- 6 -
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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