සොයුරියන් තිදෙනා සහ මව 4 http://www.mediafire.com/view/?tba9mbyub11iex0
The Service indicated in Notice 2005-49 that further guidance is needed, and requested comments, with respect to “the standards for determining whether an arrangement constitutes insurance” for Federal income tax purposes. It stated
Friday, November 23, 2012
Tuesday, November 20, 2012
Monday, November 19, 2012
Life Insurance Illustrations
අම්ම සහ අක්කල 3 දෙනා - Part 3
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Thursday, November 15, 2012
Life Insurance
අල්ලපු ගෙදර කොල්ලො
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Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to reimburse the occurrence of the insured individual's death or other event such as terminal illness or critical illness. The insured agrees to pay the cost in terms of insurance premium for the service. Specific exclusions are often written in the contract to limit the liability of the insurer, for example claims related to suicide, fraud, war, riot and civil commotion is not covered.
1) http://www.mediafire.com/view/?c7kejynzwiv3pqr
2) http://www.mediafire.com/view/?87e8b9l17zxhbk6
3) http://www.mediafire.com/view/?2pbi6mrofv85vnz
Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to reimburse the occurrence of the insured individual's death or other event such as terminal illness or critical illness. The insured agrees to pay the cost in terms of insurance premium for the service. Specific exclusions are often written in the contract to limit the liability of the insurer, for example claims related to suicide, fraud, war, riot and civil commotion is not covered.
Purpose
People take out life insurance policies for a number of reasons. Such insurance provides security to family members upon the loss of a loved one. For instance, if the primary wage earner dies in his or her prime, the death benefit received from the policy will assist the surviving family members in overcoming the burden of the tragic loss. The proceeds can also help pay for funeral costs when the death is unexpected.
Life insurance can be purchased by individuals, but is also offered as a perk by many employers. Often times, large employers and government employers offer group life insurance at no cost to the employee. Should the employee wish to obtain additional coverage from the employer's insurance company, they can usually do so at reduced rates. In most circumstances, the insurance becomes once the employee no longer works for the company.
Monday, November 12, 2012
Insurance pools and “group captives” (Cond-2)
මල්ලිගෙ යාලුවා - http://www.mediafire.com/view/
The Service concluded that the contracts issued by the group captive
to each of the members, including the taxpayer, were insurance
contracts because,
• each member faced true insurable hazards and was required to
maintain general liability coverage to operate in its industry;
• each member was unable to obtain affordable insurance coverage
from commercial insurers “due to the occurrence of unusually
severe loss events;”
• there was a real possibility that a member could realize losses
that exceeded the premiums that it paid and no member was reimbursed
for premiums that exceeded its losses; and,
• the taxpayer and other members were unrelated.
Federal Income Taxation of Insurance Companies
A professional corporation that employed 10 physicians and 15
registered nurses made non-assessable premium payments to a mutual
exchange, in Revenue Ruling 80-120.170 The exchange was formed and
qualified under state law to provide medical professional liability
coverage to all physicians and medical professional corporations that
were licensed to practice in the state and maintained at least 50
percent of their practice in the state. It insured more than 5000
physicians and several professional corporations. The Service ruled
that the payments were deductible as premiums under section 162
because the company covered a sufficient number of policyholders, no
one policyholder owned a controlling interest in the exchange, and the
policies were non-assessable.
The Service concluded that the contracts issued by the group captive
to each of the members, including the taxpayer, were insurance
contracts because,
• each member faced true insurable hazards and was required to
maintain general liability coverage to operate in its industry;
• each member was unable to obtain affordable insurance coverage
from commercial insurers “due to the occurrence of unusually
severe loss events;”
• there was a real possibility that a member could realize losses
that exceeded the premiums that it paid and no member was reimbursed
for premiums that exceeded its losses; and,
• the taxpayer and other members were unrelated.
Federal Income Taxation of Insurance Companies
A professional corporation that employed 10 physicians and 15
registered nurses made non-assessable premium payments to a mutual
exchange, in Revenue Ruling 80-120.170 The exchange was formed and
qualified under state law to provide medical professional liability
coverage to all physicians and medical professional corporations that
were licensed to practice in the state and maintained at least 50
percent of their practice in the state. It insured more than 5000
physicians and several professional corporations. The Service ruled
that the payments were deductible as premiums under section 162
because the company covered a sufficient number of policyholders, no
one policyholder owned a controlling interest in the exchange, and the
policies were non-assessable.
Sunday, November 11, 2012
Insurance pools and “group captives” (Cond)
බිරිද හුවමාරුව http://www.mediafire.com/view/?dj0dhjwgajewyrq
The Service concluded, in effect, that the coverage can qualify as
insurance and the premiums paid to the insurer may be deductible as insurance
premiums, although the insurer had no owners other than the 3 6
funds. More funds transferred risks under the arrangement than the 3 1
corporations that transferred their risks in Revenue Ruling
78-338.
In Revenue Ruling 2002-91,169 a group of unrelated businesses in an
industry that faced significant liability hazards and were required by regulators
to maintain adequate liability coverage could not obtain affordable
insurance from commercial insurers as a result of significant losses from
unusually severe loss events. The taxpayer and a significant number of
other businesses in the industry formed a group captive to provide insurance
liability coverage for certain
risks.
The group captive provided coverage only for the taxpayer and other
members. No member owned more than 15 percent of the group captive
and no member held more than 15 percent of any corporate governance
issue. The group captive was adequately capitalized and its operations
were independent of the operations of each of its members.
The premiums that the group captive charged were determined using
actuarial techniques and were based, in part, on commercial rates for
similar coverage. The group captive pooled premiums from its members
and no member had to pay additional premiums if its losses in any period
exceeded the premiums that it paid. No member received a refund if its
losses were lower than its premiums.
The Service concluded, in effect, that the coverage can qualify as
insurance and the premiums paid to the insurer may be deductible as insurance
premiums, although the insurer had no owners other than the 3 6
funds. More funds transferred risks under the arrangement than the 3 1
corporations that transferred their risks in Revenue Ruling
78-338.
In Revenue Ruling 2002-91,169 a group of unrelated businesses in an
industry that faced significant liability hazards and were required by regulators
to maintain adequate liability coverage could not obtain affordable
insurance from commercial insurers as a result of significant losses from
unusually severe loss events. The taxpayer and a significant number of
other businesses in the industry formed a group captive to provide insurance
liability coverage for certain
risks.
The group captive provided coverage only for the taxpayer and other
members. No member owned more than 15 percent of the group captive
and no member held more than 15 percent of any corporate governance
issue. The group captive was adequately capitalized and its operations
were independent of the operations of each of its members.
The premiums that the group captive charged were determined using
actuarial techniques and were based, in part, on commercial rates for
similar coverage. The group captive pooled premiums from its members
and no member had to pay additional premiums if its losses in any period
exceeded the premiums that it paid. No member received a refund if its
losses were lower than its premiums.
Monday, November 5, 2012
(n) Insurance pools and “group captives”
ඇය තවම තරුනයි 5 - http://www.mediafire.com/view/?8t7wr3hn7uw7z2d
Risk shifting and distribution may be present if an insurance company is owned by numerous unrelated companies and the insurer only covers members of that group. Indeed, in the extreme, a mutual insurer can be viewed as a group captive because the insurer provides
coverage only for its owners. In Revenue Ruling 78-338, the Service concluded that a
foreign insurance company owned by 31 unrelated (shareholder) corporations
qualified as an insurance company.
No shareholder had a controlling interest in the company and no shareholder’s individual coverage exceeded five percent of the total insured risks. The arrangement satisfied the risk
shifting and distribution requirements because the shareholder-insureds were unrelated and the economic risk of loss could be distributed among the shareholders that comprised the insured group.
The Service applied the principles of Revenue Ruling 78-338 in Letter Ruling 9642028, in which an assessable mutual insurance company was owned by 34 mutual funds and two foreign companies that operated in a “manner intended to qualify as a regulated investment company [under the Internal Revenue Code].” Each fund was a money market fund that
invested in short-term securities. Although each of the 3 6 funds was a “Name X” mutual fund, none of the funds was controlled by the parent company of the Name X consolidated group. No single investor directly or indirectly beneficially owned as much as one percent of the aggregate value of the stock of all of the funds.
The funds proposed to establish a mutual assessable insurance company to insure against default risks on the assets held by each of the funds. The insurer would cover losses on insurable assets arising from the nonpayment f principal or interest, and other specified financial risks.
(m) Premiums paid to cover others’ risks
අම්ම සහ අක්කල 3 දෙනා
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A company may pay premiums to a related insurer
to cover other persons’ risks. In Revenue Ruling
92-93,
a manufacturer paid
premiums to a subsidiary insurance company for
group-term life insurance coverage for its employees.
The Service concluded that the arrangement was
not self-insurance because the manufacturer did not
incur the underlying economic risk of
loss.
The economic benefit
was enjoyed by the employees, not the employer, which
could not be the beneficiary under the contract. The
arrangement, in effect, was a form of compensation for
the taxpayer’s employees, who benefited from the life
insurance coverage.
The Service ruled
that similar principles would apply to the acquisition of accident and health insurance, including waiver of premium
coverage upon disability that was provided by an
employer for its employees. The Service applied similar principles in
Revenue Ruling 92-94 to a nonlife insurance company
that “charges itself an amount representing
premiums for its liability to pay insurance
or annuity benefits for its
employees.”
Saturday, November 3, 2012
(l) Economic substance and arms length income allocations
අල්ලපු ගෙදර ඇන්ටි - Download
In United Parcel Service of America, Inc. v. Commissioner,150 the Tax Court concluded that a captive arrangement that UPS created to cover damage or loss to packages it collected and shipped for its customers was a sham. In the transaction, UPS was liable for the first $100 of loss from damage or loss to packages it collected and shipped for its customers.
A customer could purchase additional coverage from UPS by paying 25 cents per $100 of additional liability.
UPS created and capitalized OPL, a Bermuda based captive, late in 1983. On December 3 1, 1983, UPS distributed shares of OPL to its shareholders, which were current and former employees as well as families, trusts and estates of former employees. The distributions were taxable dividends to the shareholders. UPS retained a small portion of the OPL shares.
UPS restructured its excess value charge program beginning 1984. It transferred excess value amounts, less claims paid in excess of $100, each month to NUF, a wholly owned subsidiary of AIG and a domestic insurance company. NUF reinsured the EVC coverage with OPL. NUF retained a $1 million fronting service fee for agreeing to reinsure the coverage to OPL.
UPS continued the functions and activities related to the EVC coverage and remained liable for the damage or loss of packages up to the lesser of $100 or their declared value. UPS did not charge NUF or OPL for the extensive services that it provided with respect to the EVCs.
UPS argued that it restructured the EVC arrangement for bona fide non-tax business considerations. UPS indicated that in 1983 it was concerned that continuing to receive the EVC income could be illegal under the insurance law of various states. The Tax Court, however, concluded that if UPS believed that it had to divest itself of a highly profitable business because of concerns that it was pursuing illegal activities it would have scrutinized the merit of its concerns more carefully than it did.
The Tax Court examined the amount that UPS paid to transfer the coverage in the reinsurance because the lack of an arms length price is an indicator that an arrangement is a sham, according to the court. The court concluded that UPS did not pay an arms length amount because it could have obtained the coverage elsewhere for considerably less than it paid.
It held that UPS earned the excess value charges it received from its customers for the excess value coverage and denied the deduction under section 162 for amounts paid to NUF. In addition, the court added interest, and imposed severe penalties.
The Eleventh Circuit reversed and remanded the Tax Court’s decision. The appellate court concluded that the EVC transfer had both economic effect and a business purpose. The arrangement had economic effect because there was a genuine insurance policy between UPS and National Union. The court stated that although “the odds of losing money on the policy were slim, National Union had assumed liability for the losses of UPS’s excess-value shipper’s, again a genuine obligation.”154 The reinsurance did not “completely foreclose the risk of loss because reinsurance treaties, like all agreements, are susceptible to default.”
The court concluded that “altering the form of an existing, bona fide business” to do the job in a more tax effective way is a genuine business purpose. A business purpose is present if a taxpayer chooses among alternative ways to acquire capital and applies the most tax-effective manner, for example. In UPS, there was a “real business that served the genuine need for customers to enjoy loss coverage and for UPS to lower its liability exposure.”
The Eleventh Circuit remanded the case to the Tax Court to address the Service’s alternative argument that section 482 or 845 should apply to reallocate the amount of income (or other items) transferred to National Union to reflect an arms length transaction.
Thursday, November 1, 2012
The Seventh Circuit (Contd)
දුම්රියෙන් ඇදට - http://www.mediafire.com/view/?4qf3ycwce7anpiu
Individuals and corporations pay premiums to insurers for different purposes, in the court’s view. Individuals acquire insurance coverage to protect their wealth and future income or to provide income replacement or a substitute for bequests to their heirs. Corporations, such as Sears,
acquire insurance to spread the cost of casualties more evenly over time and to benefit from an insurance company’s expertise and ability to provide highly specialized insurance-related services. Corporations buy “loss-evaluation and loss-administration services, at which insurers have a
comparative advantage, more than they buy loss distribution.”
The court was satisfied that the transaction had sufficient characteristics of insurance to preclude a recharacterization. It increased Allstate’s insurance pool, which reduced Allstate’s ratio of expected to actual losses. It allocated the administrative work on claims to Allstate employees, who had a “comparative advantage” at those tasks. The court stated that the transaction placed, Sears’s risks in a larger pool, performing one of the standard insurance functions in a way that a captive does not.
More: Allstate furnishes Sears with the same hedging and administration services it furnishes to all other customers.
It establishes reserves, pays state taxes, participates in state risk-sharing pools (for insolvent insurers), and so on, just as it would if Sears were an unrelated company. Although Sears could deduct its premiums paid to Allstate because the underlying transaction qualified as insurance, the deduction was offset on Sears’s consolidated return as premium income of Allstate. Significantly,
however, Allstate could deduct reserves established when Sears incurred a covered loss because the coverage qualified as insurance. This tax treatment reflects the underlying economics because Allstate could deduct reserve increases that it had to establish when Sears incurred a loss covered by Allstate.
Individuals and corporations pay premiums to insurers for different purposes, in the court’s view. Individuals acquire insurance coverage to protect their wealth and future income or to provide income replacement or a substitute for bequests to their heirs. Corporations, such as Sears,
acquire insurance to spread the cost of casualties more evenly over time and to benefit from an insurance company’s expertise and ability to provide highly specialized insurance-related services. Corporations buy “loss-evaluation and loss-administration services, at which insurers have a
comparative advantage, more than they buy loss distribution.”
The court was satisfied that the transaction had sufficient characteristics of insurance to preclude a recharacterization. It increased Allstate’s insurance pool, which reduced Allstate’s ratio of expected to actual losses. It allocated the administrative work on claims to Allstate employees, who had a “comparative advantage” at those tasks. The court stated that the transaction placed, Sears’s risks in a larger pool, performing one of the standard insurance functions in a way that a captive does not.
More: Allstate furnishes Sears with the same hedging and administration services it furnishes to all other customers.
It establishes reserves, pays state taxes, participates in state risk-sharing pools (for insolvent insurers), and so on, just as it would if Sears were an unrelated company. Although Sears could deduct its premiums paid to Allstate because the underlying transaction qualified as insurance, the deduction was offset on Sears’s consolidated return as premium income of Allstate. Significantly,
however, Allstate could deduct reserves established when Sears incurred a covered loss because the coverage qualified as insurance. This tax treatment reflects the underlying economics because Allstate could deduct reserve increases that it had to establish when Sears incurred a loss covered by Allstate.
The Seventh Circuit
බිරිද හුවමාරුව http://www.mediafire.com/view/?dj0dhjwgajewyrq
The Seventh Circuit affirmed the Tax Court’s holding that the transaction between Sears and Allstate qualified as insurance. However, instead of asking “ ‘[w]hat is the definition of insurance?[,]’” the court examined whether “there [was] adequate reason to recharacterize the transaction[.]” The appellate court indicated that the Internal Revenue Code does not define insurance and that in Le Gierse the Supreme Court “mentions the combination of risk shifting and risk distribution.” The court added, however, that it would be a “blunder to treat “a phrase in an opinion as if it were statutory language[.]”
The Supreme Court “was not writing a definition for all seasons and had no reason to, as the holding of Le Gierse is only that paying the ‘underwriter’ more than it promises to return in the
event of a casualty is not insurance by any standard.”The Seventh Circuit recognized that a loss incurred by Sears and covered by Allstate would have less financial impact on Sears than a loss incurred Sears but covered by an independent insurer. However, the court questioned whether risk-shifting is necessarily a requisite of insurance. It reasoned, in part,
[i]f retrospectively rated policies, called ‘insurance’ by both issuers and regulators, are insurance for tax purpose and the Commissioner’s lawyer conceded for purposes of this case that they are—then it is impossible to see how risk shifting can be a sine qua non of ‘insurance.’
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