Ezel / IRS Rulings / 201536024
Chief Counsel Advice 201536024 Released September 4, 2015 Advice

Insurer retains unearned-premium and loss reserves for prior contracts

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This page covers one taxpayer's ruling from 2015, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.

Currency note: this determination was released in 2015
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

The IRS summarized reserve treatment for an insurer at the end of its 2009 tax year. The unearned-premium reserve included the part of written premiums covering unexpired periods of pre-2010 contracts and, unless the advance-premium method applied, 2009 receipts for contracts beginning in 2010. The taxpayer also retained a loss reserve reflecting a fair and reasonable estimate of payments required on pre-2010 contracts. The advice noted that section 265 disallows deductions for expenses tied to tax-exempt income but did not address special rules for a taxable organization becoming exempt.

Ruling snapshot

  • Question: What premium and loss reserves remain at year-end for insurance contracts spanning the taxpayer's change in status?
  • Outcome: Advice given
  • Key authorities: IRC §§ 265, 832

Full text (IRS public release)

ID: CCA_2015011516001825 [Third Party Communication:

UILC: 832.05-00 Date of Communication: Month DD, YYYY]

Number: 201536024
Release Date: 9/4/2015
From:
Sent: Thursday, January 15, 2015 4:00:18 PM
To:
Cc:
Bcc:
Subject: RE: NLI Request 1099

There may be other issues on the return so rather than confirm that “no adjustments should be
made to the 2009 1120PC”, I’ll summarize the discussion we had yesterday.

     According to the general rule, at the end of TY2009, Taxpayer will have an unearned
      premium reserve equal to the portion of the gross premium written that is attributable
      insurance coverage for the unexpired period of any pre-2010 contract and, unless the
      Taxpayer uses the advance premium method, for gross premiums received in 2009 for
      contracts that begin in 2010.
     At the end of TY2009, the Taxpayer retains its loss reserve for a fair and reasonable
      estimate of the amount it will be required to pay on pre-2010 contracts.

Also, as we discussed, my comments are based on ------- advise that § 265 does not allow a
deduction for expenses incurred with respect to tax exempt income. In addition, I am not a tax
exempt organization specialist and do not know whether any special rules apply when a
taxable organization becomes tax exempt.

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