Instructions For Form 1120-Pc - 2010 (Page 18 of 21) in pdf

Note. The deduction for any tax year is

Corporations having sufficient

the sum of dividends and similar

historical experience to determine a loss

distributions paid to policyholders, losses

limited to taxable income for that tax year

payment pattern may, under certain

paid, and expenses paid for the tax year

determined without regard to this

circumstances, elect under section 846(e)

is more than the total on line 9, Schedule

deduction.

to use their own historical experience

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

(instead of the loss payment patterns

Total gross receipts from sales of

determination under section 833(b) must

determined by the IRS). If this election is

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

be made by only taking into account items

made, the loss payment patterns will be

not be more than line 10. If necessary,

from the health-related business of the

based on the most recent calendar year

the corporation may report part of the

corporation.

for which an annual statement was filed

gross receipts from a particular sale of a

Line 8a. Adjusted tax-exempt income.

before the beginning of the accident year.

capital asset on this schedule and the rest

Reduce the total tax-exempt interest

The election will not apply to any

on Schedule D (Form 1120). Otherwise,

received or accrued during the tax year

international or reinsurance line of

do not include on Schedule D (Form

by any amount (not otherwise deductible)

business. If the corporation makes this

1120) any sales reported on this

which would have been allowable as a

election, check the “Yes” column for

schedule.

deduction for the tax year if such interest

question 7 in Schedule I, Other

were not tax-exempt. Enter the result on

Information. For more information, see

line 8a.

Schedule H—Special

section 846(e), Regulations section

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

Line 8b. Adjusted dividends-received

Deduction and Ending

C.B. 453.

deduction. Reduce the total amount

Adjusted Surplus for

allowed as a deduction under sections

Note. There is a special application of

243, 244, and 245 by the amount of any

the “fresh start” provision for an insurance

Section 833 Organizations

decrease in deductions allowable for the

company that is not subject to tax under

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

section 831(a) for its first tax year

For tax years beginning after December

when the decrease is caused by the

beginning after December 31, 1986,

31, 2009, section 833(c)(5) provides that

deductions under sections 243, 244, and

because (1) it is described in section

section 833 does not apply to any

245. Enter the result on line 8b.

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

organization with a medical loss ratio of

section 831(b) on its investment income.

less than 85%.

See section 833(c)(5) and Notice

If the insurance company later

Schedule I—Other

2010-79 for more information.

becomes subject to tax under section

Information

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

Line 5. Beginning adjusted surplus. If

under the discounting provisions are

the corporation was a section 833

The following instructions apply to page 7,

applied by treating the last tax year before

organization in 2009, it should enter the

Form 1120-PC. Complete all items that

the year in which the insurance company

amount from Schedule H, line 10, of its

apply to the corporation.

becomes subject to tax under section

2009 Form 1120-PC.

Question 4

831(a) as the insurance company’s last

Generally, the adjusted surplus as of

tax year beginning before 1987. See

Check the “Yes” box if:

the beginning of any tax year is an

section 1010(e) of the Technical and

•

The corporation is a subsidiary in an

amount equal to the adjusted surplus as

Miscellaneous Revenue Act of 1988 and

affiliated group (defined below), but is not

of the beginning of the preceding tax

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

filing a consolidated return for the tax year

year:

with that group, or

Lines 6 and 7. Estimated salvage and

1. Increased by the amount of any

•

The corporation is a subsidiary in a

reinsurance recoverable. Enter on

adjusted taxable income for the preceding

parent-subsidiary controlled group. For a

lines 6 and 7 the amount of estimated

tax year or

definition of parent-subsidiary controlled

salvage and reinsurance recoverable.

2. Decreased by the amount of any

group, see the instructions for Schedule

The amount of estimated salvage

adjusted net operating loss for the

O (Form 1120).

recoverable must be determined on a

preceding tax year.

discounted basis. The salvage discount

Any corporation that meets either of

factors for 2010 are published in Rev.

If 2010 is the first tax year the taxpayer

the requirements above should check the

Proc. 2010-50, 2010-50 I.R.B. 841. The

qualifies as a section 833 organization,

“Yes” box. This applies even if the

salvage discount factors for 2011 will be

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

corporation is a subsidiary member of one

published in the Internal Revenue Bulletin

adjusted surplus as of the beginning of

group and the parent corporation of

when available. Also see Regulations

the 2010 tax year.

another.

section 1.832-4.

For purposes of the computation of the

Note. If the corporation is an “excluded

Line 9. Tax-exempt interest subject to

adjusted surplus, the terms “adjusted

member” of a controlled group (see

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

taxable income” and “adjusted net

definition in the Instructions for Schedule

of tax-exempt interest received or

operating loss” mean the taxable income

O (Form 1120)), it is still considered a

accrued during the tax year on

or the net operating loss, respectively,

member of a controlled group for this

investments made after August 7, 1986.

determined with the following

purpose.

For information regarding the

modifications:

Affiliated group. An affiliated group is

determination of the acquisition date of an

1. Without regard to the deduction

one or more chains of includible

investment, see the instructions for

determined under section 833(b)(1);

corporations (section 1504(a)) connected

Schedule C.

2. Without regard to any carryover or

through stock ownership with a common

carryback to that tax year; and

parent corporation. The common parent

3. By increasing gross income by an

Schedule G—Other

must be an includible corporation and the

amount equal to the net exempt income

following requirements must be met.

Capital Losses

for the tax year.

1. The common parent must own

Capital assets are considered sold or

Line 6. Special deduction. For tax

directly stock that represents at least 80%

exchanged to provide funds to meet

years beginning after December 31,

of the total voting power and at least 80%

abnormal insurance losses and to pay

2009, the special deduction under section

of the total value of the stock of at least

dividends and make similar distributions

833(b) cannot be taken if the medical loss

one of the other includible corporations.

to policyholders to the extent that the

ratio is less than 85%. If the medical loss

2. Stock that represents at least 80%

gross receipts from their sale or exchange

ratio is less than 85%, enter zero on line 6

of the total voting power and at least 80%

are not more than the amount by which

and Schedule A, line 34a.

of the total value of the stock of each of

-18-

Instructions for Form 1120-PC (2010)

Instructions For Form 1120-Pc - 2010 Page 18

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