Life and P&C Update Agenda. IIR Hedging IIR Section 166 New York Life Mass Mutual State Farm Acuity Principal Southern Family Legislative proposals Proposed 1.162-27 Revenue Ruling 2011-9 Revenue Ruling 2011-15 TAM 201117027 PLR 201045017 PLR 201115012.
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Variable annuities often provide guaranteed minimum benefits and companies hedge the associated risk with derivatives
Is it a tax hedge?
What method of accounting clearly reflects income?
How are reserve deductions claimed?
If hedge gain is deferred, how is it recognized into taxable income?
ACLI has requested IRS national office to issue guidance through the industry issue resolution (IIR) program
Matching of hedge gain against reserve deductions
Any deferred gain to be recognized against future reserve deductions. If gain not recognized within five years of realization, then recognized over five additional years.IIR - Hedging
Taxpayers may get a deduction for partially worthless debt under §166
Debt instrument cannot be a security
Taxpayer must have proof of partial worthlessness, and
The worthless portion must be “charged off”
Ordinary rather than capital loss
Acceleration of deduction
REMIC’s are not securities for tax purposes
IIR request submitted and accepted
Industry ask is for book-tax conformity for the credit component of the SSAP 43R impairment chargeIIR - §166 Partially Worthless
Bonuses received from a state-created joint underwriting association for taking out residential insurance policies were non-shareholder capital contributions and were excludable from gross income.
On June 23, 2011, the Internal Revenue Service issued proposed regulations that purport to clarify the application of certain existing regulations under Section 162(m).
(i) a 20-percent owner of such entity, or
(ii) an officer, director, or employee
Merger of life insurance companies will not produce a disproportionate asset acquisition under reg. section 1.1504-47(d)(12)(viii).
The IRS granted extensions to elect section 831(b)
Solely for the first taxable year beginning after December 31, 2009, the Service will not treat a taxpayer as losing its status as a stock insurance company by reason of section 833(c)(5) provided the following conditions are met –
Notice 2011-4 clarified and modified Notice 2010-79 to provide that changes in method of accounting for unearned premiums that are required as a result of the operation of § 833(c)(5) must be implemented under the automatic method change procedures.
The interim guidance provided in Notice 2010-79 is extended to any taxable year beginning in 2010 and the first taxable year beginning after December 31, 2010.