Highest Aggregate Reserves Qualify for Statutory Reserves Cap

On June 27, 2008, the Internal Revenue Service (IRS) released Rev. Rul. 2008-371 dealing with the application of the statutory cap when a company conducts business in several states with different minimum reserve requirements. The IRS concludes that statutory reserves defined in I.R.C. § 807(d)(6) for purposes of the limitation on tax reserves in I.R.C. § 807(d)(1) is the highest aggregate reserve amount for I.R.C. § 807(c) items actually held and set forth on the annual statement pursuant to the minimum reserve requirements of any state in which the company does business.

The revenue ruling contains two examples. In situation one, the life insurance company (IC) conducts business in 45 states and issues a life insurance contract (Contract A). IC actually holds and reports to each state insurance regulatory authority on its annual statement the highest aggregate minimum amount of reserves required for its insurance and annuity contracts under the rules of any state in which IC does business. As a result, on its 2007 annual statements, IC reported end-of-year aggregate reserves of $405,955,000 which included $9,992 of life insurance reserves with respect to Contract A. 


T3: Taxing Times Tidbits

 38 Taxing Times, Vol. 4, Issue 3 (September 2008)

(co-authored with Peter H. Winslow and Samuel A. Mitchell)