Central Reserve Life Corporation and Subsidiaries - Page 6




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          determined and argues that the denominator includes these                   
          amounts.  Petitioner argues that the denominator does not include           
          these amounts.  If petitioner is correct, Central Life qualifies            
          as a life insurance company under section 816(a).  If respondent            
          is correct, Central Life fails to qualify as a life insurance               
          company for Federal income tax purposes, and petitioner's taxable           
          income would include Central Life's policyholder surplus of                 
          $2,869,768.  Central Life also would not be entitled to the small           
          life insurance company deduction in the amounts that it reported            
          for the subject years.                                                      
                                     Discussion                                       
               The parties dispute whether Central Life qualifies as a life           
          insurance company for Federal income tax purposes.  Congress has            
          enacted in the Internal Revenue Code different rules of taxation            
          for insurance companies that are life insurance companies as                
          opposed to nonlife insurance companies such as property and                 
          casualty (P&C) insurance companies.  Compare secs. 801-818 (rules           
          applicable to life insurance companies) with secs. 831-835 (rules           
          applicable to nonlife insurance companies).  The rules that apply           
          to life insurance companies are more favorable to insurance                 
          companies from a tax point of view than are the rules which apply           
          to nonlife insurance companies.  See United States v. Consumer              
          Life Ins. Co., 430 U.S. 725, 727-728 (1977).                                







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