IRS determination 200529008: Single insured arrangement denied tax exemption

Plain-English summary

An organization claimed federal income tax exemption as an insurance company under Code section 501(c)(15). The IRS issued a final adverse ruling because its arrangement had only one insured. Without risk distribution, the arrangement did not qualify as insurance for federal income tax purposes, so the organization was not an insurance company for 2003 or 2004. The letter directed the organization to file federal income tax returns within 30 days unless it obtained an extension.

Ruling snapshot

• Question: Did a single insured arrangement qualify the organization for exemption under section 501(c)(15)?
• Outcome: Denied for 2003 and 2004.
• Key authorities: IRC § 501(c)(15).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Number: 200529008
Release Date: 07/22/2005
SE:T:EO:RA:T:3

Date: 04/28/05
Employer Identification Number:

Form:
Index (UIL) No.: 501.15-00
Tax Years:

Contact Person:

Identification Number:

Telephone Number:

Dear ------------:

This letter constitutes a final adverse ruling with respect to your claim of exemption from federal income taxation under section 501(c)(15) of the Internal Revenue Code.

We make our ruling for the following reason(s):

Your insurance arrangement involves only one insured. Since there is only one insured, your insurance arrangement does not qualify as insurance for federal income tax purposes because there is no risk distribution. Because the arrangement does not qualify as insurance for federal income tax purposes, you do not qualify as an insurance company for 2003 and 2004.

The Code and the regulations issued thereunder require that you file federal income tax returns. Based upon the financial information that you furnished, you should file returns on the Form and for the tax years indicated above within 30 days from the date of this letter, unless you request and are granted an extension of time to file the returns. You should attach a copy of this letter to the returns you file. Questions concerning the filing of returns should be directed to the Ohio Tax Exempt and Government Entities (TE/GE) office at 877-829-5500 (a toll free number).

This ruling will be made available for public inspection under section 6110 of the Code after certain deletions of identifying information are made. For details, see enclosed Notice 437, Notice of Intention to Disclose. A copy of this ruling with deletions that we intend to make available for public inspection is attached to Notice 437. If you disagree with our proposed deletions you should follow the instructions in Notice 437.

2

If you have any questions concerning the reasons for this ruling, please contact the person whose name and telephone number appear in the heading of this letter.

Sincerely,

Lois G. Lerner
Director, Exempt Organizations
Rulings & Agreements

Enclosure
Notice 437