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

historical experience to determine a loss

to policyholders to the extent that the

determination under section 833(b) must

payment pattern may, under certain

gross receipts from their sale or exchange

be made by only taking into account items

-18-

Instructions for Form 1120-PC

Instructions For Form 1120-Pc - 2005 Page 18

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