internal_revenue_service appeals_office release number release date date date org address certified mail dear department of the treasury employer_identification_number person to contact employee id number tel fax tax period s ended december 20xx december 20xx december 20xx uil this is a final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code the code sec_501 as an organization described in code sec_501 the revocation of your exempt status was made for the following reason s taxpayer is not an insurance_company exempt from tax pursuant to code sec_501 as of 20xx 20xx and 20xx in accord with your request relief has been granted as authorized by sec_7805 of the internal_revenue_code as of december 19xx you are required to file federal_income_tax returns on forms for the short tax period beginning july 20xx and for all tax years thereafter file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov please show your employer_identification_number on all- returns you file and in all correspondence with internal_revenue_service we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you ina separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours appeals team manager enclosure publication internal_revenue_service department of the treasury date date org address taxpayer_identification_number form_990 tax_year s ended december 20xx person to contactv id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your organization’s exempt status is necessary if you do not agree with our position you may appeal your case the enclosed publication the examination process explains how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process if you request a conference we will forward your written_statement of protest to the appeals_office and they will contact you for your convenience an envelope is enclosed if you and appeals do not agree on some or all of the issues after your appeals_conference or if you do not request an appeals_conference you may file suit in united_states tax_court the united_states court of federal claims or united_states district_court after satisfying procedural and jurisdictional requirements as described in publication catalog number 34801v letter rev you may also request that we refer this matter for technical_advice as explained in publication exempt_organization appeal procedures for unagreed issues if a determination_letter is issued to you based on technical_advice no further administrative appeal is available to you within the irs on the issue that was the subject of the technical_advice if you accept our findings please sign and return the enclosed form_6018 consent to proposed adverse action we will then send you a final letter revoking your exempt status if we do not hear from you within days from the date of this letter we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final in that event you will be required to file federal_income_tax returns for the tax period s shown above file these returns with the ogden service_center within days from the date of this letter unless a request for an extension of time is granted file returns for later tax years with the appropriate service_center indicated in the instructions for those returns you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerely director eo examinations enclosures ' publication publication form_6018 report of examination envelope letter rev catalog number 34801v f orm 886a name of taxpayer org department of the treasury - internal_revenue_service explanation of items schedule no or op exhibit year period ended issues 20xx 20xx 20xx legend org - organization name state state director-1 thru company-1 thru county - county manager-1 thru - co-1 thru xx - date address - address city - city territory - territory partnership-1 thru property-1 thru - lp-1 thru whether org org is an insurance_company described in sec_501 whether org can continue to rely on its initial determination_letter dated october 20xx which recognized the organization’s exempt status under i r c sec_501 for the tax years at issue if the organization did not operate as an insurance_company as that term is used i r c sec_501 whether org qualifies for relief under i r c sec_7805 in the circumstances presented if org cannot continue to rely upon its determination_letter whether january 20xx -- the first day of the first tax period covered under this report --will be the effective date of revocation of org’s recognition as an insurance_company described in sec_501 if the commissioner exercises discretion to grant relief under i r c sec_7805 this report supersedes the report sent on july 20xx with respect to the proposed effective date of revocation if the commissioner exercises discretion to grant relief under i r c sec_7805 addressed under issue exhibits identified within this report are the same as those that were enclosed with the report sent on july 20xx and are therefore not being re-submitted as enclosures with this report form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org overview of topics discussed in report facts schedule no or exhibit year period ended 20xx 20xx 20xx formation and licensure within territory page form_990 filed for tax years 19xx-20xx prelnsurance applying for tax-exemption page sec_5 - sec_953 foreign_insurance_company election signed on may 20xx page application_for recognition of tax-exempt status pages - role of org officers directors in the tax-exempt application process pages -- irs exemption ruling letter issued on october 20xx pages - relationship between org and companies page director family members identified with org transactions page19 org chart identifying managers and equity holders of sole shareholder page primary purpose of org is insuring business activities of directors page org business plan tied to companies pages professional background of org officers directors director-1 and director-4 page net gain from sale of non-inventory assets pages premium revenue from direct-written policies page sec_39 - sources of revenue reported for years 20xx-20xx pages a b c assumed reinsurance premiums page sec_66 - d e miscellaneous revenue from line of credit fee page sec_73 - other investment_income page sec_75 - n n d o n n o o o o o form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer year period ended org overview of topics discussed in report facts 20xx 20xx 20xx expenses reported for years 20xx-20xx page a b c d e legal fees pages interest page sec_88 - management fee page sec_90 - property taxes pages - incurred claims and experience refunds due to the insurance_company page - insurance commissions page f assets reported for years 20xx-20xx page a b c d e f accounts_receivable pages - other assets line of credit page sec_113 - other notes loans receivable page sec_118 - securities investments page sec_125 - other investments page sec_127 - land building equipment page sec_132 - liabilities reported for years 20xx-20xx page plan to liquidate on before december 20xx page sec_138 - form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org formation and licensure within country fact sec_1 schedule no or exhibit year period ended 20xx 20xx 20xx org was incorporated on december 19xx under the laws of the territory the purpose for which org was organized is explained within article of org’s memorandum of association which states that org was established to engage in the business of an insurance and reinsurance company to act as insurance agents intermediaries and consultants to accept risks and to settle claims on its own behalf and on behalf of others org’s memorandum of association is illustrated within exhibit on december 19xx org received its insurance license under sections and of the insurance act of of the territory regarding such licensure org’s license no 99ca states that org was granted an insurance license in accordance with provisions of section of the insurance act to carry on general insurance_business in the classes of fire theft business interruption legal liability property casualty insurance and credit life credit disability reinsurance from with the territory org’s license no __ under sections and of the territory insurance act of is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx facts form_990 filed for tax years 19xx-20xx preceding applying for tax-exemption org filed form_990 for tax years 19xx and 20xx pre insurance the application_for recognition of tax-exempt status submitted in year 20xx information reported within these forms is summarized here part for year 20xx consisting of - income statement reported no revenue for year 19xx and revenue of dollar_figure form_990 part i line dollar_figure interest dollar_figure premiums from offshore reinsurer co-23 insurance ltd - other revenue premiums insurance premiums subject_to reinsurance - total revenue revenue premiums written premiums assumed - interest on savings temp cash inv year 19xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure - program service -0- -0- statement of functional expenses reported no expenses for year 19xx and part il expenses for year 20xx consisting of - dollar_figure accounting fees dollar_figure commissions dollar_figure experience refunds dollar_figure loss expenses_incurred form_990 part il line - accounting fee sec_43 - commission sec_43 -loss expenses_incurred - total functional expenses - experience refunds year 20xx dollar_figuredollar_figuredollar_figure year 19xx dollar_figuredollar_figuredollar_figure form 886-a rev department of the treasury - internal_revenue_service page name of taxpayer org form 886a department of the treasury - internal_revenue_service explanation of items facts form_990 filed for tax years 19xx-20xx preceding applying for tax-exemption schedule no or exhibit year period ended 20xx 20xx 20xx part ill statement of program service accomplishments stated for years 19xx and 20xx respectively the tax exempt_purpose of the organization is the providing of property and casualty insurance underwriting services to independently operated businesses both related and unrelated to provide property and casualty insurance underwriting services to independently operated businesses both related and unrelated part iv balance_sheet reported no assets at beginning-of-year 19xx and dollar_figure non-interest bearing cash as the only asset at year-end 19xx no liabilities were reported for year 19xx part iv balance_sheet reported for year 20xx - beginning-of-year 20xx assets to be the same as year-end 19xx assets - sole asset was dollar_figure of non-interest bearing cash year-end 20xx assets totaled dollar_figure -- dollar_figure non-interest bearing cash dollar_figure accounts_receivable dollar_figure other investments no liabilities at beginning-of-year 20xx and dollar_figure accounts_payable as sole liability at year-end 20xx form_990 part iv line - non-interest bearing cash - accounts_receivable - other investment sec_59 - total assets year 19xx dollar_figuredollar_figuredollar_figure -0- -0- big_number year 20xx dollar_figuredollar_figuredollar_figure form_990 part iv line - accounts_payable and accrued expense sec_66 - total liabilities year 19xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org fact sec_2 form_990 filed for tax years 19xx-20xx preceding applying for tax-exemption 20xx 20xx 20xx schedule no or exhibit year period ended part v identified directors and insurance manager for year 19xx as director-1 director-2 director-3 these directors were reported as devoting an average of hours week to org earning zero compensation and having an address of address city state zip code an attachment to form_990 year 19xx reported that these shareholders owned an equal in org part v identified directors and insurance manager for year 20xx as director-1 director-4 for years 19xx-20xx part v identified insurance manager as org’s insurance manager devoting hours week to org and earning estimated compensation of dollar_figure insurance manager’s address was identified as address city territory org’s form_990 filed for years 19xx-20xx preceding application_for tax-exempt status are illustrated within exhibit sec_3a and sec_3b form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org sec_953 foreign_insurance_company election signed on datexx facts schedule no or exhibit year period ended 20xx 20xx 20xx org’s election under code sec_953 election was signed under penalty of perjury by officer director director-1 on may 20xx article thereof provided that the sec_953 election be effective commencing as of 19xx article thereof was erroneous in regard to org assets having an adjusted_basis equal to of org’s gross_income for the prior year because org’s form_990 filed for year 19xx reported no revenue org maintains an office or other fixed place of business in the zip code and owns assets which are physically located in the basis equal to of the prior year’s gross_income of org with an adjusted located at address city state org’s foreign_insurance_company election under code sec_953 is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer schedule no or exhibit year period ended org application_for recognition of tax-exempt status fact sec_4 20xx 20xx 20xx org's form_1024 application_for recognition of exemption under sec_501 was signed and dated by its director director-1 on july 20xx under the penalties of perjury part il item of org’s form_1024 stated the following with respect to org’s proposed activities proposed activities org is a small property and casualty insurance activities company formed and licensed under the laws of the territory in such capacity it is licensed to conduct property and casualty related insurance activities the underwriting of property and casualty related risks on both a direct and reinsurance basis these are as follows its activities are specifically limited to a form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org application_for recognition of tax-exempt status facts schedule no or exhibit year period ended 20xx 20xx 20xx underwriting select lines of property and casualty insurance coverages for business entities that are both related and unrelated hereto these insurance risks can be categorized by way of example errors and omissions insurance_business economic loss business interruption bankruptcy protection employment practices loss of key_employee services and other lines of property and casualty related risks total organizational time devoted to underwriting and administration of insurance estimated to be to accepting and issuing reinsurance coverage for select lines of property and casualty insurance risks including credit disability insurance no credit life is envisioned within the company total organizational time devoted to_ reinsurance related administration is estimated to be to org achieves control of insurance related costs and cash_flow through centralized premium and loss monitoring org retains its investment_income and will invest the monetary assets of the company to support underwriting expense and losses all of the activities relate to the conduct of an insurance_business other than life business the nature of investments shall include cash and cash equivalents marketable_securities real_estate and any other permitted assets b the above described activities were all initiated in december 19xx c the above described activities are conducted and overseen in the territory through a designated resident insurance manager who at the current time is insurance manager a subsidiary of professional service company in the territory insurance manager is licensed in accordance with the insurance act to act as insurance manager in the jurisdiction form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org application_for recognition of tax-exempt status facts schedule no or exhibit year period ended 20xx 20xx 20xx org s insurance activity is not anticipated to exceed dollar_figure in gross written premiums during the first four years of the company therefore org is applying for recognition under sec_501 identification of officers directors part li item of org’s form_1024 identified org’s officers directors as director-1 and director-4 the directors’ address was identified as address city state zip code although not disclosed within the form_1024 application package director-1 and director-4 are husband-wife and that the address in city state is the location of the companies a group of businesses to be discussed later in this report no connection stated to exist with organizations other than insured parties part il - item requested a description of the other organization and an explanation of the relationship with this other organization where the applicant organization was planned to be or was connected in any way with any other organization org’s response stated there is no connection to another organization other than by the applicant to its insured s no promotional literature distributed org checked the no box in response to the question within part il - item of its form does the organization publish pamphlets brochures newsletters journals or similar printed material if yes attach a recent copy of each financial support and expenses in response to part il-ltem where the applicant organization was required to list its present and future sources of financial support beginning with the largest source first org represented that insurance premiums would be the largest source of financial support followed by investment_income and shareholder capital contributions form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended org application_for recognition of tax-exempt status facts 20xx 20xx 20xx org represented its revenues and expenses within part ill - section a of its form_1024 as entirely related to its exempt_purpose 11xx to xx revenue estimated 20xx 19xx total gross amounts derived from activities relate dto the organization’s exempt_purpose total revenue expenses attributed to activities related to the organization’s exempt purposes expenses supporting revenue amounts represented within part ill-section a of form_1024 were amounts of direct written premiums and reinsurance assumed premiums that org represented within schedule of its form total expenses excess of revenue over expenses jan -- june 20xx 20xx direct written premiums reinsurance assumed reinsurance ceded net written premiums o o o o o o l o o o org’s form_1024 application_for recognition of exemption under sec_501 is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org role of org officers directors in the tax-exempt - application process facts schedule no or exhibit year period ended 20xx 20xx 20xx idr years 20xx-20xx requested explanations concerning the role of org officers directors in the application process other than director-1’s signing the form_024 application under penalties of perjury on 20xx officers directors not involved in previous formation of sec_501 insurance_companies item of idr years 20xx-20xx inquired as to whether org’s officers directors were involved in forming an insurance_company recognized as exempt from federal_income_tax under code sec_501 org’s response explained that - prior to the formation of the company neither director-1 nor director-4 had ever previously formed an insurance_company recognized as exempt from federal_income_tax under code sec_501 application procedures handled by officers’ attorneys accountants item of idr years 20xx-20xx as to whether org officers directors understood the procedural steps required to obtain recognition of tax-exempt status under code sec_501 and if not whether such procedural steps were explained to them by a tax consultant tax advisor org’s response explained that - director-1 director-4 do not personally handle tax compliance matters for any of their many business entities after director-1 and his subordinates completed their business due diligence on setting up an insurance_company the procedural steps to obtain recognition of exception under code sec_501 were carried out by their attorneys and accountants no feasibility study conducted to form org item of idr years 20xx-20xx requested an explanation as to whether org officers directors had obtained and or conducted a feasibility study as to forming an insurance_company qualifying as tax-exempt under code sec_501 org’s response explained that - director-1 and his subordinates completed due diligence on the concept and business possibilities of forming an insurance_company a business plan was prepared and submitted both to the territory insurance regulators and to the irs this business plan was previously provided to you in response to an earlier idr no document entitled ‘feasibility study’ was prepared form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org role of org officers directors in the tax-exempt application process facts schedule no or exhibit year period ended 20xx 20xx 20xx opinion letter regarding tax ramifications not received by org officers directors item of idr years 20xx-20xx requested an explanation as to whether org officers directors had received an opinion letter from an attorney or accountant as to tax ramifications involved in establishing an insurance_company qualifying as tax exempt under code sec_501 org’s response explained that - prior to the formation of the company neither director-1 nor director-4 received any opinion letter from any accountant in regard to the tax ramifications of establishing an insurance_company recognized as exempt from federal_income_tax under code sec_501 whether prior to the formation of the company director-1 or director-4 received an opinion letter from an attorney and if so the content of any such letter cannot be disclosed without violating the attorney-client_privilege law firm-1 law firm-2 and professional service company retained item of idr years 20xx-20xx requested an explanation as to whether any_tax consuitant tax advisor had ever represented to org officers directors about tax benefits that could be obtained by forming an insurance_company qualifying as tax-exempt under code sec_501 org’s response explained that - the law firm of law firm-1 represented director-1 and the company officers in connection with the formation of the company and in connection with obtaining recognition from the irs of the company's exemption under code sec_501 director-1 sought out law firm-1 for their services because he had heard from business associates that law firm-1 had experience in that area the law firm of law firm-2 plc has provided certain legal services to the company law firm-2 plc and its predecessors have represented director-1 for nearly years on a wide variety of matters the officers and the company engaged an accountant working for law firm-1 to prepare the forms that have been filed for the company the company engaged the auditing firm of professional service company to provide the audits required by territory and which have also been provided to you the company does not view any of these persons as ‘promoters of tax benefits’ but as independent service providers who were sought out and engaged by the company or its officers shareholder to provide representation and advice other than as described in response to item no above none of these persons ever made any representations about tax benefits to the company's officers directors form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org role of org officers directors in the tax-exempt application process facts schedule no or exhibit year period ended 20xx 20xx 20xx responses concerning inquiries about promoters item of idr years 20xx-20xx requested an explanation as to whether org officers directors investigated the background of promoters and work with such promoters as part of their decision to form an insurance_company qualifying as tax exempt under code sec_501 org’s response referred to what was explained in the responses to items and of idr by stating see answers to no and no promotional material not provided to officers directors item of idr years 20xx-20xx requested an explanation as to whether org officers directors were provided with literature and or promotional material informing about tax benefits that could be obtained in forming an insurance_company qualifying as tax-exempt under code sec_501 org’s response explained that promotional material was not provided and referred to responses provided to items and of idr see answers to nos and the persons described in nos and did not provide any ‘promotional’ material to director-1 referral of attorney accountant item of idr years 20xx-20xx requested an explanation as to whether org officers directors had been referred to someone knowledgeable eg attorney or accountant about creating an organization qualifying as tax exempt under code sec_501 org’s response referred to responses given to items and of idr see answer to nos and above law firm-1 retained for forms and services item of idr years 20xx-20xx requested an explanation as to whether org retained professional services - such as an accountant attorney or cpa firm - to assist with the form_1024 application process or prepare form_990 org’s response stated yes law firm-1 worked on the form_1024 and an accountant in their office prepared the form_990 for the years 19xx to 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org facts irs exemption ruling letter issued on october 200xx schedule no or exhibit year period ended 20xx 20xx 20xx on october 20xx the internal_revenue_service irs issued a letter to org recognizing org as exempt from federal_income_tax under code sec_501 this letter in part states based on the information supplied and assuming your operations will be as stated in your application_for recognition of exemption we have determined you are exempt from united_states income_tax under sec_501 of the code as an organization described in sec_501 commencing on january 20xx for tax years when your net written premiums or if greater your direct written premiums do not exceed the dollar_figure limit prescribed by sec_501 you have the right to protest our ruling in regard to your effective date of exemption if you believe it is incorrect to protest you should submit a statement of your views to this office with a full explanation of your reasoning this statement must be submitted within days of the date of this letter and must be signed by one of your officers you also have a right to a conference in this office after your statement is submitted if you want a conference you must request it when you file your protest statement if you are to be represented by someone who is not one of your officers he she must file a proper power_of_attorney and otherwise qualify under our conference and practice requirements this ruling is based on the financial and other information submitted in support of your application based solely on that information we have concluded you are a company or association within the meaning of sec_501 of the code and have the business_purpose of conducting the activities described in your application this ruling is not effective unless you actually operate as represented we are not ruling on issues other than exempt status we have not been asked and we have not considered whether any of your transactions would give rise to the application of the provisions of either sec_842 or sec_845 of the code form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a explanation of items year period ended name of taxpayer org facts irs exemption ruling letter issued on october 200xx schedule no or exhibit 20xx 20xx 20xx please notify the state tax exempt and government entities te_ge customer service office if there is any change in your name address sources of support purposes or method of operation if you amend your organizational document or bylaws please send a copy of the amendment to that office the mailing address is customer service address city state zip code internal_revenue_service te_ge the irs ruling letter dated october 20xx issued to org and recognizing org as exempt from federal_income_tax is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org relationship between org and companies facts 20xx 20xx 20xx schedule no or exhibit year period ended org is related by common ownership and or control to an economic group of businesses referred to as the companies h h b co-1 ein co-2 ein co-3 ein lp-1 ein lp-2 ein lp-3 ein e e with the exception of co-3 all businesses within the companies have a common address of address city state zip code co-3’s address is at address city state zip code a director and minority owner of co-3 org’s director director-1 is also form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended name of taxpayer explanation of items org family members identified with org transactions facts 20xx 20xx 20xx key family members were identified from transactions discussed in this report - a director-1 ssn and director-4 org officers directors b c director-2 ssn brother of director-1 manager of co-4 director of co-5 director-3 ssn brother of director-1 manager of co-6 director of co-7 d manager-1 nephew of director-1 manager of co-8 co-manager of co-9 e f g manager-2 manager of co-10 the general_partner of lp-4 son of director-1 manager-3 husband of director-1’s niece manager of co-11 the general_partner of lp-5 manager-4 husband of director-1’s niece manager of co-12 the general_partner of lp-6 form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org org chart identifying managers and equity facts holders of sole shareholder schedule no or exhibit year period ended 20xx 20xx 20xx managers and equity owners of org’s sole shareholder the lp-1 are identified here the co-13 held a general_partnership interest in the lp-1 during years 20xx-20xx managers of the co-13 are therefore considered to control org through their control_over org’s sole shareholder co-13 ein limited partners of the lp-1 general_partner of the lp-1 holding an equity_interest of during years 20xx-20xx managers during years 20xx-20xx were org director director-1 his son manager-2 and his nephew manager-1 director-1 director-4 ssn - directors of di and limited_partnership equity holders - held in year 20xx at beginning- of-year 20xx at year-end 20xx- 20xx and at year-end 20xx lp-7 ein - limited_partnership equity holder holding at year-end 20xx- 20xx lp-8 ein - limited_partnership equity holder holding at year-end 20xx director-1 limited partnership-9 ein dated xx - limited_partnership equity holder holding at year-end 20xx org directors director-1 and director-4 as holding of equity in co-13 during 20xx-20xx manager-2 son of director-1 and director- owning of co-13 equity in year 20xx and equity in years 20xx-20xx remaining portion of co-13 equity held by persons considered to be director-1 family members during years 20xx-20xx remaining limited_partnership equity held by persons considered to be director family members each holding at year- end 20xx lp-1 ein sole shareholder of org org ein form 886-a rev department of the treasury - internal_revenue_service page name of taxpayer org form_886 a department of the treasury - internal_revenue_service explanation of items primary purpose of corg is insuring business facts activities of directors schedule no or exhibit year period ended 20xx 20xx 20xx note general information at page of org’s financial statements for year 20xx identified org’s the company’s primary purpose the primary purpose of the company is to provide access to non- traditional insurance coverage of risks that businesses are commonly faced with but to which limited or no insurance coverage is currently available the company will accept third party business through recognized credit life disability reinsurance companies the company presently insures the various business activities of director-1 and director-4 who are directors and their affiliated companies emphasis added for underlined areas form 886-a rev department of the treasury - internal_revenue_service page name of taxpayer org ein form 886a department of the treasury - internal_revenue_service explanation of items org business plan tied to companies fact sec_11 schedule no or exhibit year period ended 20xx-12 20xx-12 20xx-12 org’s business plan identified org as a captive insurer providing non-traditional coverage to the companies economic group companies was identified as the risk manager relating to coverage provided by org excerpts from org’s business plan given here refer to org as the company and to companies as cc section i a- general description overview the company will insure various business activities of the companies a diversified conglomerate of businesses located primarily in state usa _ the company will also accept third-party insurance as described herein section b - general description purpose the purpose of the company is to provide access to non-traditional insurance policies with which risks of loss businesses are commonly faced but to which limited or no insurance coverage is currently available the companies believes that it faces several risks over the next few years for which traditional insurance is either too expensive or unavailable also the company hopes to obtain profitable reinsurance business in addition the company may cede certain risks to reinsurers form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items of taxpayer name org org business plan tied to companies facts schedule no or exhibit year period ended 20xx 20xx 20xx section il a- marketing planned areas and type of business the company will operate as a property and casualty insurance_company and will not issue life_insurance policies insurance will be written on the companies to enable better risk management and allow org to obtain non-traditional insurance at better price points section ii b - marketing method of solicitation the company does not presently intend to have insurance agents or solicitors all insurance initially will either come directly from the companies or be obtained by the company’s insurance manager section il c - marketing source of business the company expects that zero percent or more of its business will come from the companies the companies is a diversified conglomerate of companies with numerous employees and assets and is currently faced with all of the below-described insurable risks seek to engage in management of its risks and containing the cost of acquiring the foregoing classes of insurance the companies will the balance of the insurance underwriting business will be accepted by way of reinsurance of unrelated licensed insurance_companies section ill b - technical details of underwriting the company will be highly selective as to the risks which it will underwrite in the early stages of its development the companies will continue to obtain regular commercial property and casualty insurance from standard providers and will primarily use the company to provide non-traditional insurance and to access the reinsurance market section ill d - technical claims and accounting techniques the frequency of claims from the companies is expected to be low and so all claims will be dealt with on an adhoc basis in consultation with the company's insurance manager where advised by the insurance manager or otherwise determined the services of third party loss adjusters and other specialists may be used the company intends to adopt a conservative approach to reserving for outstanding claims but ibnr is not expected to form a significant proportion of those reserves form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit year period ended name of taxpayer org it is expected that most inwards reinsurance business will be in the form of quota share treaties which will be accounted quarterly and settled on a balance of account basis org business plan tied to companies 20xx 20xx 20xx facts section ill h - technical commission structure the company will not pay commissions to agents and solicitors in the traditional sense the company may pay set fees to its insurance manager to obtain third-party insurance org’s business plan is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org professional background of org officers directors director-1 and director-4 facts schedule no or exhibit year period ended 20xx 20xx 20xx org’s response to item of idr years 20xx-20xx gave the professional background of husband-wife officers directors director-1 and director-4 director-4 was explained to have received a bachelor of science degree in home economics from the university of state she has been a full-time mother and wife and has not engaged in business except through her husband director-1’s resume’ disclosed that he - he r r r f school for semesters received his bachelor of science in accountancy degree from university in january 19xx worked as an irs revenue_agent from june - december 19xx attended returned to city state to join his father in managing business enterprises and investments his father had made funded managed and served on the board_of directors of over companies as a private investor these include multiple companies lived in city country where he funded and managed various country enterprises helped found and served on the board_of directors of several insurance_companies was among the original founders of co-14 a publicly traded life_insurance_company domiciled in state family members of director-1 also were original founders was one of the original founders of mutual insurance - a mutual_insurance_company domiciled in state -- and served on its board for the past years served on the governing board_of the hospital-1 and its successor hospital-2 since 19xx six of these years were served as chairman of the board director-1’s resume’ is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer explanation of items org facts sources of revenue reported for years 20xx- 20xx schedule no or exhibit year period ended 20xx-12 20xx-12 20xx-12 org’s sources of revenue reported for years 20xx-xx are summarized here in years 20xx-xx premium revenue was less than of aggregate revenue - for year 20xx and for year 20xx over of aggregate revenue for years 20xx-xx - for 20xx and for 20xx the net gain from the sale of non-inventory assets was premium revenue for year 20xx was about with the remaining revenue coming from other investments and a net gain from non-securities sales form_990 part i line year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure - program service revenue premiums written premiums assumed net rental income - other investment - interest on savings temp cash inv - dividends and interest income - net gain from sale of non-inventory assets securities non-securitie sec_11 - other revenue premiums insurance premiums subject_to misc revenue - line of credit fee - total revenue reinsurance -0 -0 -0 org’s general ledger for years 20xx-20xx is illustrated within exhibits 9a 9b and 9c org’s audited financial statements for years 20xx-20xx are illustrated within exhibits 0a ob and 0c org forms filed for years 20xx-20xx are illustrated within exhibit sec_11a sec_11b and sec_11c form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form_886 a name of taxpayer year period ended org sources of revenue reported for years 20xx-20xx facts 20xx 20xx 20xx org sources of revenue discussed in further detail are - a b c d e net gain from sale of non-inventory assets premium revenue from direct-written policies assumed reinsurance premiums miscellaneous revenue from line of credit fee other investment_income form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx part i line of org’s form_990 reported a net gain from the sale of non-inventory assets for years 20xx-20xx dollar_figure dollar_figure dollar_figure year 20xx year 20xx year 20xx a pattern relating to gains reported for years 20xx-20xx exists whereby org’s sole shareholder the lp-1 transferred one-third interests in properties located in state that org disposed of in the following year the pattern began in year 20xx when org received two one-third interests in properties located in state that were sold in year 20xx at a net gain of dollar_figure one-third interests in two properties received at basis of dollar_figure on 20xx two documents entitled special warranty deed show that org’s sole shareholder the lp-1 transferred an undivided one third interest in two properties located in county and county counties state both special warranty deeds were executed by the lp-1 as grantor on 20xx the two properties for which a one-third interest in each was transferred under these special warranty deeds to org as grantee are described in supporting exhibits to the deeds as property-1 - county state property-2 - county state form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx basis amounts for the two property interests transferred in year 20xx totaled to dollar_figure property interests transferred in year 20xx basis interest in county state property described as property- interest in county county state property described as property-2 supporting org’s receipt of the two one-third property interests is that org’s g l account land had a balance of dollar_figure pincite 20xxx special warranty deeds executed by the lp-1 on 20xx to transfer an undivided one third interest in two properties located in county and county counties state of state are illustrated within exhibit sec_12a and sec_12b form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx one-third interests in two properties sold for dollar_figure net gain in year 20xx org disposed of its interest in the freeway and street property through two sales occurring on july 20xx and november 20xx the sale on july 20xx was sold to three limited_partnerships affiliated with the companies economic group - the lp-8 the co-4 and the co-6 - for a gain of dollar_figure org’s captive affiliates - co-7 and co-5 - concurrently sold their equal portions of the property interest under one contract for all sellers owners whereby org was allocated of sales proceeds the sale in november 20xx was sold to the co-6 for a gain of dollar_figure org was the only party to this sale total gain from the two sales was dollar_figure dollar_figure dollar_figure dollar_figure org’s sale of the portion of the property-2 property transacted on 20xx resulting in sales proceeds of dollar_figure and net gain of dollar_figure was not disclosed within the form_1024 application org officer director director-1 signed the form_1024 application under penalty of perjury two weeks after this sales transaction on 20xx org disposed of its interest in the property-1 property through five sales occurring on november 20xx and december 20xx sold on november 20xx to the co-6 for a gain of dollar_figure sold on december 20xx to the lp-10 for a gain of dollar_figure sold on december 20xx to the co-6 for a gain of dollar_figure sold on december 20xx to the co-1 for a gain of dollar_figure sold on december 20xx to the lp-7 for a gain of dollar_figure total gain from the five sales was dollar_figure dollar_figure dollar_figure dollar_figure dollar_figureo dollar_figureo dollar_figureo when org sold its and portions of interest in the property-1 property on 20xx org’s captive affiliates -- co-7 and co-5 - concurrently sold their equal portions of the property interest under one contract for all sellers owners resulting in org receiving an allocated portion of the sales proceeds form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer org 13-a net gain from sale of non-inventory assets facts year period ended 20xx 20xx 20xx computations of net gains from org’s sales of the property interests in the property-2 and property-1 properties in year 20xx along with identification of property purchasers and property sellers are summarized here property interests sold in year 20xx property sale sold date of property proceeds basis sales gain property from sale property- o7 xx xx property sellers territory insurance property purchaser s companies lp-8 co-4 co-6 org co-5 co-7 property- xx co-6 org property- co-6 org lp-10 xx xx xx org co-5 co-7 property- property- property- totals from seven sales other misc gains losses per response to item idr net gain reported in form_990 year 20xx org co-5 co-7 org co-5 co-7 property- xx xx co-6 org co-1 lp-7 when org officer director director-1 signed the form_1024 discussed above under penalties of perjury on 20xx org had already engaged in a sales transaction on 20xx the form_1024 gave no disclosure about sales that would occur on form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx 20xx and 20xx even though org had already held interests in the property-2 and property-1 properties when it was signed on 20xx_ property purchasers controlled owned by director-1 family the six property purchasers -- five limited_partnerships and one limited_liability_company - were controlled and or owned by director-1 family members who also were officers in org and its affiliate captive sellers co-6 ein - address city state zip code - director-3 is manager of general_partner co-6 and controls all of limited_partnership equity director-3 is an officer director of captive affiliate co-7 lp-8 ein - address city state zip code - director-1 and manager-2 father and son are mangers of general_partner lp-8 director-1 controls all of limited_partnership equity director-1 is an officer director of org co-4 ein - address city state zip code - director-2 is one of three managers of the general_partner co-4 and controls all of the limited_partnership equity director-2 is an officer director of captive affiliate co-5 lp-10 ein - address city state zip code the three director-1 brothers who are key officers directors of the affiliate captives - director-1 org director-2 co-5 and director-3 co-7 - each hold a one-third equity_interest in one of the two general partners of the lp-10 limited_partner equity_interest in the lp-10 lp-10 - - was also a general_partner in the lp-7 one of the general partners of the - ein and each hold a lp-7 ein - address city state zip code - dissolved in year 20xx limited_partner equity was held equally during years 20xx-20xx by the lp-8 the co-6 and the co-4 the general_partner was co-22 ein ownership and control in the three limited partners and the general_partner of the lp-7 are identified above form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org year period ended 13-a net gain from sale of non-inventory assets facts schedule no or exhibit 20xx 20xx 20xx co-1 ein - address city state zip code of total member equity in the co-1 was equally held by the three limited_partner sole shareholders of org and its affiliate captives - lp-1 org lp-3 co-7 and lp-2 co-5 - each holding member equity the remaining of member equity in the co-1 was held by two corporations - co-16 -- ein and co-17 -- ein form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx one-third interest in property received at basis of dollar_figure on 20xx the pattern of org receiving property and disposing of it in the following year continued in year 20xx when org received another one-third interest in state property a special warranty deed executed on 20xx by the lp-1 as grantor transferred to org an undivided one third interest in a property located in county county state described as property-3 director-1’s nephew manager-1 signed the special warranty deed as manager of the co-13 the co-13 was identified in the special warranty deed as general_partner of the lp-1 org recorded the property's basis in the amount of dollar_figure within g l account land on 20xx under a posting described as contribution of of interest in property-3 from lp-1 g l account - land amount date reference journal trans description contribution of of interest in property-3 from lp-1 xx gj1 j debit credit the special warranty deed executed by the lp-1 on 20xx to transfer an undivided one third interest in a property located in county county state described as property-3 is illustrated within exhibit one-third property interest sold for dollar_figure net gain in year 20xx org disposed of its one-third interest in the property-3 property-3 property by two sales transactions within year 20xx - sold on xx sold on xx the lp-15 - identified above as a property purchaser in year 20xx - was the sole purchaser of the one-third interest in the property-3 property form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx minutes of org board meeting discuss sale of property-3 property interest in 20xx minutes of org’s board meeting held on february 20xx note that assets and net_income increased substantially as a result of org’s sale of the property-3 property interest which was referred to as appreciated_property carried on the books at basis the financial statements of the company for the year ended december 20xx were presented to the directors ltwas noted that the company now has dollar_figure in assets compared with dollar_figure in the prior year the increase is mainly a result of the sale of appreciated_property property-3 which was carried on the books at basis the breakdown of total assets is as follows cash and cash equivalents dollar_figure -- cash and money market account investments and receivables dollar_figure - money invested in real_estate and real_estate investment companies in 20xx the company made additional investments in companies whose business is real_estate investment these companies loan money secured_by real_estate director-1 completed his review of the balance_sheet and then conducted a brief review of the income statement for the year noting the company showed net_income of dollar_figure compared with dollar_figure in the prior year this was mainly attributable to the sale of property-3 total investment revenue was dollar_figure compared with dollar_figure in the prior year premium income for the year was dollar_figure compared with dollar_figure for the prior year emphasis added to above underlined areas minutes of org’s board meeting held on 20xx are illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx transactions within org’s g l accounts capital_gains loss and land identified sales proceeds of dollar_figure a dollar_figure basis in the interest in property-3 property and a net gain of dollar_figure total gain from the two sales was dollar_figure dollar_figure dollar_figure dollar_figure date reference trans g l account capital g l account land gains loss sales proceeds descriptio trans n amount description amount wire from investment_property exchange of property-3 reclass coding error wire from investment_property exchange of property-3 31-jul 20xx gj2 gen j gain basis sales proceeds proceeds from sale of investment_property from statement of cash flows within audited financials year 20xx wire from inv property exchange sale of of property-3 interest insignificant difference 31-aug- 20xx gen an insignificant difference of dollar_figure exists between the dollar_figure of sales proceeds computed from org’s g l postings and the dollar_figure of investment_property sale proceeds reported within the statement of cash flows of org’s audited financial statements for year 20xx form 886-a rev department of the treasury - internal_revenue_service page form_8 a name of taxpayer schedule no or exhibit year period ended explanation of items department of the treasury - internal_revenue_service org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx dollar_figure net gain reported for year 20xx the dollar_figure net gain reported within part i line of form_990 year 20xx came from org s sharing of profit-loss in a domestic_corporation co-18 ein the co-18 invested in a land fund that acquired real_estate in state - the land fund net gain of dollar_figure from the land fund’s sale of land in year 20xx flowed from the land fund to the co-18 to org the co-18 was reported as org’s subsidiary within note investment in affiliates at pages of org audited financials for the period ended 20xx the company has two subsidiaries as at december 20xx which are co-19 and co-18 the company has not prepared separate consolidated financial statements schedule_k-1 filed for year 20xx by the co-18 ein identified that llc as a domestic_corporation in which org had a interest in profit-loss sharing and capita ownership at year-end 20xx part j - column d of the schedule_k-1 reported dollar_figure of withdrawals and distributions part j - column b of the schedule_k-1 reported dollar_figure of capital contributed by org into the co-18 during year 20xx schedule_k-1 filed for year 20xx by the co-18 ein is illustrated within exhibit the dollar_figure net gain reported within part i line of org’s form_990 year 20xx the dollar_figure reported as withdrawals distributions in the co-18’s schedule_k-1 and the dollar_figure capital_contribution reported in the co-18’s schedule_k-1 were identified in org g l postings as - dollar_figure debited to org’s cash operating bank account g l account cash - bank dollar_figure credited to org’s investment in the co-18 g l account co-18 dollar_figure difference as a net gain credited to g l account capital_gains form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended org 13-a net gain from sale of non-inventory assets facts 20xx 20xx 20xx account id trans date reference journal description debit credit description cash - bank co-18 capital_gains loss 31-dec-xx gj xx-1__ 31-dec-xx gj kxx -1__ 31-dec-xx gj xx -1 gen j total of postings to g l accounts gen j genj co-18 co-18 co-18 org board meeting notes that real_property interest sales did not recur in 20xx minutes of org’s board meeting held on february 20xx discussed the review org’s financial statements for the year ended 20xx during this meeting org’s board acknowledged that sales of interests in appreciated real_property did not recur in year 20xx resulting in a substantial decrease in net_income the balance_sheet review was finished and then a brief review of the income statement for the year was conducted it was noted that the company showed a net_loss of dollar_figure compared with net_income of dollar_figure in the prior year the decrease is due to the sale of appreciated_property in prior years not recurring this year total investment revenue was dollar_figure compared with dollar_figure in the prior year premium income for the year was dollar_figure compared with dollar_figure for the prior year emphasis added to underlined area minutes of org board held on 20xx are illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx org premiums from direct-written policies were reported as - schedule no or exhibit other revenue of dollar_figure within part program service revenue of dollar_figure within part program service revenue of dollar_figure within part line for year 20xx line for year 20xx line for year 20xx consistent with org’s purpose and activities discussed within the audited financial statements and business plan insureds relating to this premium revenue were part of the companies economic group or affiliated with it through control ownership in years 20xx-xx org insured two affiliates within the companies economic group - lp-3 and co-3 in year 20xx org wrote additional policies for three lp affiliates of the companies economic group - co-6 co-4 and the lp-10 coverage for all three of these lps was for commercial excess general liability the three lps purchased real_property interests sold by org during year 20xx property-1 and property-2 the co-6 purchased the real_property interest sold by org in year 20xx property-3 dollar_figure reported as direct written insurance premiums for year 20xx the dollar_figure of direct insurance premiums reported within form_990 year 20xx came from two policies negotiated and entered into in the territory between org and two businesses within the companies economic group insured party lp-3 ein co-3 ein policy premium total direct insured premiums - form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - interna revenue service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx identification of insured the lp-3 the lp-3 was established in november 19xx its business operations were split owning operating retail petroleum facilities primarily in state and state realestate speculation and development in state private and public equity investments the lp-3’s general_partner - the co-17 - held a equity_interest in the lp-3 the brother and nephew of org officer director director-1 - director-3 brother and manager-1 nephew - were managers of the co-17 director-3’s equity holdings in the lp-3 were a limited_partnership_interest at beginning-of-year 20xx and a limited_partnership_interest at year-end 20xx policy - insuring the lp-3 org’s policy - insuring the lp-3 provided administrative actions insurance coverage the policy supplemented general liability insurance coverage provided by co-20 having a dollar_figure liability limit that expired on december 20xx the dollar_figure premium of policy - had two components negotiated annual single premium endorsement annual single premium dollar_figure dollar_figure policy - had a liability limit maximum expense of - dollar_figure per single insured event dollar_figure aggregate maximum for all events the deductible provided under policy - was for - dollar_figure for a single event maximum dollar_figure for an annual maximum the policy period for policy - in verbatim is stated as only for insured events occurring on or after january 20xx for which claims are made and reported between a m january 20xx and a m january 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 13-b premium revenue from direct-written policies facts schedule no or exhibit year period ended 20xx 20xx 20xx emphasis added for underlined area a dollar_figure claim paid with respect t to policy - is discussed later in the report org policy - written for year 20xx is illustrated within exhibit the lp-3 paid the dollar_figure premium for policy - per its check dated 20xx org recorded this payment within its g l account premium insurance on 20xx co-3 is a corporation established in june 19xx having business operations split devoted towards owning operating retail petroleum facilities primarily in identification of insured co-3 state devoted towards real_estate speculation and development in state org’s principal officer director director-1 also was a director of co-3 during year 20xx co-3 had four equity holders that included another member of the companies group the co-1 owner address tin ownership co-1 address city state ein lp-11 address city state zip code ein individual-1 address city state zip code lp-12 address city state zip code total equity in co-3 not provided ein form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org explanation of items schedule no or exhibit year period ended 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx policy - insuring co-3 org s policy - insuring co-3 provided employment practices liability insurance coverage the policy supplemented general liability insurance coverage provided by co-21 having a dollar_figure liability limit that expired on july 20xx the dollar_figure premium of policy - had two components dollar_figure negotiated annual single premium endorsement annual single premium dollar_figure policy - had a liability limit maximum expense of - dollar_figure per single insured event dollar_figure aggregate maximum for all events the deductible provided under policy - was for - dollar_figure for a single event maximum dollar_figure for an annual maximum the policy period for policy - in verbatim is stated as - only for insured events occurring on or after january 20xx for which claims are made and reported between a m january 20xx and a m january 20xx org policy - written for year 20xx is illustrated within exhibit co-3 paid the dollar_figure premium for policy - per its check dated 20xx org recorded this payment within its g l account premium insurance on 20xx form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer org 13-b premium revenue from direct-written policies facts year period ended 20xx 20xx 20xx summary of year 20xx direct written policies the table here summarizes policy information supporting the dollar_figure reported as direct written insurance premiums for year 20xx external limits of primary liability maximum _ deductible insurer expense dollar_figure per dollar_figure single single event insured event dollar_figure maximum aggregate amount dollar_figure annual maximum maximum deductible expiration co-21 dollar_figurem liability limit dollar_figure deductible 20xx policy org insured policy type of coverage policy premium period coverage policy payment check between a m dated 20xx and a m employment paid in amount of forall dollar_figure toorg events dollar_figure per single insured event dollar_figure check liability dollar_figure 20xx co-3 policy practices 20xx aggregate amount_paid in amount of dollar_figure toorg_ lp-3 - total premiums reported within form_990 year 20xx between a m dated 20xx and a m dollar_figure annual maximum deductible expiration co-20 dollar_figurem liability limit dollar_figure deductible 20xx policy dollar_figure single event maximum administrative action dollar_figure 20xx maximum for all events dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-b premium revenue from direct-written policies facts risk not actuarially supported for year 20xx policies - and - note e significant accounting policies for loss reserve at page to org audited financial statements for year 20xx reported that org management did not believe that a reserve for policy losses was necessary that org did not provide for losses and that any reserve to cover payment of claimed losses was not determinable management does not believe that a reserve for policy losses and related expenses is necessary however because of the length of time required for the ultimate liability for losses and loss expenses to be determined the net amounts that will ultimately be paid to settle any liability may vary significantly from the nil amount provided for in the statement of assets and liabilities the company does not provide for losses on incurred but not yet reported cases it has been the company's experience that incidents which may give rise to claims are invariably reported almost immediately and therefore any additional provision for this category of claim is unnecessary although management believes that no additional provision is necessary any reserve to cover the ultimate payment of such amounts is not presently determinable item of idr year 20xx requested rate charts and actuarial reports to support whether risk_transfer and risk_distribution existed under org’s direct premium policies - and - org’s response stated the risks insured under these policies are non-standard risks concerning which actuarial information and analysis were not available management of the company personally assessed this risk based upon their knowledge of the insureds and the insureds’ businesses the company engaged outside insurance counsel to tailor the policy coverages and limitations to match their business assessments of risk the policies clearly transfer risk from the insureds to the company the direct written policies together with reinsurance business also clearly distribute risk among many insureds form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx item 2a of idr year 20xx requested documentation supporting org management’s personal assessment of risk based upon their knowledge of the insureds and the insureds’ business org’s correspondence dated december 20xx at page responded by stating the company’s management was very familiar from personal observation and evaluation with the direct insured risks because of the familiarity no ‘underwriting memo’ or similar document exists emphasis added to above underlined areas item 2b of idr requested documentation supporting org’s statement as to the engagement of outside insurance counsel to tailor the policy coverages and limitations to match their business assessments of risk org’s correspondence dated december 20xx at page responded by stating company engaged law firm-3 of city to tailor policy coverages and limitations without in any way waiving the attorney-client_privilege as to communications between law firm-3 the company provides a copy of billing statement and check at tab the invoice referenced in org’s response was dated february 20xx billed in the amount of dollar_figure to the companies by the legal firm of law firm-3 within this invoice was not for actuarial risk services relating to org policies - and - org was allocated dollar_figure from the dollar_figure billed to the companies by law firm- which was reported as legal expenses in form_990 year 20xx time billed the law firm-3 invoice dated 20xx billed in the amount of dollar_figure to the companies is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx dollar_figure reported as direct written insurance premiums for year 20xx org renewed its policies written for the lp-3 and co-3 for the dollar_figure reported as direct written premiums in year 20xx policy - insuring the lp-3 for administrative actions total premium dollar_figure policy - insuring co-3 for employment practices liability total premium dollar_figure policy - insuring the lp-3 org direct policy - written for year 20xx was substantially_similar to its predecessor written for year 20xx org’s policy - provided administrative actions insurance coverage and supplemented general liability no-deductible insurance coverage provided by co-20 having a dollar_figure liability limit that expired on december 20xx the dollar_figure premium of policy - had two components dollar_figure negotiated annual single premium endorsement annual single premium dollar_figure policy - had a liability limit maximum expense of - dollar_figure per single insured event dollar_figure aggregate maximum for ail events policy - did not provide a deductible for either a single event maximum amount or an annual maximum the policy period for policy - in verbatim is stated as only for insured events occurring on or after january 20xx for which claims are made and reported between a m january 20xx and a m january 20xx department of the treasury - internal_revenue_service form 886-a rev page form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx the lp-3’s premium payment of dollar_figure was recorded within g l account premium insurance on 20xx through a cash receipts journal crj credit posting having a reference of and a transaction description of co-17-insurance change a corresponding debit posting was made to g l account cash-bank indicating that the dollar_figure premium was deposited org policy - written for year 20xxx is illustrated within exhibit policy - insuring co-3 org direct policy - written for year 20xx was substantially_similar to its predecessor written for year 20xx org’s policy - provided employment practices liability insurance coverage and supplemented general liability no deductible insurance coverage provided by co-21 having a dollar_figure liability limit that expired on july 20xx the dollar_figure premium of policy - had two components negotiated annual single premium endorsement annual single premium dollar_figure dollar_figure policy - had a liability limit maximum expense of - dollar_figure per single insured event dollar_figure aggregate maximum for all events policy - did not provide a deductible for either a single event maximum amount or an annual maximum the policy period for policy - in verbatim is stated as only for insured events occurring on or after january 20xx for which claims are made and reported between a m january 20xx and a m january 20xx co-3’s premium payment of dollar_figure was recorded within g l account premium insurance on 20xx through a cash receipts journal cru credit posting having a reference of and a transaction description of co-3 - premium insurance income’ a corresponding debit posting was made to g l account cash-bank indicating that the dollar_figure premium was deposited org policy - written for year 20xxx is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org explanation of items schedule no or exhibit year period ended 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx summary of year 20xx direct written policies the table here summarizes policy information supporting the dollar_figure reported as direct written insurance premiums for year 20xx year 20xx org insured policy type of coverage policy premium period coverage policy payment external limits of primary liability maximum deductible insurer expense check paid in amount of dollar_figure to org and dollar_figure per recorded in single g l as co-3 policy - between a m deposited 20xx and a m dollar_figure single insured event event dollar_figure maximum aggregate amount dollar_figure annual maximum deductible expiration law firm-3 dollar_figureom liability limit dollar_figure deductible 20xx policy events dollar_figure 20xx employment practices liability in bank account on maximum 20x for all x check paid in amount of dollar_figure to org and dollar_figure per recorded in single g l as dollar_figure single event insured event dollar_figure maximum aggregate amount dollar_figure annual maximum deductible lp-3 - total premiums reported within form_990 year 20xx between a m deposited 20xx and a m in bank account on maximum 20x for all xx co-20 incorporated dollar_figurem liability limit dollar_figure deductible 20xx policy administrative action dollar_figure 20xx expiration events dollar_figure form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx risk not actuarially supported for year 20xx policies - and - consistent with year 20xx note e loss reserve at page of org audited financials for year 20xx reported that org management did not believe that a reserve for policy losses was necessary that org did not provide for losses and that any reserve to cover payment of claimed losses was not determinable policies written and assumed provide for coverage on a claims-made basis therefore the reserve for policy losses and related expenses consists primarily of the estimated cost for losses defense and expenses associated with claims reported on a case by case basis which are unsettled at the year end in relation to premiums assumed losses and loss expenses paid are recorded when advised by the ceding insurance_company outstanding losses comprise estimates of the amount of reported losses and loss expenses in respect of policies written and amount advised by the ceding insurance_company management does not believe that a reserve for policy losses and related expenses is necessary however because of the length of time required for the ultimate liability for losses and loss expenses to be determined the net amounts that will ultimately be paid to settle any liability may vary significantly from the nil amount provided for in the statement of assets and liabilities the company does not provide for losses on incurred but not yet reported cases it has been the company's experience that incidents which may give rise to claims are invariably reported almost immediately and therefore any additional provision for this category of claim is unnecessary although management believes that no additional provision is necessary any reserve to cover the ultimate payment of such amounts is not presently determinable form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-b premium revenue from direct-written policies facts item 4e of idr years 20xx-20xx requested an actuarial analysis supporting computation of premium charges risk_transfer and risk_distribution for policies in effect during the 12-month periods ended december 20xx-20xx org’s correspondence dated 20xx responded by stating that actuarial analysis was unnecessary for direct-written policies the directly written policies were of risks well known to the company and no_ actuarial analysis was necessary co-23 advises that its retrocession arrangement was never subjected to actuarial analysis and that it had no reason to do so emphasis added to above underlined areas form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx dollar_figure reported as direct written insurance premiums for year 20xx five policies written by org for year 20xx support the dollar_figure of direct written premiums reported within form_990 policy - insuring the lp-3 for administrative actions total premium dollar_figure policy - insuring co-3 for employment practices liability total premium dollar_figure policy - insuring the co-6 for claims made - commercial excess general liability total premium dollar_figure policy - insuring the lp-10 for claims made - commercial excess general liability total premium dollar_figure policy - insuring the co-4 for claims made - commercial excess general liability total premium dollar_figure dollar_figure dollar_figure these direct policies had a coverage period that was only for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx policy - insuring the lp-3 org direct policy - written for year 20xx was substantially_similar to its predecessors written for years 20xx-20xx org’s policy - provided administrative actions insurance coverage and supplemented general liability no- deductible insurance coverage provided by co-20 having a dollar_figure liability limit that expired on december 20xx the renewable certificate section of policy - contained this information insured lp-3 address city state zip code phone number policy period for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx same policy period as that for the other direct-written policies effected in year 20xx type of coverage administrative action insurance premium negotiated annual single premium endorsement annual single premium dollar_figure dollar_figure limits of liability - maximum expense per single insured event aggregate maximum for all events dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-b premium revenue from direct-written policies facts deductible single event maximum amount annual maximum deductible dollar_figure dollar_figure dollar_figure dollar_figure articles within the renewal application section of policy - disclosed that - the lp-3’s business operations were devoted towards owning operating retail petroleum facilities located primarily in state and state devoted towards real_estate speculation development in state and devoted towards private public equity investments article sec_4 and the lp-3 had general liability coverage under a dollar_figure million liability limit non- deductible policy with co-20 expiring on 20xx article the premium for policy - was dollar_figure article the lp-3 paid the dollar_figure premium for policy - per its check dated 20xx org deposited this payment on 20xx org policy - written for year 20xxx is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx policy - insuring co-3 org direct policy - written for year 20xx was substantially_similar to its predecessors written for years 20xx-20xx org’s policy - provided employment practices liability insurance coverage and supplemented general liability no deductible insurance coverage provided by co-21 having a dollar_figure liability limit that expired on july 20xx the renewable certificate section of policy xx-03-09 contained this information insured co-3 address city state zip code phone number policy period for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx type of coverage employment practices liability insurance premium negotiated annual single premium endorsement annual single premium limits of liability - maximum expense per single insured event aggregate maximum for all events dollar_figure dollar_figure dollar_figure dollar_figure deductible single event maximum amount annual maximum deductible dollar_figure dollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx articles within the renewal application section of policy disclosed that - co-3’s business operations were devoted towards owning operating retail petroleum facilities located primarily in state and devoted towards real_estate speculation development in state article sec_4 and co-3 had general liability coverage under a dollar_figure million liability limit non- deductible policy with law firm-3 expiring on 20xx article the premium for policy - was dollar_figure article co-3 paid the dollar_figure premium for policy - per its check dated 20xx org deposited this payment on 20xx org policy - written for year 20xx is illustrated within exhibit policy - insuring the co-6 org’s policy - insuring the co-6 provided claims made - commercial excess general liability coverage the policy supplemented general liability no-deductible insurance coverage provided by travelers indemnity company having a dollar_figure liability limit that expired on 20xx the declarations section of policy - contained this information insured co-6 c o address city state zip code phone number policy period for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx type of coverage claims made - commercial excess general liability as described in the coverage agreement coverage agreement the coverage agreement states in consideration of premium received org agrees to indemnify the scheduled insured listed below in section a for any amounts other than premiums required to be paid for occurrences after the effective date of this certificate but only for commercial excess liability umbrella amounts that are in excess of the underlying coverage of dollar_figure this excess indemnification shall not exceed the limits as stated in section a for the scheduled insured and is subject_to the same terms and conditions as the underlying commercial excess liability umbrella policy issued to the respective insured by of state - policy number - this indemnification does not constitute other insurance other indemnification under said underlying commercial excess liability umbrella policy if the insured has other policies in force that also apply in excess of the underlying commercial excess liability umbrella policy coverage of dollar_figure this policy will apply on a pro_rata basis based on the total amount of coverage available for all applicable policies in excess of the underlying policy of dollar_figure policy limit inclusive of defense expenses dollar_figure each occurrence dollar_figure aggregate limit section a of policy - contained this information scheduled insured co-6 dollar_figure each occurrence dollar_figure aggregate limit retroactive date 11xx annual policy premium co-6 dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-b premium revenue from direct-written policies facts articles within the application section of policy - disclosed that - the co-6’s business operations were devoted towards owning operating retail petroleum facilities located primarily in state and devoted towards real_estate speculation development in state article the co-6 had general liability coverage under a dollar_figure million liability limit non- deductible policy with travelers indemnity company expiring on 20xxx article the co-6 paid the dollar_figure premium for policy - per its check dated 20xx org deposited this payment on 20xx org policy - written for year 20xx is illustrated within exhibit policy - insuring the lp-10 org’s policy - insuring the lp-10 provided claims made - commercial excess general liability coverage the policy supplemented general liability no-deductible insurance coverage provided by travelers indemnity company having a dollar_figure liability limit that expired on 20xx the declarations section of policy - contained this information insured lp-10 c o address city state zip code phone number form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx policy period for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx type of coverage claims made - commercial excess general liability as described in the coverage agreement coverage agreement the coverage agreement states in consideration of premium received org agrees to indemnify the scheduled insured listed below in section a for any amounts other than premiums required to be paid for occurrences after the effective date of this certificate but only for commercial excess liability umbrella amounts that are in excess of the underlying coverage of dollar_figure this excess indemnification shall not exceed the limits as stated in section a for the scheduled insured and is subject_to the same terms and conditions as the underlying commercial excess liability umbrella policy issued to the respective insured by of state - policy number - this indemnification does not constitute other insurance other indemnification under said underlying commercial excess liability umbrella policy if the insured has other policies in force that also apply in excess of the underlying commercial excess liability umbrella policy coverage of dollar_figure this policy will apply on a pro_rata basis based on the total amount of coverage available for all applicable policies in excess of the underlying policy of dollar_figure policy limit inclusive of defense expenses dollar_figure each occurrence dollar_figure aggregate limit section a of policy - contained this information scheduled insured lp-10 dollar_figure each occurrence dollar_figure aggregate limit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx retroactive date xx annual policy premium lp-10 dollar_figure articles within the application section of policy - disclosed that - the lp-10’s business operations were devoted towards owning operating retail petroleum facilities located primarily in state and devoted towards real_estate speculation development in state article the lp-10 had general liability coverage under a dollar_figure million liability limit non- deductible policy with travelers indemnity company expiring on 20xx article the lp-10 paid the dollar_figure premium for policy xx-13-031 per its check dated 20xx org deposited this payment on 20xx org policy - written for year 20xxx is illustrated within exhibit policy - insuring the co-4 org’s policy - insuring the co-4 provided claims made - commercial excess general liability coverage the policy supplemented general liability no-deductible insurance coverage provided by travelers indemnity company having a dollar_figure liability limit that expired on 20xx the declarations section of policy - contained this information insured co-4 c o address city state zip code phone number form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-b premium revenue from direct-written policies facts policy period for insured events occurring on or after january 20xx for which claims are made and reported between am of january 20xx and am of january 20xx type of coverage claims made - commercial excess general liability as described in the coverage agreement coverage agreement the coverage agreement states in consideration of premium received org agrees to indemnify the scheduled insured listed below in section a for any amounts other than premiums required to be paid for occurrences after the effective date of this certificate but only for commercial excess liability umbrella amounts that are in excess of the underlying coverage of dollar_figure this excess indemnification shall not exceed the limits as stated in section a for the scheduled insured and is subject_to the same terms and conditions as the underlying commercial excess liability umbreila policy issued to the respective insured by of - policy number - this indemnification does not constitute other insurance other indemnification under said underlying commercial excess liability umbrella policy if the insured has other policies in force that also apply in excess of the underlying commercial excess liability umbrella policy coverage of dollar_figure this policy will apply on a pro_rata basis based on the total amount of coverage available for all applicable policies in excess of the underlying policy of dollar_figure policy limit inclusive of defense expenses dollar_figure each occurrence dollar_figure aggregate limit section a of policy - contained this information scheduled insured co-4 dollar_figure each occurrence dollar_figure aggregate limit form 886-a rev department of the treasury - internal_revenue_service page d treasury - internal service revenue epartment of the ir -i m ic ti the f form 886a explanation of items name of taxpayer org 13-b premium revenue from direct-written policies facts schedule no or exhibit year period ended 20xx 20xx 20xx retroactive date xx annual policy premium co-4 dollar_figure articles within the application section of policy - disclosed that - the co-4’s business operations were devoted towards owning operating retail petroleum facilities located primarily in state and devoted towards real_estate speculation development in state article the co-4 had general liability coverage under a dollar_figure million liability limit non- expiring on 20xx article deductible policy with the co-4 paid the dollar_figure premium for policy - per its check dated 20xx org deposited this payment on 20xx org policy - written for year 20xx is illustrated within exhibit department of the treasury - internal_revenue_service form 886-a rev page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx - 13-b premium revenue from direct-written policies facts summary of year 20xx direct written policies the table here summarizes policy information supporting the dollar_figure reported as direct written insurance premiums for year 20xx year 20xx org insured policy type of coverage policy premium period coverage policy payment limits of external liability primary maximum _ deductible insurer expense check dated 311xx paid in dollar_figure per amount of single dollar_figure to org insured dollar_figure single event law firm-3 dollar_figurem liability limit event dollar_figure maximum dollar_figure aggregate amount dollar_figure annual maximum maximum deductible _ expiration deductible o7 20xx policy events between a m and 20xx and a m co-3 policy - dollar_figure 20xx employment practices liability dollar_figure single event event dollar_figure maximum aggregate amount maximum dollar_figure annual maximum deductible expiration deposited in bank account on for all 20xx_ check dated 11xx dollar_figure per paid in amount of single dollar_figure to org insured between a m and 20xx and a m deposited in bank account on for all 20xx events co-20 dollar_figurem liability limit dollar_figure deductible 20xx policy lp-3 policy administrative dollar_figure 20xx action form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - interna revenue service explanation of items schedule no or exhibit form 886a name of taxpayer year period ended org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx year 20xx type of coverage org insured policy co-6 policy commercial - excess general liability policy premium period coverage policy payment dollar_figure between check a m dated 20xx and a m 20xx external limits of liability primary maximum deductible insurer expense dollar_figurem each occurrence in policy dollar_figurem aggregate not given 311xx paid in amount of limit dollar_figure to org and deposited in bank account on 20xx check dollar_figure between lp-10 policy commercial -31 excess general liability not given dollar_figurem each occurrence in policy dollar_figurem aggregate a m dated 1120xx and a m 20xx limit 311xx paid in amount of dollar_figure to org and deposited in bank account on 20xx check co-4 policy commercial total premiums reported 311xx paid in amount of limit dollar_figure to org and deposited in bank account on 20xx travelers indemnity co of state no deductible dollar_figurem umbrella coverage 20xx policy expiration a m dated 20xx and a m 20xx dollar_figurem each occurrence in policy dollar_figurem aggregate excess general liability within form_990 year 20xx dollar_figure between not given travelers indemnity co of state no deductible dollar_figurem umbrella coverage 20xx policy expiration travelers indemnity co of state no deductible dollar_figurem umbrella coverage 20xx policy expiration form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx risk not actuarially supported for year 20xx policies - - - - and - note reserve for policy losses and related expenses’ at page of org audited financials for year 20xx reports that org’s reserve for insurance loss is based upon estimated costs policies written and assumed provide for coverage on a claims-made basis therefore the reserve for policy losses and related expenses consist primarily of the estimated cost of losses defense and expenses associated with claims reported on a case by case basis which are unsettled at year end in relation to premiums assumed losses and loss expenses paid are recorded when advised by the ceding insurance_company outstanding losses comprise estimates of the amount of reported losses and loss expenses in respect of policies written and amounts advised by the ceding insurance_company management believes that the reserve for policy losses and loss related expenses will be adequate to cover the ultimate net cost of losses_incurred to balance_sheet date however because of the length of time required for the ultimate liability of losses and loss expenses to be determined the net amounts that will ultimately be paid to settle any liability may vary significantly from the amount provided for in the balance_sheet the reserve for policy losses and loss-related expenses reported in org’s audited financials was reported in the amount of dollar_figure as an incurred claim and experience refund of org’s form_990 filed for year 20xx this dollar_figure amount was allocated within org’s general ledger between the two direct insureds for which policies were written in year 20xx - lp-3 dollar_figure and co-3 dollar_figure and was reported as an other liability described as ibnr reserve’ within part iv - line of org’s form_990 filed for 20xx-20xx item of idr years 20xx-20xx requested documentation supporting computation of the dollar_figure reported as other liabilities ibnr reserve within part iv - line of form_990 years 20xx-20xx org’s response dated 20xx explained that supporting documentation for the dollar_figure reserve reported could not be located this item was based upon the recommendation of the company’s insurance consultants the company has not been able to locate the supporting documentation form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form_886 a name of taxpayer org schedule no or exhibit year period ended explanation of items 13-b premium revenue from direct-written policies facts 20xx 20xx 20xx - reiterated here is org’s response to item 4e of idr years 20xx-20xx which requested an actuarial analysis supporting computation of premium charges risk_transfer and risk_distribution for policies in effect during the 12-month periods ended december 20xx-20xx org’s response dated 20xx explained that actuarial analysis was unnecessary for direct-written policies the directly written policies were of risks well known to the company and no actuarial analysis was necessary co-23 advises that its retrocession arrangement was never subjected to actuarial analysis and that it had no reason to do so emphasis added to above underlined areas department of the treasury - internal_revenue_service form 886-a rev page name of taxpayer org ein form 886a department of the treasury - internal_revenue_service explanation of items 13-c assumed reinsurance premiums facts schedule no or exhibit year period ended 20xx-12 20xx-12 20xx-12 org premiums from assumed reinsurance contracts were reported as - oe other revenue of dollar_figure within part line for year 20xx program service revenue of dollar_figure within part oe program service revenue of dollar_figure within part line for year 20xx line for year 20xx assumed reinsurance activity reported in audited financials note general information’ at page to org audited financials for year 20xx reported org the company as - ry he accepting third-party business through recognized credit life disability reinsurance companies co-23 or co-23 reinsuring a pro-rata portion of group certificates of disability insurance assumed by co-23 the primary purpose of the company is to provide access to non- traditional insurance coverage of risks that businesses are commonly faced with but to which limited or no insurance coverage is currently available the company will accept third party business through recognized credit life disability reinsurance companies the company presently insures the various business activities of director-1 and director- who are directors and their affiliated companies in 20xx the company entered into an agreement with co-23 to provide reinsurance coverage of accident and medical_expenses business the company has agreed to reinsure a pro-rata portion of group certificates of disability insurance assumed by co-23 the company has also agreed to be liable for a pro-rata share of all incurred claims related to the policies noted above all of the premiums assumed in 20xx relate to this agreement with co-23 form 886-a rev department of the treasury - internal_revenue_service page form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein 13-c assumed reinsurance premiums facts 20xx-12 20xx-12 20xx-12 note general information page to org audited financial statements for year 20xx reported org’s assumed reinsurance agreement with co-23 continuing within that year during 20xx the company entered into an agreement with co-23 ‘co- 23’ to provide reinsurance coverage of certain business assumed by co- the company has agreed to reinsure a pro-rata portion between and of special risks accident medical insurance assumed by co-23 the company has also agreed to be liable for a pro-rata share between and of all incurred claims related to the policies noted above all premiums assumed for the years ended december 20xx and 20xx relate to this agreement note organization at page to org audited financials for year 20xx reported org having assumed reinsurance agreements during that year with co-23 and another reinsurer referred to as co-24 during 20xx the company entered into an agreement with co-23 co- to provide reinsurance coverage of certain business assumed by co- the company has agreed to reinsure a pro-rata portion in the current_year of of special risks relating to accident and medical insurance assumed by co-23 the company has also agreed to be liable for a pro- rata share of all incurred claims related to the policies above in 20xx the company entered into another agreement to provide reinsurance coverage with co-24 co-24 the same terms and conditions relating to co-23 apply to co-24 and the company has agreed to reinsure and assume liability for a pro-rata share of form 886-a rev department of the treasury - internal_revenue_service page form_886 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org ein 13-c assumed reinsurance premiums facts 20xx-12 20xx-12 20xx-12 agreement with co-23 co-23 key provisions within the agreement between org and co-23 were identified as he in the event that any policy is required by type of insurance identified as special risks accident medical retrocession’ parties involved four parties starting with the policy writer co-25 the original reinsured co-26 the retrocedant co-23 co-23 and the reinsurer org a fifth party is the intermediary co-27 premium estimated original gross premium of dollar_figure million for year 20xx and estimated original gross premium of dollar_figure million for years 20xx-20xx commission earned by co-23 at a rate of to cover all original acquisition costs including tax_administration expenses federal excise_tax commissions reinsurance costs and overriding commission claims settlement by third party adjuster tpa as agreed by the original reinsured co-26 a continuous contract in respect of policies attaching on or after april period 20xx and attaching on after april 20xx for continued agreement subject_to six months notice of cancellation at anniversary date the maximum original policy period not to exceed months policy contractual obligations in the event of cancellation or non- renewal of the agreement all declarations in force at the time shall continue to their natural expiry statute departmental regulation or court order to be continued in force org as the retrocessionaire will continue to remain liable with respect to each policy until co-26 as the original reinsured may legally cancel non-renew or otherwise eliminate liability under such policies class business solicited reinsurance business is derived from accident medical_expenses covering students members of youth sports teams special activities groups eg coaches cheerleaders and connected groups and members of student athletic programs accounts quarterly reporting and accounting that is received within days after the end of each calendar_quarter such quarterly reporting relates to the underlying documents from which assumed reinsurance premiums and related expenses were identified department of the treasury - internal_revenue_service form 886-a rev page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org ein 13-c assumed reinsurance premiums facts 20xx-12 20xx-12 20xx-12 co-23 quarterly retrocession computations org’s assumed reinsurance premiums reported for years 20xx-20xx came from quarterly retrocession computations generated by co-23 for the 2m quarters of these years each of co-23’s quarterly computations indicate that it is a special risks accident medical retrocession and identify co-23 as the retrocedant’ and org as the retrocessionaire and revenue and deductions within co-23’s quarterly retrocession computations consist of - retroceded premiums reported as premiums subject_to reinsurance within part vil - line 03c of form_990 and are recorded within g l account premiums subj to reinsurance quarters of year 20xx dollar_figure retroceded premiums quarters of year 20xx dollar_figure retroceded premiums quarters of year 20xx dollar_figure retroceded premiums he insurance commission and claims co-23 deducted a insurance commission and claims before retrolnsurance premiums to org the insurance commission and the claims are reported within part il - line of form_990 the insurance commission is recorded within g l account insurance commission claims are recorded within g l account incurred claims quarters of year 20xx dollar_figure insurance commission dollar_figure claims quarters of year 20xx dollar_figure insurance commission dollar_figure claims quarters of year 20xx dollar_figure insurance commission dollar_figure claims net due retrocessionaire the difference resulting after the insurance commissions and the claims were deducted from the retroceded premiums quarters of year 20xx dollar_figure net due retrocessionaire y quarters of year 20xx dollar_figure net due retrocessionaire quarters of year 20xx dollar_figure net due retrocessionaire form 886-a rev department of the treasury - internal_revenue_service page name of taxpayer org ein form 886a department of the treasury - internal_revenue_service explanation of items 13-c assumed reinsurance premiums facts schedule no or exhibit year period ended 20xx-12 20xx-12 20xx-12 experience refund due to retrocedant deducted by co-23 as the difference between of the retroceded premiums and the net due retrocessionaire quarters of year 20xx dollar_figure experience refund due retrocedant quarters of year 20xx dollar_figure experience refund due retrocedant quarters of year 20xx dollar_figure experience refund due retrocedant these revenue and deduction items are summarized here for years 20xx-20xx quarters of year 20xx dollar_figure cash due retrocessionaire quarters of year 20xx - dollar_figure cash due retrocessionaire quarters of year 20xx dollar_figure cash due retrocessionaire cash due retrocessionaire cash paid over to org by co-23 computed as the difference between the retroceded premiums less deductions of the insurance commissions claims and the experience refund due retrocedant revenue expense item premiums retroceded reported as premiums subject_to reinsurance within part vii - line 03c of form_990 and are recorded within g l account premiums subj to reinsurance year 20xx 1st quarter amount is for period of jan - oct 20xx year 20xx year 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure 2nd qtr ali qtr sec_3rd qtr 4th qtr 1st qtr dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org ein 13-c assumed reinsurance premiums facts 20xx-12 20xx-12 20xx-12 revenue expense item all qtr sec_2nd qtr 3rd qtr 4th qtr 1st qtr less ceding commission of the premiums subject_to reinsurance reported within part il- line of form_990 and recorded within g l account ceding commission year 20xx year 20xx dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure 4st quarter amount is for period of jan - oct 20xx year 20xx -dollar_figure -dollar_figure -dollar_figure -dollar_figure dollar_figure incurred claims reported within part il - line of form_990 and recorded within g l account incurred claims dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure -dollar_figure dollar_figure -dollar_figure -dollar_figure -dollar_figure year 20xx year 20xx 1st quarter amount is for period of jan - oct 20xx year 20xx equals net due retrocessionaire premiums retroceded - insurance commission - incurred claims 1st quarter amount is for period of jan - oct 20xx year 20xx year 20xx dollar_figure -dollar_figure year 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure -dollar_figure -dollar_figure -dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer year period ended org ein 13-c assumed reinsurance premiums facts 20xx-12 20xx-12 20xx-12 revenue expense item and qtr all qtr sec_1st qtr 3rd qtr 4th qtr less experience refund due retrocedant reported within part il -- line of form_990 and recorded within g l account exp ref due insurance comp during years 20xx-20xx and recorded within g l account management fee expense during year 20xx year 20xx year 20xx dollar_figure dollar_figure -0 -0 -0 -0 -0 -0 1st quarter amount is for period of jan 20xx - oct dollar_figure year 20xx equals cash due retrocessionaire calculated as of the retroceded premiums or x retroceded premiums recorded within g l account reinsurance balance rec dollar_figure dollar_figure year 20xx 1st quarter amount is for period of jan - oct 20xx year 20xx year 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure co-23 quarterly retrocession computations for years 20xx-20xx are illustrated within exhibit sec_27a sec_27b and sec_27c form 886-a rev department of the treasury - internal_revenue_service page on november 20xx org’s directors passed a resolution whereby financing under a promissory note would be extended to the lp-1 under the following terms maximum loan amount of dollar_figure interest rate of prime plus effective date of 20xx e loan origination fee of dollar_figure r interest payments to be made monthly e all accrued interest and principle due in full on on the anniversary of the date of the note 20xx org accrued the dollar_figure loan origination fee by a year-end 20xx general journal entry described as accrue line of credit origination fee to lp-1 on february 20xx the lp-1 paid the dollar_figure loan origination fee to org through its check of same date org deposited this check into its bank account on february 20xx org’s resolution passed on november 20xx approving line-of-credit financing to the lp-1 a copy of the lp-1's check dated 20xx payable in the amount of dollar_figure to org for the accrued loan origination fee and a copy of org’s bank statement for the month of february 20xx showing the deposit of the lp-1’s check on 20xx are illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page dollar_figure million line of credit with lp-1 reported in audited financials note finance receivables at page to the audited financial statements for year 20xx identified the lp-1 as one of five limited_partnership borrowers related by a common shareholder to which org issued letters of credit during 20xx the maturity_date and outstanding balance owed at year-end 20xx for the lp-1’s dollar_figure million line of credit and lines of credit effected with the other borrowers were also reported during 20xx the company issued letters of credit to various limited_partnerships all of which are related to the company by way of a common shareholder borrowings on these letters of credit are unsecured and bear interest on the unpaid principal balance at a floating rate equal to the u s prime rate plus one percent or pincite december 20xx only interest is payable annually the principal balance plus any unpaid interest is due at maturity of the borrowings the borrowings against these letters may be repaid in full or in part at any time up to the maturity_date without penalty total facility maturity outstanding balance pincitexx lp-1 lp-4 dollar_figure dollar_figure december 20xx december dollar_figure dollar_figure 20xx dollar_figure lp-14 lp-13 december dollar_figure interest receivable december december 20xx 20xx 20xx lp-6 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure org reported other investment_income within part - line years 20xx-20xx of - dollar_figure year 20xx dollar_figure year 20xx these amounts consist primarily of interest revenue from line of credit loans and investment activity involving businesses described in org audited financials as associates affiliates and subsidiaries org’s response dated 20xx to items 22a through 22k of idr years 20xx-20xx explained that most of these form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-e other investment_income facts businesses were formed for either making a specific real_property loan or to make a specific real_estate investment org affiliate associate explanation per org response dated and or borrower idr item 22a co-28 ein 22b co-19 ein 22c co-29 ein 22d co-30 ein 22e co-31 ein 22f co-32 ein 22g 22h co-33 ein co-34 ein co-18 ein 22j co-35 ein 22k co-36 ein this company was formed to make an investment in a specific real_property loan this company was formed to make an investment in a specific real_property loan this company was formed to make an investment in a specific real_property loan this company was formed to make an investment in a specific real_property loan this company was formed to make an investment in a specific real_property loan this company was formed to make an investment in a specific real_property loan this is a private equity fund this company was formed to make a specific secured real_estate investment this company was formed to make a specific real_estate investment this company was formed to make a specific real_estate investment this company was formed to make a specific real_estate investment form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-e other investment_income facts note investment in associates at page of org’s audited financials for year 20xx reported org holding a investment in three llc associates at year-end 20xx from which org received dollar_figure of recognized_gains_and_losses that was part of the dollar_figure of other income reported for year 20xx the company has the flowing investments in associates country shareholder ownership co-28 co-29 co-32 the company’s_share of post-acquisition total recognized_gains_and_losses in the above associates for the year ended december 20xx was dollar_figure 20xx dollar_figurenil note investment in affiliates at pages of org’s audited financials for the period ended 20xx described org’s investment relationship with most of the above businesses as affiliates and subsidiaries investment in affiliates comprise different ownership rates in co-28 co-19 co-29 co-30 llc co-32 co-31 co-34 co-36 co- and co-35 the company has two subsidiaries as at december 20xx which are co-19 and co-18 the company has not prepared separate consolidated financial statements form 886-a rev department of the treasury - internal_revenue_service page form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service year period ended exhibit schedule no or org 13-e other investment_income facts 20xx 20xx 20xx dollar_figure reported as other investment_income for year 20xx the dollar_figure of other investment_income reported in form_990 year 20xx was identified within two g l accounts - dollar_figure posted to g l interest_income dollar_figure posted to g l account misc income as an insignificant amount written off the dollar_figure posted to g l interest_income consists of two categories of revenue - dollar_figure of monthly accruals of interest receivable on line of credit loan made to sole shareholder lp-1 dollar_figure of schedule_k-1 income from three llcs co-32 dollar_figure co-29 dollar_figure co-28 dollar_figure dollar_figure the dollar_figure of schedule_k-1 income from the three llcs posted to g l was reported in note investment in associates discussed above department of the treasury - internal_revenue_service form 886-a rev page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 13-e other investment_income facts dollar_figure reported as other investment_income for year 20xx the dollar_figure reported as other investment_income for year 20xx came primarily from companies described within org’s audited financials as investment in affiliates and was traced to two g l accounts dollar_figure posted to g l account income loss from affiliates postings to g l account identified these affiliates and or subsidiaries as co-30 co-19 co-31 co-35 co-36 and co-18 dollar_figure posted to account interest_income postings to account primarily involved businesses having real_estate operations - co-37 dollar_figure interest_income co-29 dollar_figure write-back of investment dollar_figure interest_income lp-1 dollar_figure interest from line of credit loan co-33 -dollar_figure return_of_capital co-32 dollar_figure interest_income and dollar_figure interest_income from investment accounts co-28 dollar_figure interest_income co-30 dollar_figure interest_income two miscellaneous transactions - a debit dated 20xx dollar_figure and a credit dated xx dollar_figure dollar_figure net debit dollar_figure co-37 dollar_figure dollar_figure co-29 lp-1 - dollar_figure co-33 dollar_figure co-32 dollar_figure investment accounts with co-28 dollar_figure co-30 - dollar_figure misc dollar_figure dollar_figure ' form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org explanation of items year period ended schedule no or exhibit expenses reported for years 20xx-20xx facts 20xx 20xx 20xx org’s expenses reported in form_990 are identified here by line item for years 20xx- xx a substantial increase in management fees occurred in year 20xx - dollar_figure reported for year 20xx from dollar_figure reported for year 20xx - evidences a liquidation distribution due to org audited financials for year 20xx reporting a plan to liquidate on before 20xx form_990 part il line year 20xx year 20xx year 20xx dollar_figuredollar_figure dollar_figuredollar_figuredollar_figure dollar_figuredollar_figuredollar_figure interest license fee insurance expense property_tax incurred claims - legal fee sec_33 - supplie sec_35 - postage shipping management fee prof service sec_43 experience refund sec_43 commission due insurance_company service sec_44 - total functional expenses_incurred claims other professional experience refund insurance legal fees interest org items of expense discussed in further detail are - a b c d e f property_tax incurred claims and experience refunds due to the insurance_company insurance commission management fee form 886-a rev department of the treasury - internal_revenue_service page schedule no or department of the treasury - internal_revenue_service form 886a explanation of items exhibit name of taxpayer org facts 14-a legal fees year period ended 20xx 20xx 20xx part il line of org’s form_990 reported legal fees for years 20xx-20xx of - dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx supporting documentation discussed here discloses that these amounts were expended primarily for purposes other than conducting insurance activities dollar_figure of legal fees reported for year 20xx legal fees of dollar_figure reported within part il-line of form_990 year 20xx were paid to three firms law firm-1 pc advisory firm-1 advisory firm-2 dollar_figure dollar_figure law firm-1 pc and advisory firm-1 are affiliates the address of law firm-1 is the same as org’s address - address city state zip code org s director director-1 was an employee of the advisory firm-2 during year 20xx and provided the advisory firm-2 with real_estate advisory and management services the advisory firm-2 provided org with administrative services such as handling daily invoices and bill payments director-1’s employment with the advisory firm-2 and the common address -- address city state - that the advisory firm-2 had with the companies economic group indicates that the advisory firm-2 rendered similar services to other companies within the companies economic group documents supporting the dollar_figure reported as legal fees disclosed that this amount relates primarily to monthly fees for which there is no indication of legal services rendered directly to conduct insurance activities form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 14-a legal fees 20xx 20xx 20xx law firm-1 dollar_figure dollar_figure paid_by org check dated 20xx to law firm-1 for four invoices billed by law firm-1 advisory firm-1 invoice invoice invoice description invoice amt date 20xx_ 20xx_ flat reinsurance fee 20xx__ 20xx monthly fee monthly fee dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure monthly fee total dollar_figure paid_by org check dated 20xx to law firm-1 for invoice dated 20xx billed by advisory firm-1 advisory firm-1 advisory firm-1 invoice billed org dollar_figure for a legal service fee for march 20xx and shows the dollar_figure payment by org check as received on 20xx dollar_figure paid_by org check dated 20xx to law firm-1 for invoice dated 20xx billed by advisory firm-1 advisory firm-1 advisory firm-1 invoice billed org dollar_figure for a legal service fee for april 20xx and shows the dollar_figure payment by org check as received on 20xx dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure advisory firm-1 dollar_figurexx dollar_figure paid_by org check dated 20xx to advisory firm-1 llc advisory firm-1 for invoice dated 20xx billed by advisory firm- advisory firm-1 invoice billed org dollar_figure for a legal service fee for may 20xxx and shows the dollar_figure payment by org check as received on 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org facts 14-a legal fees schedule no or exhibit year period ended 20xx 20xx 20xx advisory firm-2 dollar_figure oe dollar_figure allocated to legal expense from dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 org’s check paid dollar_figure for three invoices billed by the advisory firm-2 one of which was invoice dated 20xx billed to org in the amount of dollar_figure the advisory firm-2’s invoice relates to a billing made by a legal firm named law firm-3 law firm-3 dated 20xx to the companies in the amount of dollar_figure for attorney fees the law firm-3 billing refers to an invoice and has a hand-written annotation that org’s portion of the dollar_figure is dollar_figure dollar_figure allocated to legal expense from dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 for invoice dated 20xx due on 20xx and billed in the amount of dollar_figure for monthly activity services rendered -- dollar_figure admin general dollar_figure entitlement properties the dollar_figure admin general portion of the dollar_figure billed was recorded as legal expense dollar_figure allocated to legal expense from dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 for invoice dated 20xx the advisory firm-2’s invoice has a due_date of 20xx and is billed in the amount of dollar_figure for monthly activity services rendered -- dollar_figure admin general business line dollar_figure entitlement properties business line the dollar_figure admin general portion of the dollar_figure billed was recorded as legal expense dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc for invoice billed by advisory firm-1 llc advisory firm-1 advisory firm-1 invoice is dated 20xx and billed dollar_figure to org for legal service fee for august 20xx dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 payment was for advisory firm-2’s invoice dated 20xx billed in amount of dollar_figure for monthly activity for admin general business line form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org facts 14-a legal fees schedule no or exhibit year period ended 20xx 20xx 20xx dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 payment was for advisory firm-2’s invoice dated 20xx billed in amount of dollar_figure for monthly activity for admin general business line dollar_figure allocated to legal expense from dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 for advisory firm- 2's invoice advisory firm-2’s invoice is billed monthly activity services relating to dollar_figure admin general dollar_figure investment properties and dollar_figure entitlement properties the dollar_figure admin general portion of the dollar_figure billed was recorded as legal expense dollar_figure paid_by org check dated 20xx to the advisory firm-2 inc advisory firm-2 payment was for advisory firm-2’s invoice dated 20xx billed in amount of dollar_figure for monthly activity’ service relating to the admin general business line hand-written on the advisory firm-2’s invoice was the difference of dollar_figure was a payment that was received by mgmt company on behalf of org the dollar_figure paid_by org’s check plus the dollar_figure stated to have been paid on behalf of org was recorded as dollar_figure of legal expense dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure ck dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 14-a legal fees facts schedule no or exhibit year period ended 20xx 20xx 20xx dollar_figure of legal fees reported for year 20xx the dollar_figure reported as legal fees for year 20xx consisted of monthly invoices billed to org by advisory firm-1 llc advisory firm-1 for a monthly legal service fee of dollar_figure the only deviations from this dollar_figure monthly amount were - a dollar_figure fee for third party insurance billed in january 20xx and a dollar_figure user_fee for an irs determination ruling application billed in march 20xx none of the advisory firm-1 invoices describe services rendered on behalf of insurance operations but rather are identified as a monthly legal service fee org recorded the dollar_figure reported as legal fees within org g l account - prof services-legal many of these postings relate to monthly activity for the advisory firm- in response to item of idr years 20xx-20xx org explained that in 20xx the advisory firm-2 was a management company that acted as agent for org and others in collecting cash receipts and making cash expenditures dollar_figure of legal fees reported for year 20xx the dollar_figure of legal fees reported for year 20xx was paid to four firms an insignificant difference of dollar_figure exists between totals of invoice documentation provided by org and the dollar_figure balance of g l account prof services-legal advisory firm-1 llc law firm-2 law firm-4 law firm-5 total dollar_figure o dollar_figureo total of postings to g l account - prof services-legal insignificant difference dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org facts 14-a legal fees schedule no or exhibit year period ended 20xx 20xx 20xx the dollar_figure paid to advisory firm-1 advisory firm-1 consisted primarily of dollar_figure monthly administration service charges totaling to dollar_figure the dollar_figure balance relates to three invoices billed in january - february 20xx summarized here description ten monthly administration services charges dollar_figure invoice dated 20xx amount legal service fee for january 20xx fee paid to insurance manager relating to addition of director invoice dated 20xx legal service fee for monthly administration services invoice dated 20xx one-fourth of dollar_figure billed to the advisory firm-2 for 20xx ongoing tax planning and implementation’ total for advisory firm-1 the dollar_figure paid to law firm-2 was primarily for one-fifth of monthly invoices billed for insurance_company review’ description one-fifth of invoice dated 20xx billed in amount of dollar_figure to amount director-1 attention individual-2 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 attention individual-2 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x director-1 for insurance_company review’ dollar_figure x director-1 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to one-fifth of invoice dated 20xx billed in amount of dollar_figure to form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org facts 14-a legal fees schedule no or exhibit 20xx 20xx 20xx description amount one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for telephone call from individual-2 re sale of limited_liability_company reporting requirements’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x one-fifth of invoice dated 20xx billed in amount of dollar_figure to director-1 for insurance_company review’ dollar_figure x total for law firm-2 form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 14-a legal fees 20xx 20xx 20xx the dollar_figure paid to law firm-4 consists of three invoices two of these invoices relate to real_property described as property-4 of which of the billed amount was allocated to org the nature of services relating to the third invoice were unidentifiable due to the november 20xx invoice being one-half of the balance forward from the previous month these three invoices are summarized here description amount one-fourth of charges incurred during month of september 20xx for services relating to acct - property-4 per invoice dated 20xx dollar_figure x one-fourth of charges incurred during month of august 20xx for services relating to acct - property-4 per invoice dated 20xx dollar_figure x one-half of balance forward from month of october 20xx per invoice dated 20xx dollar_figure x total for law firm-4 the dollar_figure paid to law firm-5 was an allocation of dollar_figure billed to an affiliate of the companies economic group lp-8 for an analysis of property described as property-5 form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service schedule no or name of taxpayer org year period ended explanation of items exhibit facts 14-b interest 20xx 20xx 20xx part il line of org’s form_990 year 20xx reported interest_expense of dollar_figure this amount was not interest but rather a fee that org paid to an llc named the fee was based upon of org’s initial capital_contribution investment of dollar_figure that org made to its affiliate co-34 org’s investment affiliation with the co-34 was reported within note investment in affiliates at pages of org audited financials for year 20xx investment in affiliates comprise different ownership rates in co- co-19 co-29 co-30 llc co-32 co-31 co-34 co-36 co-18 and co-35 org’s investment in the co-34 is supported within exhibit a to the operating_agreement of the co-34 where capital contributions and ownership interests of org and five other class a members are identified org co-7 co-39 co-40 co-41 co-42 class a member initial capital_contribution interest total equity ownership o l j o l l o l l o l l e l l o j - the dollar_figure fee reported as interest_expense was computed as of org’s dollar_figure capital_contribution ie dollar_figure x dollar_figure c the fee of dollar_figure was for a real_estate loan the co-43 loan that co-34 made in the amount of dollar_figure million to another llc named co-43 the co-43 loan made by co-34 is consistent with the purposes for which the co-34 was formed stated within article purpose of the co-34’s operating_agreement form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 14-b interest facts 20xx 20xx 20xx this company has been formed to engage in the financing acquisition ownership operation management repair replacement leasing and sale of real_property including without limitation acting as a manager or member of any limited_liability_company directly or indirectly engaged in such activities and may engage in any activities that are related to the accomplishment of such purpose or for any other lawful business or purpose the co-43 loan made by co-34 is also consistent with org’s explanation as to why the co-34 was formed this company was formed to make a specific secured real_estate investment response to item 22h of idr years 20xx-20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 14-c management fee 20xx 20xx 20xx part il-line of org’s form_990 reported management fees for years 20xx-20xx of - dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx supporting documentation discussed here discloses that these amounts were expended primarily for purposes other than conducting insurance activities dollar_figure of management fees reported for year 20xx the dollar_figure reported as management fees for year 20xx was recorded within two g l accounts dollar_figure recorded in account prof services dollar_figure recorded in account mgmt fee expense form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org facts 14-c management fee schedule no or exhibit year period ended 20xx 20xx 20xx the dollar_figure recorded in g l account prof services consists of two expenditures - dollar_figure paid to the advisory firm-2 for org’s one-third allocated clean-up and zoning costs relating to an area referred to as property-6 the one-third allocated costs for clean-up and zoning ie dollar_figure dollar_figure involve a real_estate developer named real_estate developer advisory firm-2’s invoice paid_by org’s ck dollar_figure paid for investment fees dollar_figure recorded on 20xx dollar_figure recorded on 20xx dollar_figure total __ dated 20xx the dollar_figure recorded in g l account management fee expense was a property management fee paid_by wire transfer on 20xx to the co-2 for managing real_property described as property-3 org’s correspondence dated 20xx identified org and its captive affiliates - co-7 and co-5 - as owning an equal one-third interest in the property-3 property during year 20xx org’s sale of its one-third interest in the property-3 property is discussed above with respect to the dollar_figure net gain reported for year 20xx the co-2 was an affiliate of the companies economic group as supported by org’s response to items 9a and 9b of idr where ownership and control of the co-2 was explained to have been held one-third equally by three limited_partnerships lp-1 lp-3 lp-2 each of these limited_partnerships owning controlling the co-2 was the sole shareholder of a territory captive lp-1 was org’s sole shareholder lp-3 was sole shareholder of org’s captive affiliate co-7 lp-2 was sole shareholder of org’s captive affiliate co-5 form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org facts 14-c management fee schedule no or exhibit year period ended 20xx 20xx 20xx dollar_figure of management fees reported for year 20xx the dollar_figure reported as management fees for year 20xx was paid to the co-2 to manage the property-3 property five wire transfer payments to the co-2 recorded in g l account management fee expense comprise the dollar_figure reported as management fees for year 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure 20xx dollar_figure dollar_figure dollar_figure of management fees reported for year 20xx the dollar_figure reported as management fees for year 20xx is comprised of five amounts 20xx management fee paid to lp-1 20xx management fee paid to lp-1 co-23 insurance co-39 - co-28 loan stock analysis fee o org authorized the dollar_figure and dollar_figure portions of management fees reported under board resolutions passed on 20xx and 20xx whereby org would pay its sole shareholder the lp-1 a management fee equal to of net assets for asset management services provided during the year’ were signed by org’s 3-member board - both resolutions director-1 director-4 wife of director-1 manager-2 son of director-1 and director-4 form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx facts 14-c management fee item of idr years 20xx-20xx requested contracts and agreements supporting services rendered by the lp-1 relating to org’s board resolutions for which management fees were to be paid to the lp-1 at the rate of of net assets org’s response dated 20xx provided only copies of the board resolutions passed at year-end 20xx-20xx and did not explain what specific asset management services were rendered in connection with the dollar_figure and dollar_figure fees expensed org recorded the dollar_figure and dollar_figure portions of management fees reported in its general ledger as pay-downs of the line-of-credit loan owed by the lp-1 on 20xx dollar_figure and on 20xx dollar_figure the reductions in the line-of-credit loan owed by the lp-1 were consistent with org’s liquidation plans reported within note subsequent events at page of org audited financials for year 20xx stating there are plans in place to liquidate the company as at december 20xx liquidating distributions will be made periodically until the end of next year the remaining portions of the dollar_figure reported as management fees were - dollar_figure deducted as an experience refund due retrocedant by org’s assumed reinsurance provider co-23 under the agreement that org had with co-23 computation of the dollar_figure experience refund due retrocedant is discussed above with respect to org’s revenue from assumed reinsurance premiums dollar_figure paid as a monthly management fee to a llc named co-38 the fee was computed on the first day of each calendar month as one-twelfth of two percent of the then capital balance held by org in its subsidiary co- org’s response to item 22b of idr years 20xx-20xx explained that the co-19 was formed to make an investment in a specific real_property loan dollar_figure stock analysis fee with form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items facts 14-d property taxes 20xx 20xx 20xx part il-line of org’s form_990 reported property_tax expense for years 20xx-20xx of dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx supporting documentation discussed here discloses that these amounts were expended primarily for purposes other than conducting insurance activities dollar_figure of property taxes reported for year 20xx the dollar_figure reported as property taxes for year 20xx was comprised of four amounts - dollar_figure paid to the advisory firm-2 for one-half of year 20xx property taxes in the amount of dollar_figure that were owed to county county state with respect to org’s receipt of a one-third interest in the property-2 property during year 20xx paid_by org check dated 20xx for advisory firm-2 invoice computed as dollar_figure total property_tax owed x owed for year 20xx x property interest dollar_figure dollar_figure paid to the advisory firm-2 for year 20xx property taxes in the amount of dollar_figure that were owed to county county state with respect to org’s receipt of a one-third interest in the property-1 property during year 20xx paid_by org check dated 20xx for advisory firm-2 invoice computed as dollar_figure x property interest dollar_figure dollar_figure paid to the advisory firm-2 for investment properties paid_by org check dated 20xx for advisory firm-2 invoice dollar_figure paid to the advisory firm-2 for entitlement properties paid_by org check dated 20xx for advisory firm-2 invoice dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer year period ended org facts 14-d property taxes 20xx 20xx 20xx dollar_figure of property taxes reported for year 20xx the dollar_figure reported as property taxes for year 20xx was traced to transactions posted to g l accounts property_tax and taxes licenses fees two postings to g l account property_tax - described as activity in advisory firm-2 -- comprise dollar_figure of the dollar_figure property taxes reported g l account - property_tax amount date reference journal trans description debit credit xx advisory firm-2 - october 20xx activity in advisory firm-2 the advisory firm-2 - april 20xx activity in advisory firm-2 xx total pj pj the remaining dollar_figure portion of the dollar_figure reported consists primarily of postings to g l account taxes licenses fees relating to fidelity advisor fees g l account -taxes licenses fees amount debit credit date reference journal trans description total pj gen j gen j gen j gen j gen j advisory firm-2 - january 20xx activity in advisory firm-2 advisor fees in fidelity advisor fees in fidelity advisor fees in fidelity write off per rob xx advisor fees for fidelity xx xx xx 311xx xx xx gj gj gj gj gj dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page - schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org facts 14-d property taxes 20xx 20xx 20xx dollar_figure of property taxes reported for year 20xx the dollar_figure reported as property taxes for year 20xx was traced to transactions posted to g l accounts property_tax and taxes licenses fees a posting to g l account property_tax - described as november 20xx monthly activity in co-37-property tax -- comprises dollar_figure the co-37 was identified as org’s agent under org’s response to item of idr years 20xx- 20xx of the dollar_figure reported g l account - property_tax amount date reference journal trans description debit credit xx pj total co-37 - november 20xx monthly activity in co-37 - property_tax expense the remaining dollar_figure portion of the dollar_figure reported consists primarily of postings to g l account taxes licenses fees relating to fidelity advisor fees dollar_figure - dollar_figure g l account taxes licenses fees amount debit credit date reference 311xx gj journal gen j trans description advisor fees for fidelity the advisory firm-2 - wac wrc group - monthly activity in advisory firm-2 wac wrc for org for march - taxes licenses fees fidelity advisor fees advisor fees paid on fidelity account co-37 november 20xx monthly activity in co-37 - taxes licenses fees co-37 llc monthly activity in co-37 for org - taxes licenses fees adjustment to for taxes fees licenses originally coded to capital_loss - fidelity stock sept xx xx xx sj gj gj xx - gen j genj__ xx capital_gain xx_ xx total gen j sj pj form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 14-e incurred claims and experience refunds facts due to the ceding company part il-line of org’s form_990 reported incurred claims and experience refunds for years 20xx-20xxx of dollar_figure incurred claims and dollar_figure experience refund due to insurance_company year 20xx dollar_figure incurred claims and experience refund due to insurance_company year 20xx dollar_figure incurred claims year 20xx these amounts reported primarily relate to claims and experience refunds generated by co-23’s quarterly retrocession computations that are discussed here and also above with respect to org’s revenue from assumed reinsurance premiums of the dollar_figure reported for year 20xx an amount of dollar_figure relates to a claim paid to the lp-3 for events occurring prior to the commencement of coverage on its policy in effect during year 20xx dollar_figure of incurred claims reported for year 20xx the dollar_figure of incurred claims reported relate to three transactions from the co-23 quarterly retrocession computations recorded within g l account incurred claims date reference trans description amount dec xx gj dec xx dec xx gj5 gj6 retrocession for the quarter ending december 20xx retrocession for the quarter ending september 20xx retrocession for the quarter ending june 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 14-e incurred claims and experience refunds due to the ceding company facts schedule no or exhibit year period ended 20xx 20xx 20xx dollar_figure of experience refund due to insurance_company reported for year 20xx the dollar_figure amount reported as an experience refund due to insurance_company was computed by the retrocedant co-23 as the difference between of retroceded premiums and what was net due to org as the retrocessionaire org's revenue from assumed reinsurance premiums discussed above identified the dollar_figure of incurred claims and the dollar_figure experience refund due to insurance_company as deductions to compute net_premiums retroceded by co-23 to org the retrocessionaire during year 20xx dollar_figure of incurred claims and experience refunds reported for year 20xx dollar_figure claim paid to lp-3 for events prior to policy coverage period org paid dollar_figure of the dollar_figure reported as incurred claims and experience refunds as a claim for its policy - written for year 20xx conflicts with the coverage period specified under policy - because it was for a claim filed by the lp-3 for one-third of a dollar_figure amount billed for drilling services rendered prior to the policy's effective coverage date of january 20xx the payment the policy coverage period for org policy - in verbatim is stated as only for insured events occurring on or after january 20xx for which claims are made and reported between a m january 20xx and a m january 20xx org supported its dollar_figure payment with a claim form containing these fields of information policy type policy no claim amount policy period administrative action - dollar_figure january 20xx - december 20xx the claim form had a field entitled statement regarding nature of claim’ for which an explanation was typed in as epa clean-up expenses survey site assessments drilling on properties located at property-7 - city state form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 14-e incurred claims and experience refunds due to the ceding company 20xx 20xx 20xx this explanation described services within an invoice billed by a business named co- inc trade_name is co-44 that org provided to support the dollar_figure claim amount the claim form had a field entitled date of insured event for which was typed in see attached invoice in the amount of dollar_figure to a person having name address of the attached invoice dated 20xx was billed by co- address city state zip code co-44’s invoice disclosed that the dollar_figure was billed for two units of sub-contractor - outside services rendered on october 20xx and on october 20xx xx xx outside services totals sub-contractor - outside sub-contractor - outside unit unit dollar_figure dollar_figure co-44’s invoice referred to a project that was described as implement scwp initial remedial actions and specifically described the services rendered as drilling services provided through october 20xx for the property located at property-7 city state hand-written on co-44’s invoice was a directive that one-third of the invoice amount be billed to the lp-3 of invoice total is billed to lp-3 in addition to co-44’s services being rendered and billed prior to the effective date of coverage for policy - their being rendered in state were inconsistent with the lp-3’s business operations described within article sec_4 and of the application and certificate of insurance section of policy - as being conducted in state and state devoted towards owning operating retail petroleum facilities primarily in state and state engaged in real_estate speculation and development in state and devoted in private and public equity investments form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 14-e incurred claims and experience refunds due to the ceding company 20xx 20xx 20xx org’s claim form relating to the dollar_figure claims payment co-44’s invoice dated november 20xx billed in the amount of dollar_figure and org check dated 20xx paying the dollar_figure claim to the lp-3 under policy - are illustrated within exhibit expenses from co-23 quarterly retrocession computations two expense amounts from the co-23 quarterly retrocession computations were part of the dollar_figure reported as incurred claims and experience refunds - dollar_figure of incurred claims from co-23 s quarterly retrocession computation reports recorded in two amounts - dollar_figure dollar_figure -- within org’s g l account incurred claims g l account - incurred claims date reference journal trans description amount xx gj gen j total of posting sec_12 xx gj gen j retrocession for the quarter ending december 20xx retrocession for the quarter ending december 20xx dollar_figure of experience refund due to insurance_company was computed by the retrocedant co-23 as the difference between of retroceded premiums and what was net due to org as the retrocessionaire two journal postings to g l experience refund due insurance commission support the co-23 quarterly reports as their source g l account - exp ref due insurance com date reference journal trans description amount xx gj gen j balance 20xx 311xx gj gen j retrocession for the quarter ending december 20xx retrocession for the quarter ending december 20xx org’s revenue from assumed reinsurance premiums discussed above identified the dollar_figure of incurred claims and the dollar_figure experience refund due to insurance_company as deductions to compute net_premiums retroceded by co-23 to org the retrocessionaire during year 20xx form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer org explanation of items facts 14-e incurred claims and experience refunds due to the ceding company schedule no or exhibit year period ended 20xx 20xx 20xx an amount of dollar_figure described as ibnr claims was part of the dollar_figure reported as incurred claims and experience refunds this dollar_figure amount was traced to two g l accounts -- ibnr claims reserve debit to expense account ibnr claims credit to liabilities account ibnr reserves the transaction description of these postings below indicates a relationship to the direct written insureds covered during year 20xx whereby the dollar_figure reported in org's ss form_990 was allocated as dollar_figure for co-3 and dollar_figure for the lp-3 the dollar_figure posted to account ibnr reserves was reported as an other liability described as ibnr reserve’ within part iv-line of form_990 years 20xx-20xx g l accounts - ibnr claims and ibnr reserve trans amount date reference journal description debit credit account id 1ibnr claim sec_65 ibnr claims ibnr reserve ibnr reserve xx aje gen j dollar_figure gen j xx aje co-3 lp-3 and subsidiaries total of g l posting sec_12 xx aje xx aje dollar_figure dollar_figure gen j gen j dollar_figure dollar_figure dollar_figure co-3 lp-3 and subsidiaries section iii-d technical claims and accounting techniques within org’s business plan identified ibnr as not expected to be a significant portion of org’s claim reserves form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 14-e incurred claims and experience refunds facts due to the ceding company 20xx 20xx 20xx the frequency of claims from cc is expected to be low and so all claims will be dealt with on an adhoc basis in consultation with the company’s insurance manager where advised by the insurance manager or otherwise determined the services of third party loss adjusters and other specialists may be used the company intends to adopt a conservative approach to reserving for outstanding claims but ibnr is not expected to form a significant proportion of those reserves item of idr years 20xx-20xx requested documentation supporting the dollar_figure ibnr claim org’s response dated 20xx explained that the ibnr claim was recommended by insurance consultants but supporting documentation for it could not be located this item was based upon the recommendation of the company's insurance consultants the company has not been able to locate the supporting documentation dollar_figure of incurred claims reported for year 20xx the dollar_figure of incurred claims reported was identified from the dollar_figure and dollar_figure quarters of co-23's quarterly retrocession computations for year 20xx org recorded the dollar_figure sum from these two quarters within g l account incurred claims at year-end 20xxx date reference insurance pre_ 20xx reinsurance co-23 dec xx trans description amount org’s revenue from assumed reinsurance premiums discussed above identified the dollar_figure of incurred claims as a deduction to compute net_premiums retroceded by co-23 to org the retrocessionaire during year 20xx form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items facts 14-f ceding commissions 20xx 20xx 20xx part il-line of org’s form_990 reported insurance commissions for years 20xx- 20xx of dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx these amounts were computed from co-23’s quarterly retrocession computations whereby co-23 deducted a insurance commission before retrolnsurance premiums to org identified these insurance commission amounts as deductions to compute premiums retroceded from co-23 to org org’s revenue from assumed reinsurance premiums discussed above department of the treasury - internal_revenue_service form 886-a rev page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org assets reported for years 20xx-20xx facts schedule no or exhibit year period ended 20xx 20xx 20xx year-end asset balances reported by org in forms filed for years 20xx-20xx are identified here year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure - other notes loans form_990 part iv line -non-interest bearing cash - savings temp cash inv - accounts_receivable rec - securities investment sec_55 - investments - land building equip - other investment sec_57 - land building equipment - other assets line of credit - total assets asset balance line items discussed in further detail are - a b c d e f accounts_receivable other assets line of credit other notes loans receivable securities investments other investments land building equipment form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 15-a accounts_receivable 20xx 20xx 20xx part iv-line of org’s form_990 reported accounts_receivable year-end balances of dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx transactions posted to g l accounts_receivable accounts directly relating to insurance activity are identified here as - dollar_figure year-end 20xx balance for cash due to org as retrocessionaire from co-23 within account reinsurance balance receivable dollar_figureowithin the dollar_figureyear-end 20xx balance of account accounts_receivable relating to direct premiums for policies written in year 20xx dollar_figureoyear-end 20xx balance for cash due to org as retrocessionaire from co-23 within account reinsurance balance receivable includes dollar_figure balance from year 20xx the remaining accounts_receivable transactions involve activity primarily for real_estate investment purposes with businesses within the companies economic group dollar_figure of accounts_receivable reported for year 20xx the dollar_figureyear-end 20xx balance reported as accounts_receivable consisted of two amounts relating to the line of credit loan with org’s sole shareholder the lp-1 both amounts had no direct connection with insurance activity - dollar_figure origination fee for a dollar_figure million line of credit effected on 20xx with org’s sole shareholder the lp-1 at an annual rate of prime dollar_figure accrued interest for the line of credit with the lp-1 a insignificant difference of dollar_figure exists between the dollar_figure reported and the sum of the two components identified above postings within org’s general ledger in year 20xx disclose that the dollar_figure line of credit fee was paid on or about 20xx a dollar_figure debit to g l account cash - bank indicating that dollar_figure was received as payment from the lp-1 was offset by a credit removing the dollar_figure beginning-of-year balance from g l account - ar lp-1 form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer org year period ended 20xx 20xx 20xx facts 15-a accounts_receivable amount account id date reference journal trans description debit credit cash - bank xx lp-1 - line of credit origination fees total of g l account postings ar lp-1 xx crj lp-1 crj dollar_figure of accounts_receivable reported for year 20xx the dollar_figure year-end 20xx balance reported as accounts_receivable consisted of balances within four g l accounts the dollar_figure within g l account reinsurance balance receivable was the only receivable balance directly connected with insurance activity g l account number name year-end balance accounts_receivable accrued receivables ar lp-1 reinsurance balance rec total o o o o o l s dollar_figure balance within g l account accounts_receivable the dollar_figure balance within g l account accounts_receivable was owed by the advisory firm-2 a management company that functioned as an agent on behalf of org to collect interest payments from four llcs having real_property loans in which org had made investments in the dollar_figure of accrued interest for which the advisory firm-2 was to collect on behalf of org was identified in org’s invoice billed to the advisory firm-2 for monthly activity in advisory firm-2 in regard to four llcs involved in real_estate loans form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form_8 a name of taxpayer explanation of items year period ended schedule no or exhibit org facts 15-a accounts_receivable 20xx 20xx 20xx description extension of monthly activity in advisory firm-2 for co-28 of monthly activity in advisory firm-2 for co-29 of monthly activity in advisory firm-2 for co-32 of monthly activity in advisory firm-2 for co-46 total invoice amount the advisory firm-2’s role as collection agent on behalf of org and the accrued interest amounts owed by the llcs within org invoice was explained in org’s response to item of idr years 20xx-20xx in 20xx the advisory firm-2 was a management company that acted as agent for org and others in collecting cash receipts and making cash expenditures invoice dated xx billed by advisory firm-2 for payments due to org received by the advisory firm-2 a copy is at tab these are interest payments on the loans that org had invested in org’s response to item of idr years 20xx-20xx explained that the co-28 the co-29 and the co-32 were formed to make an investment in a specific real_property loan during year 20xx org held a ownership in the co-19 co-29 and co-32s which was reported in note investment in associates at page of org audited financials for that year 20xx the company has the following investments in associates shareholdings country ownership co-19 co-29 co-32 department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer org explanation of items schedule no or exhibit year period ended facts 15-a accounts_receivable 20xx 20xx 20xx dollar_figure balance within g l account accrued receivables the dollar_figure balance within account accrued receivables relates to the line of credit owed by org’s sole shareholder the lp-1 - dollar_figure transferred from another receivable account - account interest receivable dollar_figure dollar_figure dollar_figure although the amounts transferred were described as a pay-down of line-of- credit interest no pay-down actually occurred because cash and or other assets were not received as a payment dollar_figure net_adjustment to accrued interest_income dollar_figure - dollar_figure this adjustment was posted to g l accounts line of credit-lp-1 and interest_income g l postings supporting the dollar_figure balance within account accrued receivables are identified here date gj gj gj debit credit_amount xx xx xx account id paydown on line-of- paydown on line-of- gen j credit interest account - interest receivable account - accrued receivables reference journal trans description account - interest receivable account - line of credit - lp- gen j_ credit interest adjust interest receivable on line of credit for formula overpayment on line of credit interest due to formula adjust interest receivable on line of credit for formula department of the treasury - internal_revenue_service account - interest_income total of g l account postings form 886-a rev gen j calculation error gen j error gen j_ error xx page xx gj gj form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org _ schedule no or exhibit year period ended 20xx 20xx 20xx facts 15-a accounts_receivable dollar_figure balance within g l account ar lp-1 the dollar_figure balance within account ar lp-1 was for an investment made in two increments -- dollar_figure on 20xx and dollar_figure on 20xx - in a business named co-45 involving real_estate referred to as property-8 the dollar_figure was transferred into account ar lp-1 under a year-end 20xx adjusting entry dollar_figure balance within g l account reinsurance balance receivable the dollar_figure balance within account reinsurance balance receivable was computed from the co-23 quarterly reports as cash due to org as retrocessionaire from co-23 this dollar_figure reinsurance receivable amount due to org is discussed above within respect to org’s revenue from assumed reinsurance premiums g l account - reinsurance balance rec amount date reference journal trans description debit credit 11xx retrocession for the quarter ending december 20xx retrocession for the quarter ending december 20xx xx gj gj gen j gen j total dollar_figure of accounts_receivable reported for year 20xx the dollar_figure reported as ar for year 20xx is comprised of balances within six g l accounts identified here receivable amounts within these account balances directly connected with insurance activity were - dollar_figure within the dollar_figure balance of account accounts_receivable relating to direct premiums for policies written in year 20xx dollar_figure cash due to org as retrocessionaire from co-23 within account reinsurance balance receivable g l account number name year-end balance accounts_receivable lp-8 ar co-48 - - net ar co-37 work ar co-49 reinsurance balance rec o o o l o s o l o v s total form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org facts 15-a accounts_receivable 20xx 20xx 20xx dollar_figure balance within g l account accounts_receivable the dollar_figure balance within account accounts_receivable was supported by org invoices billed in year 20xx all but one of these invoices were billed to org’s five insureds for direct policies written in year 20xx having aggregate premiums of dollar_figure dollar_figure lp-3 dollar_figure co-3 company dollar_figure co-4 dollar_figure co-6 dollar_figure lp-10 dollar_figure the remaining dollar_figure portion of the dollar_figure balance for g l account was billed to the co-37 for five items described as being for monthly activity in co-37 for org - dollar_figure rental revenue dollar_figure interest_income -dollar_figure prof services legal -dollar_figure taxes licenses fees -dollar_figure prof svc engineering dollar_figure rental revenue dollar_figure interest_income - dollar_figure prof services legal - dollar_figure taxes licenses fees - dollar_figure prof svc engineering dollar_figure org’s response to item of idr years 20xx-20xx explained that the co-37 was invoiced because it was a management company that acted as an agent on behalf of org to collect cash and make payments for org’s investments form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items form 886a name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx facts 15-a accounts_receivable inv amt invoice description org invoice date org invoice dated 20xx billed to co-17 org invoice dated 20xx billed to co-3 org invoice dated 20xx billed to co-4 org invoice dated 20xx billed to co-6 org invoice dated 20xx billed to co-47 administrative actions insurance_policy 20xx administrative actions insurance_policy 20xx - jan 20xx- explanation policy - for period of jan 20xx policy - for period of jan 20xx policy - for - jan 20xx- 20xx-20xx policy - for period 20xx premium payment for period of jan - jan liability insurance liability insurance 20xx premium payment for of jan monthly activity in co-37 for org re rental revenue interest_income legal taxes licenses fees and org invoice dated 20xx billed to co-37 20xx policy - for period no policies relating to invoice 20xx premium payment for of jan liability insurance engineering - jan 20xx- - jan 20xx- 20xx dollar_figure balance within g l account lp-8 the dollar_figure balance within account e24 lp-8 resulted from dollar_figure paid to the lp-8 on or about 20xx this funds transfer is identified here by postings to org g l accounts resulting in the creation of a dollar_figure receivable against the lp-8 and an outflow of dollar_figure cash g l account lp-8 amount trans description debit credit _ date xx reference journal gj xx-1_ gen j transfer to lp-8 dollar_figure g l account cash - bank reference journal gj xx-1 gen j date xx trans description total of postings transfer to lp-8 dollar_figure dollar_figure amount credit debit dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org facts 15-a accounts_receivable schedule no or exhibit year period ended 20xx 20xx 20xx the lp-8 ein was identified above in the discussion concerning org’s dollar_figure net gain reported in year 20xx as one of three purchasers who bought a portion of org’s one-third interest in the property-2 property that org sold on 20xx a r balances for co-48 co-37 and co-49 year-end 20xx balances for the g l accounts_receivable accounts identified here resulted from amounts transferred from the line of credit loan with org’s sole shareholder the lp-1 the amounts transferred were an assignment of accounts_receivable in the amount of dollar_figure that was effected on 20xx between the lp-1 as assignor and org as assignee the assignment of a r converted dollar_figure owed by the lp-1 under its line of credit with org - charging an average interest rate of during year 20xx with principal and interest payable on 20xx -- to unsecured interest-free loans that org had with three companies - co-48 co-37 and co-49 ar co-48 - - net ar co-37 work ar co-49 o o o dollar_figure balance within g l account reinsurance balance receivable the dollar_figure year-end 20xx balance within account reinsurance balance rec is cash due to org as retrocessionaire obtained from co-23's quarterly computations the dollar_figure amount consists of dollar_figure due from year 20xx plus dollar_figure due for year 20xx org’s revenue from assumed reinsurance premiums discussed above identified the dollar_figure and dollar_figure amounts as cash due retrocessionaire form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 15-b other assets line of credit facts part iv-line of org’s form_990 reported other assets line of credit year-end balances of - dollar_figure year 20xx dollar_figure year 20xx these balances reported involved activity primarily for real_estate investment purposes with businesses within the companies economic group dollar_figure of other assets line of credit reported for year 20xx part iv-line of org’s form_990 reported a year-end 20xx balance of dollar_figure as other assets line of credit this amount is comprised of two types of line of credit loans issued within the companies economic group dollar_figure loaned to org’s sole shareholder the lp-1 under a dollar_figure million line of credit issued on 20xx at the rate of prime per annum principal and accrued interest are due and payable on the anniversary of the date of the note 20xx accounts_receivable reported for year 20xx discussed above identified dollar_figure reported as a r consisting of an accrued line of credit origination fee dollar_figure and accrued interest dollar_figure both a r amounts relate to the dollar_figure year-end 20xx balance for the line of credit owed by the lp-1 dollar_figure loaned under dollar_figure lines of credit issued separately with four limited_partnerships on 20xx to provide investment capital for real_estate loan s lp-4 co-8 lp-14 lp-6 dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure the dollar_figure lines of credit issued with the four limited_partnerships were at a rate of prime per annum principal and accrued interest were due and payable on the anniversary of the date of the note 20xx dollar_figure lp-1 dollar_figure four lps dollar_figure line of credit reported form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-b other assets line of credit facts schedule no or exhibit year period ended 20xx 20xx 20xx the five lines of credit issued by org during year 20xx were reported in note finance receivables at page of org’s audited financials for that year during 20xx the company issued letters of credit to various limited_partnerships all of which are related to the company by way of a common shareholder borrowings on these letters of credit are unsecured and bear interest on the unpaid principal balance at a floating rate equal to the prime rate plus zero percent or pincite december 20xx only interest is payable annually the principal balance plus any unpaid interest is due at maturity of the borrowings the borrowings against these letters may be repaid in full or in part at any time up to the maturity_date without penalty tofal facility maturity lp-1 lp-4 lp-13 lp-14 lp-6 interest receivable dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure december 20xx december 20xx december 20xx december 20xx december 20xx outstanding balance pincitexx dollar_figure dollar_figure org explained that the four lps were issued their respective dollar_figure lines of credit so that they could invest in three llcs - co-19 co-29 and co-32-who applied the investment capital proceeds to make other loans lp-4 lp-13 lp-5 and lp-6 sic borrowed money from org to be able to invest in co-28 co-29 and co-32 loans for reference purposes org used both names on the account description the owners of lp-4 co-8 and lp-6 were employees of affiliated companies and were considered creditable borrowers by org business insurance and allowed them to participate in these loans org response to item 20a of idr years 20xx-20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items org 15-b other assets line of credit facts schedule no or exhibit year period ended 20xx 20xx 20xx the four lps invested the dollar_figure aggregate of their lines of credit borrowed in year 20xx only in the co-28 llc year-end 20xx balances of four g l note receivable accounts support the respective amounts borrowed by each lp with the names of each g l account indicating that the borrowed proceeds were invested in the co-19 g l account number name nr lp-4 - co-28 nr lp-13 - co-28 nr lp-5 - co-28 nr lp-6 - co-28 s year-end balance o o o o o total org’s response to item 22a of idr years 20xx-20xx explained that the co-28 was formed to make an investment in a specific real_property loan the four lps having dollar_figure lines of credit were managed by director-1 family members through control_over their general partners and by ownership held in their limited_partnership equity manager-2 son of director-1 manager of co-10 general_partner of lp-4 holder of limited_partner equity in lp-4 manager-1 nephew of director-1 manager of co-8 general_partner of co-8 holder of limited_partner equity in co-8 manager-3 husband of director-1’s niece manager of co-11 general_partner of lp-5 lp holder of limited_partner equity in lp-5 lp manager-4 husband of director-1’s niece manager of co-12 general_partner of lp-6 holder of limited_partner equity in lp-6 form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx facts 15-b other assets line of credit loc borrower limited_partner interest lp-4 lp-13 lp-5 manager-4 wife manager-3 wife lp-6 manager wife ssn manager wife general_partner interest co-10 ein co-8 ein co-11 ein co-12 ein dollar_figure of other assets line of credit reported for year 20xx the dollar_figure reported as other assets line of credit within part iv - line of form_990 was for the line of credit issued with org’s sole shareholder the lp-1 and was the year-end 20xx balance of g l account line of credit - lp-1 activity during year 20xx within g l account line of credit - lp-1 disclosed that the lp-1 made no payments on its loan and that an additional dollar_figure was loaned to the lp-1 note finance receivables at page of org’s audited financials for year 20xx reported the lp-1 owing dollar_figure on its line of credit borrowed the dollar_figure reported in the audited financials was reported in org’s form_990 within line sec_47 and sec_58 of part iv - dollar_figure reported as an account receivable within part iv-line discussed above as an accounts_receivable owed by the lp-1 for dollar_figure borrowed to invest in a business named co-45 involving real_estate referred to as property-8 and recorded in g l account ar lp-1 dollar_figure reported as other assets line of credit within part iv - line year-end 20xx balance of g l account line of credit lp-1 note finance receivables of org audited financials for year 20xx reported the increase in line of credit borrowings by the lp-1 and four lps from 20xx to 20xx and described the lines of credit as being issued to limited_partnerships related to org through a common shareholder form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-b other assets line of credit facts schedule no or exhibit year period ended 20xx 20xx 20xx during 20xx and 20xx the company issued letters of credit to various limited_partnerships all of which are related to the company by way of a common shareholder borrowings on these letters of credit are unsecured and bear interest on the unpaid principal balance at a floating rate equal to the u s prime rate plus one percent or pincite december 20xx 20xx only interest is payable annually the full principal balance plus any unpaid interest is due at maturity of the borrowings the borrowings against these letters of credit may be repaid in full or in part at any time up to the maturity_date without penalty total facility maturity outstanding balance pincitexx balance pincitexx outstanding dollar_figure december 20xx dollar_figure dollar_figure dollar_figure december 20xx lp-1 lp-4 lp-13 lp-5 lp-6 dollar_figure december 20xx dollar_figure december 20xx dollar_figure december 20xx interest receivable dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx loans receivable facts 15-c other notes part iv-line of org’s form_990 reported other notes loan receivable year-end balances of - dollar_figure year 20xx dollar_figure year 20xx these balances reported involved activity primarily for real_estate investment purposes with businesses within the companies economic group dollar_figure of other notes loan receivable reported for year 20xx the dollar_figure reported as other notes loans receivable was for dollar_figure lines of credit borrowed by four lps that invested their loan proceeds into three llcs to make real_estate loans the dollar_figure reported consists of dollar_figure borrowed during year 20xx that was unpaid in year 20xx and additional borrowings during year 20xx to invest in two other llcs - co-29 dollar_figure and co-32 dollar_figure twelve g l note receivable accounts identified here support the respective amounts borrowed by each lp during 20xx-20xx the name of each g l note receivable account indicates that proceeds borrowed by the four lps during years 20xx-20xx were invested in the co-19 the co-29 and the co-32 supporting that the three llcs applied the loan proceeds invested in them by the four lps towards making real_estate loans is org’s response to item of idr years 20xx-20xx which explained that the co-19 the co-29 and the co-32 were formed to make an investment in a specific real_property loan form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 15-c other notes loans receivable year-end 20xx year-end 20xx balance balance g l account number name nr lp-4 - co-28 nr lp-4 - co-29 llc nr lp-4 - co-32 nr lp-13 - co-28 nr lp-13 - co-29 nr lp-13 - co-32 nr lp-5 - co-28 nr lp-5 - co-29 nr lp-5 - co-32 nr lp-6 - co-28 nr lp-6 - co-29 nr lp-6 - co-32 total dollar_figure co-19 years 20xx-20xx dollar_figure dollar_figure co-29 year 20xx dollar_figure dollar_figure co-32 year 20xx dollar_figure dollar_figure note finance receivables at page of org’s audited financials for year 20xx reported that the line of credit loan of dollar_figure for co-28 during year 20xx and the additional lending during year 20xx of dollar_figure for co-29 and dollar_figure for co-32 were - letters of credit issued to lps related to org by way of a common shareholder unsececured loans bearing interest at a floating rate of prime only interest is payable annually with the full principal balance and unpaid interest due at the maturity of the borrowings prepayment could be made in full or in part before the loans’ maturity form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 15-c other notes loans receivable facts schedule no or exhibit 20xx 20xx 20xx during 20xx and 20xx the company issued letters of credit to various limited_partnerships all of which are related to the company by way of a common shareholder borrowings on these letters of credit are unsecured and bear interest on the unpaid principal balance at a floating rate equal to the u s prime rate plus one percent or pincite december 20xx 20xx only interest is payable annually the full principal balance plus any unpaid interest is due at maturity of the borrowings the borrowings against these letters of credit may be repaid in full or in part at any time up to the maturity_date without penalty total facility maturity outstanding outstanding balance pincitexx balance pincitexx dollar_figure december 20xx dollar_figure dollar_figure december 20xx dollar_figure lp-1 lp-4 lp-13 lp-6 lp-5 dollar_figure december 20xx dollar_figure december 20xx dollar_figure december 20xx interest receivable dollar_figure dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org schedule no or exhibit year period ended 20xx 20xx 20xx 15-c other notes loans receivable facts dollar_figure of other notes loan receivable reported for year 20xx the dollar_figure year-end 20xx balance reported as other notes loans receivable was supported by g l account balances - dollar_figure line of credit balances outstanding from year-end 20xx borrowed by the four lps to invest in the co-29 so that a real_estate loan would be made identified above in the discussion concerning year 20xx line of credit borrowings line of credit borrowings used by the four lps to invest in co-28 llc and co-32s llc were paid off on 20xx and 20xx respectively year-end 20xx-20xx balances g l account number name nr lp-4 - co-29 llc nr lp-13 - co-29 llc nr lp-5 - co-29 llc nr lp-6 - co-29 llc dollar_figure total dollar_figure balance at year-end 20xx of g l account nr - lp-1 the dollar_figure year-end 20xx balance within g l account nr - lp-1 is for the line of credit borrowed by the lp-1 for which note amount due on issue line of credit at page of org audited financials for year 20xx reported that - it was an unsecured line of credit with maximum principal of dollar_figure million with an annual rate of until paid in full payments of interest only were to commence monthly on 20xx maturity will occur on 20xx when a final installment of unpaid principal and accrued interest was due org had the option to charge interest at a rate of on unpaid principal and accrued interest thereon in the event that principal and or interest were not paid on the maturity_date of 20xx form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-c other notes loans receivable facts schedule no or exhibit year period ended 20xx 20xx 20xx the non-negotiable line of credit is an unsecured line with a maximum principal of dollar_figure due from an state limited_partnership which is the sole shareholder to the company the line of credit attracted interest at a rate of per annum until paid in full payments will be made in consecutive installments of interest only at the first day of every month for a period of years beginning on the of february 20xx _a final installment of all unpaid principal and accrued interest is due when the note matures in december 20xx the average interest rate charged in 20xx was should the payment of principal and or interest not be paid when due the entire principal sum accrued interest and all other_amounts shall become immediately due and payable at the option of the company with interest theron after the date of the exercise of such option being the note can be repaid in full or in part at any time up to maturity_date without penalty comparing note finance receivables at page of org’s audited financials for year 20xx discussed above with note amount due on issue line of credit at page of org audited financials for year 20xx identified changes in borrowing terms for the line of credit issued to the lp-1 maturity for full payment of principal and accrued interest changed from 20xx to 20xx the revised maturity_date of 20xx is consistent with org’s intent to liquidate by that date as discussed within note subsequent events at page of org audited financials for year 20xx interest accrued changed from a floating rate of prime to maximum principal changed from dollar_figure million to dollar_figure million org can exercise an option to charge interest at a rate of on unpaid principal and accrued interest thereon in the event that principal and or interest are not paid on the maturity_date of 20xx activity within g l account nr - lp-1 during year 20xx identified dollar_figure of additional funds loaned by org to increase the line of credit and dollar_figure of reductions to the line of credit resulting in the year-end 20xx balance of dollar_figure form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org 15-c other notes loans receivable facts schedule no or exhibit 20xx 20xx 20xx g l account nr - lp-1 beginning balance add dollar_figure funds loaned in 20xx cash payments described as transfer to lp-1 - increase pincite 20xx amount line of credit’ recorded during year 20xx on - xx gj xx gj xx gj xx-1 xx xx-1 xx gj xx - xx gj xx - xx gj xx-1 o c o o o o o payment from org’s cash operating account with the bank recorded on 20xx loan for an investment in a business referred to as co-45 relating to property-8 development recorded on xx aje xx-1 by co-48 co-49 inc and co-37 recorded in g l as used by lp-1 xx gj xx-2 xx gj xx-2 xx gj xx-3 proceeds loaned from pay-downs of notes receivable owed o j o form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-c other notes loans receivable facts schedule no or exhibit year period ended 20xx 20xx 20xx g l account nr-lp-1 amount subtract reductions of dollar_figure in 20xx management fees expensed as of net assets xx gj xx-2 xx gj xx-3 cash operating account deposits xx age xx-1 xx gj o xx-1 xx gj xx-1 -0 -0 -0 -0 -0 real_property transfers xx gj described as property-4 xx gj xx-3 described as add'l money borrowed from lp-8 to buy xx gj xx-3 described as transfer of address building to offset loc’ xx gj xx-3 described as transfer of -0 -0 of -0 of described as money from lp-1 xx gj xx-3 described as transfer xx gj escrow interest deposit for xx gj xx-3 described as transfer other assets transferred xx gj xx-2 additional paid-in capital accounts_receivable reclassifications ar co-48 - - net ar co-49 ar co-37 work ar lp-1 xx gj xx-3 described as transfer ending balance pincite 20xx of co-35 inv from lp-1 property-4 property -0 -0 -0 -0 -0 -0 form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org facts 15-d securities investments 20xx 20xx 20xx part iv-line of org’s form_990 reported securities investments year-end balances of - dollar_figure year 20xx dollar_figure year 20xx dollar_figure year 20xx dollar_figure of securities investments reported for year 20xx the dollar_figure year-end 20xx balance reported as securities investments is supported by balances within four g l accounts three of the accounts have names disclosing that they were for marketable_securities transactions the fourth account's name discloses that it was for an investment in an llc named co-28 llc g l account number name marketable sec - marketable_securities - addre sec_30 marketable_securities - c sec_31 co-28 total year-end balance note investment in associate at page of org audited financial for year 20xx identified org holding a investment in an llc named co-28’ that was referred to as an associate the company has the following investment in associate shareholdings co-28 ownership country the company’s_share of post-acquisition total recognized_gains_and_losses in the above associate for the year ended december 20xx was dollar_figurenil the balance_sheet of co-28 as of 20xx identified the dollar_figure balance of g l account co-28 as a ownership_interest held by org in that llc other equity holders of the co-28 were org captive affiliates - co-5 and co-7 - and four lps that borrowed from org to invest their loan proceeds into co-28 llc so that a real_estate loan could be made form 886-a rev department of the treasury - internal_revenue_service page form_886 a department of the treasury - internal_revenue_service schedule no or exhibit year period ended name of taxpayer explanation of items org facts 15-d securities investments 20xx 20xx 20xx member owner capital contributors org co-5 co-7 lp-4 co-8 lp-5 lp-6 total capital g l acct ownership dollar_figure capital org’s response dated 20xx to item 22a of idr explained that the co-28 was formed to make an investment in a specific real_property loan securities investments reported for years 20xx-20xx year-end balances reported for 20xx dollar_figure and for 20xx dollar_figure as securities investments were supported by balances within three g l accounts all of which have names disclosing that they were for marketable_securities transactions year-end 20xx year-end 20xx g l account number name marketable sec - marketable_securities - addre sec_30 marketable_securities - cs s total balance balance o o o o o o o o form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org facts 15-e other investments 20xx 20xx 20xx part iv of org’s form_990 reported year-end balances for other investments of - dollar_figure reported in line as other investments year 20xx dollar_figure reported in line as other investments year 20xx dollar_figure of other investments reported for year 20xx the dollar_figure reported as other investment for year 20xx is supported by balances of four g l accounts relating to businesses in which org held capital investments three of these accounts relate to capital investments within llcs of which org’s audited financials identify org owning a shareholder interest in each the fourth account relates to a capital_investment in a lp described in org’s audited financials as a private equity fund year-end balance g l account number name co-28 co-29 co-32 co-33 total the three g l accounts relating to capital investments in three llcs correlate with note investment in associates at page of org audited financials for year 20xx whereby org was reported to own a shareholder interest in three llcs described as associates the company has the following investments in associates shareholdings country ownership co-28 co-29 co-32 the company's_share of post-acquisition total recognized_gains_and_losses in the above associates for the year ended december 20xx was dollar_figure 20xx dollar_figurenil form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org facts 15-e other investments 20xx 20xx 20xx the g l account relating to capital_investment held in a lp correlates with note available-for-sale investments at page of org audited financials for year 20xx whereby org was reported to have invested in a private equity fund during 20xx the company purchased shares in a private equity fund that is domiciled in the united_states at december 20xx based on the audited financial statements for this private equity fund the fair value of this investment approximates cost org’s response to item of idr years 20xx-20xx explained that the co-19 ein the co-29 ein and the co-32 ein were formed to make an investment in a specific real_property loan this response also explained the co-33 ein to be a private equity fund minutes of org’s board meeting held on february 20xx note that additional investments were made during 20xx in real_estate investment companies that loan money secured_by real_estate in 20xx the company made additional investments in companies whose business is real_estate investment these companies loan money secured_by real_estate these minutes support org’s explanation that the llcs discussed above were formed to make an investment in a specific real_property loan minutes of org’s board meeting held on 20xx are illustrated within exhibit dollar_figure of other investments reported for year 20xx reconciliation between form_990 and g l the dollar_figure balance reported as other investments is supported by nine g l accounts identified here with the exception of the account relating to the co-33 all of these g l accounts have names indicating that they relate to capital investments in llcs the dollar_figure aggregate balance of these g l accounts exceeds the dollar_figure balance reported as other investments by dollar_figure the dollar_figure was traced to two journal entries within g l account co-34 co-43 loan - form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service explanation of items schedule no or exhibit form 886a name of taxpayer year period ended org facts 15-e other investments 20xx 20xx 20xx xx transaction described as the advisory firm-2 - owners - monthly activity in advisory firm-2 for co-43 colorado loan this entry recorded a dollar_figure credit in g l account co-34 co-43 loan as an offset to accounts_receivable xx co-34 adjustm transaction described as reclass payment received to income from affiliate this entry reclassified the dollar_figure recorded on 20xx to income from affiliates page form 886-a rev department of the treasury - internal_revenue_service form_886 a department of the treasury - internal_revenue_service explanation of items schedule no or exhibit name of taxpayer year period ended org facts 15-e other investments 20xx 20xx 20xx g l account number name year-end balance co-19s llc co-29 co-30s llc co-31 co-33 co-34 co-43 loan co-18 -- co- co-35 co-36 amount reported in form_990 total of g l account balances entries dated 20xx and 20xx o o j o o o o s o s o s o j s o o j o o o llc investments reported in audited financials note at page investment in affiliates’ of org’s audited financial statements for year 20xx described the llcs identified in the above g l accounts as an investment in affiliates in which org held different ownership rates 20xx dollar_figure opening balance purchases share in earnings and losses less distributions closing balance the components of investment in affiliates at december 20xx are as follows investment in affiliates comprise different ownership rates in co-28 co-19 co- co-30 co-32 co-31 co-34 co-36 co-18 and co-35 the dollar_figure closing balance reported for org’s investment in affiliates within the audited financials was reconciled with the dollar_figure total of g l account balances reported within form_990 by subtracting the dollar_figure balance of g l account co-33 co-33 closing balance per audited financials department of the treasury - internal_revenue_service form 886-a rev total of g l account balances page form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended org facts 15-e other investments 20xx 20xx 20xx business investments relate primarily to real_estate org’s correspondence dated 20xx responding to item of idr years 20xx-20xx explained the nature of activities conducted by org affiliates relating to the dollar_figure reported as other investments in form_990 with the exception of the co-33 - which was not identified as an investment in affiliate within org audited financials all of org’s investment in affiliated llcs were explained to have been formed as an investment in either a specific real_property loan or a specific real_estate investment a statement that this company was formed to make an investment in a specific real_property loan was explained for the operations of - co-28 ein co-29 ein co-30 ein co-31 ein a statement that this company was formed to make a specific real_estate investment was explained for the operations of - co-34 ein co-18 ein co-35 ein co-36 ein a statement that this is a private equity fund was given to explain the operations of co-33 ein minutes of org’s board meeting held on february 20xx note that org made additional investments in real_estate investment companies during 20xx in 20xx the company continued to make additional investments in companies whose business is real_estate investment additionally the company acquired land in payment of debt owed by its shareholder the companies referred to in org’s board meeting support org’s explanations that the llcs discussed above were formed to either make an investment in a specific real_property loan or to make a specific real_estate investment minutes of org board held on 20xx are illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org 15-f facts land building equipment 20xx 20xx 20xx part iv of org’s form_990 reported year-end balances for land building and equipment of - dollar_figure basis in interest held in property-3 property reported in line as other investments year 20xx dollar_figure capital_contribution to the co-36 reported in line as land building equipment year 20xx dollar_figure of real_property acquisitions reported in line as land building equipment year 20xx dollar_figure basis in property interest reported as other investments for year 20xx the dollar_figure reported as other investment for year 20xx was the basis of a one-third interest in property described as property-3 that org received from its sole shareholder the lp-1 org recorded receiving this one-third interest in the property-3 property in g l account land at year-end 20xx date gj8 debit credit gen j amount xx trans description reference journal contribution of of interest in property-3 from lp-1 g l account - land org disposed of its one-third interest in the property-3 property by two sales transactions within year 20xx discussed above to obtain the dollar_figure reported for that year support for the dollar_figure posted is a special warranty deed executed on 20xx by the lp-1 as grantor who transferred an undivided one third interest in a property located in county county state described as property-3 director-1’s nephew manager-1 signed the special warranty deed as manager of the co-13 the co-13 was identified in the special warranty deed as general_partner of the lp-1 sold on xx dollar_figure basis sold for net gain of dollar_figure sold on xx dollar_figure basis sold for net gain of dollar_figure department of the treasury - internal_revenue_service form 886-a rev page form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-f facts land building equipment schedule no or exhibit year period ended 20xx 20xx 20xx dollar_figure capital_contribution to co-36 reported as land building equipment for year 20xx the dollar_figure reported as land building equipment for year 20xx was a dollar_figure capital_contribution that org made in that year to invest in a llc named co-36 ein org’s correspondence dated 20xx responding to item of idr years 20xx-20xx explained that the co-36 was formed to make a specific real_estate investment schedule_k-1 filed for year 20xx by the co-36 shows the llc’s address as address city state zip code part j -- column b of the schedule_k-1 reported that org made a dollar_figure capital_contribution during year 20xx part d of the schedule_k-1 reported org having investment member interests of - profit sharing loss sharing ownership of capital dollar_figure date debit gj gen j credit_amount xx trans description reference journal g l account - land purchase of co-36 on state limited_liability_company dollar_figure of land building equipment reported for year 20xx reconciliation of amount reported in form_990 with g l and audited financials org’s dollar_figure capital_contribution into the co-36 was recorded within g l account land on 20xx year-end 20xx balances within two g l accounts comprise the dollar_figure reported as land and building in form_990 g l account number name land building year-end balance department of the treasury - internal_revenue_service form 886-a rev page total form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer org 15-f facts land building equipment schedule no or exhibit year period ended 20xx 20xx 20xx note investment properties at page of org audited financials for year 20xx describe org’s land and building as parcels of land in state the components of investment properties at december 20xx are as follows cost opening balance purchases closing balance land - building - total - investment properties comprise interest in certain parcels of land situated in state the company as well as property purchased during the year which were contributed by the shareholder in return for an interest in a dollar_figure difference exists between land balances reported within g l account land dollar_figure and land reported in the audited financials dollar_figure this dollar_figure difference was traced to a posting described as transfer of within account land g l postings to land and building accounts transactions posted to g l land and building accounts during year 20xx supporting the dollar_figure reported as land building in the form_990 are identified here six of these transactions had offsetting credits aggregating to dollar_figure that were posted to g l account nr -lp-1 to reduce the line of credit owed by the lp-1 xx gj property-4 xx gj xx-3 add’l money borrowed from dollar_figure lp-8 to buy xx gj xx-3 transfer of address building to offset loc xx gj xx-3 transfer of xx gj xx-3 transfer of xx gj xx-3 transfer of total o o o o o o dollar_figure the dollar_figure aggregate of credits posted to g l account nr - lp-1 are discussed above as line of credit reductions occurring in year 20xx from real_property transfers form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items land building equipment facts 15-f 20xx 20xx 20xx account land amount debit credit balance date reference journal trans description smt investors l p - purchase of of xx pj gen j xx gj gen j_ property-4 purchase of the advisory firm-2 - wac wrc group - monthly activity in advisory firm-2 wacimwrc for co- - refund of closing cost on property-4 purchase of property-4 paydown on line of credit-interest received escrow deposit xx sj xx gj gen j__ gj xx gj gj xx kx gen j property-4 xx_ gjo xx-3 genj lp-1 add'l money borrowed from lp-8 to buy - see entries in lp-8 and gen j_ genj purchase of transfer escrow deposit to land xx xx gj xx-1 genj_ purchase of purchase of genj_ building genj of cg genj of cg xx_ gj o xx-1 xx_ gj o xx-1 xx gj o xx-1 purchase from co-6 gen j property-5 purchase from co- purchase of xx-1 gj o o department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer org explanation of items year period ended schedule no or exhibit land building equipment facts 15-f 20xx 20xx 20xx account land date reference journal trans description debit amount credit balance transfer of building to offset xx 20xx k-1s reclass from land to genj_ investment in co-36 xx gj xx-3 genj loc xx gj xx-3 gen j_ transfer of xx gj xx-3 genj_ transfer of xx gj xx-3 genj_ transfer of transfer of building to offset loc reference journal trans description xx gj xx-3 gen j account building amount credit balance total debit date department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit liabilities reported for years 20xx-20xx facts 20xx 20xx 20xx year-end liability balances reported by org in forms filed for years 20xx-20xx are identified here year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure form_990 part iv line - accounts_payable and accrued expense sec_65 - other liabilities ibnr reserve - total liabilities the dollar_figure reported in years 20xx-20xx as other liabilities ibnr reserve relate to dollar_figure of ibnr claims expense discussed above that was part of dollar_figure of incurred claims and experience refunds reported for year 20xx org's response dated 20xx to item of idr years 20xx-20xxx explained that supporting documentation for the dollar_figure reported as claim expense and offsetting dollar_figure amount reported as other liabilities ibnr reserve could not be located this item was based upon the recommendation of the company's insurance consultants the company has not been able to locate the supporting documentation department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_8 a name of taxpayer explanation of items year period ended schedule no or exhibit org plan to liquidate on before december 20xx facts 20xx 20xx 20xx for tax periods subsequent to 20xx non-life insurance_companies can qualify as being recognized as tax-exempt under code sec_501 if their gross_receipts meet two criteria - gross_receipts for the taxable_year do not exceed dollar_figure more than of such gross_receipts consist of premiums org ceased writing direct policies during year 20xx this inactivity was consistent with- gross_receipts requirements under code sec_501 that would became effective on january 20xx org’s historic pattern of earnings in years 20xx-20xx where insurance premiums never exceeded of gross_receipts discussed above org’s audited financials for year 20xx reporting a plan in place to liquidate on before 20xx director-1’s resume’ acknowledging his intent to liquidate org upon determining that better opportunities existed in other investment sectors after years of carrying out limited insurance activities special meetings held by org’s board that discussed liquidating org pending an investigation as to whether org will acquire insurance opportunities outside the companies economic group during september 20xx all of org’s stock was transferred by the sole shareholder lp-1 to an state corporation named co-51 under a transaction qualifying under sec_351 of the code on 20xx org’s successor sole shareholder co-51 approved a consent that org liquidate no later than december 20xx under a plan of complete_liquidation discussed below are a note to org’s audited financials reporting that org intends to liquidate by 20xx a verbatim statement from director-1’s resume’ acknowledging an intent to liquidate org special meetings held by org’s board_of directors discussing liquidation the consent by org’s sole shareholder to liquidate dissolve and org’s plan of complete_liquidation note to audited financials note subsequent events at page of org audited financials for year 20xx reported org having a plan to dissolve on before 20xx there are plans in place to liquidate the company as at december department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit org plan to liquidate on before december 20xx facts 20xx 20xx 20xx 20xx liquidating distributions will be made periodically until the end of next year in response to item of idr years 20xx-20xx director-1's resume’ contained an explanation as to why he intended to liquidate org resume’ of director-1 in light the experience and knowledge gained from his experience in the insurance industry director-1 resolved to form a well-capitalized small insurance_company to take advantage of perceived business opportunities org ‘org’ his intent was to grow org into a successful and thriving insurance_company after years of diligent effort in carrying out limited insurance activities pending pursuit of opportunities to grow through acquisitions or otherwise director-1 concluded that there were better opportunities in other investment sectors so org was liquidated emphasis given to underlined areas director-1’s resume’ is illustrated within exhibit org board meetings special meetings held by org’s board_of directors on 20xx 20xx 20xx and 20xx discussed liquidating org pending an investigation as to whether org will acquire insurance opportunities outside the companies economic on 20xx org’s board decided to cease writing insurance_business group effective as of 20xx on 20xx org’s board decided to liquidate org no later than 20xx to be noted is that from the first day on which the change in gross_receipts criteria under code sec_501 became effective - 20xx - through the date on which org decided to cease writing insurance_business - 20xx - org did not conduct any insurance_business to write additional policies or to renew policies that were in effect during 20xx each board meeting is summarized here department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx special meeting of board shareholders held 20xx present - sole shareholder directors others for lp-1 director-1 and manager-2 lp-1 individual-3 cpa discussion actions - the discussion in verbatim below involved dissatisfaction with org’s operations for the last years instructions given to manager-2 org director and individual-3 cpa for sole shareholder to investigate acquiring external insurance_business and liquidating org in the event that a purchase or equity_interest in external insurance_business could not be found after reviewing the operations of org for the last three years the directors shareholder are not satisfied with the growth and direction of org the market was more difficult to penetrate than first anticipated the directors discussed various proposals and options for increasing the growth of the business after lengthy debate the directors decided to pursue a ‘two-pronged’ approach to growing the business the directors instructed manager-2 and individual-3 to investigate purchasing an existing insurance_company or obtaining an equity_interest in a larger more established insurance_company the strategy would create a permanent source of reinsurance business of known risk that would grow over time manager-2 stated that he already was currently reviewing insurance_company purchases and would continue to do so per direction of the board in the event that a purchase or equity_interest could not be found discussion turned to the possibility of liquidating org although no director shareholder was in favor of liquidating org as a first choice of action they also realized that if they were unsuccessful in finding a suitable acquisition target or equity_interest to secure good stable reinsurance business the company should be liquidated department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx director-1 suggested that everyone meet again after manager-2 and individual-3 have had an opportunity to investigate and pursue the options discussed next meeting - scheduled for 20xx actually held on 20xx emphasis given to underlined areas special meeting of board held 20xx present - directors director-1 director-4 and manager-2 discussion actions - discussed in verbatim are possibilities of acquiring two insurance_companies with a report back to be made at the next board meeting manager-2 reported to the board in detail concerning the review of insurance_company acquisition opportunities undertaken by himself since the february 20xx board meeting attention focused in particular on director-1 reviewed with the board the due diligence material that had been obtained on this acquisition opportunity manager-2 also reported to the board that another opportunity had recently surfaced that would be aggressively pursued - co-53 and its subsidiary co-54 after extensive discussion the board directly sic manager-2 to intensify their due diligence efforts concerning both acquisition opportunities and report back to the board at the next meeting next meeting - scheduled for 20xx emphasis given to underlined areas department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx special meeting of board held 20xx present - directors director-1 director-4 and manager-2 discussion actions - discussed in verbatim is the ongoing consideration as to acquiring insurance_companies and to cease writing insurance_business effective 20xx manager-2 reported to the board on the extensive due diligence that had been performed on co-53 since the last board meeting director-1 indicated there were many positive aspects of this potential acquisistion and reviewed them with the board he stated that there were also several issues of concern with this potential acquisition those concerns were discussed in detail by the board based upon the concerns described the board decided to table the transaction for the time being and attempt to locate other promising acquisition opportunities that may not bring with them the concerns transaction manager-2 director-1 identified with respect to the aqreed to confer with industry contacts and identify any other possible opportunities that would meet the company's needs the board unanimously resolved that the company cease writing insurance_business effective june 20xx so that when the board examines the company's options at the next meeting no further insurance risk will have been taken on to complicate the board's consideration of alternatives for reorganizing and redeploying the corporation's investment_assets there being no further business the meeting was duly adjourned emphasis given to underlined areas department of the treasury - internal_revenue_service form 886-a rev page - department of the treasury - internal_revenue_service form 886a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx special meeting of board held 20xx present - directors director-1 director-4 and manager-2 discussion actions - discussed in verbatim was the decision to not pursue acquiring outside insurance_business due to unacceptable risk factors and to terminate operations no later than 20xx manager-2 reported that his search over the last several weeks had resulted in no acquisition opportunities more promising than the transaction there was a further discussion of the the positives and negatives of that transaction were discussed the board decided not to pursue the transaction and transaction the chairman stated that the next order of business was discussion of possible liquidation and dissolution of the company after discussion and upon motion duly made and seconded the following resolution was adopted resolved that considering all business circumstances that the board_of directors has determined in its exercise of business judgment that the acquisition opportunities identified by the company's management should not be undertaken by the company due to risk factors the board finds unacceptable further resolved that in the absence of suitable opportunities for either the company’s acquisition of or equity_investment in any domestic insurer the board_of directors has determined that the company shall be fully liquidated and dissolved further resolved that it is in the best interest of the company and its sole shareholder that the business and affairs of the company be terminated and wound up and the the cash property and other assets of the company be distributed to the sole shareholder of the company after payment of or adequate provisions of the company's debts taxes obligations policy claims and liabilities if any no later than december 20xx department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx further resolved that the directors and officers of the company shall continue in office solely for the purpose of winding up the business affairs of the company and shall take no action which is or which may be construed to be inconsistent with the process of complete_liquidation and dissolution of the company further resolved that the directors officers and management of the company shall be and hereby are in conjunction with legal counsel and other advisees authorized and directed to do any and all acts and things including the execution attestation acknowledgment and delivery of appropriate forms as they may deem necessary or appropriate in connection with the aforesaid complete_liquidation and dissolution of the company including but not limited to obtaining any approval required by the territory registrar of international business companies the governor of the territory of the territory the territory financial services department or the territory commissioner of insurance and making any and all filings as may be required with the internal_revenue_service and any other governmental agencies further resolved that the plan_of_liquidation in the form attached hereto as exhibit a is hereby approved and adopted by the board_of directors and shall be submitted to the sole shareholder for approval there being no further business the meeting was duly adjourned minutes of org board meetings held on 20xx 20xx 20xx and 20xx are illustrated within exhibit sec_30a sec_30b sec_30c and sec_30d department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer org schedule no or exhibit year period ended explanation of items plan to liquidate on before december 20xx facts 20xx 20xx 20xx consent approved by sole shareholder on 20xx for org to liquidate on 20xx org’s sole shareholder co-51 simultaneously approved a consent for org to liquidate and dissolve org’s correspondence dated 20xx responding to idr years 20xx-20xx informed that co-51 became org’s sole shareholder in september 20xx by a stock transfer qualifying under code sec_351 in september 20xx lp-1 transferred all of the stock of the company to co-51 an state corporation in exchange for co-51 stock in a transaction qualifying under sec_351 of the code the shareholder consent of co-51 is found at tab the consent approved by co-51 was signed by manager-2 son of org director director-1 as president of co-51 on 20xx and is given in verbatim below background _ the board_of directors has recommended that the company be fully liquidated and dissolved and has approved a plan_of_liquidation in the form attached hereto as exhibit a the plan the board_of directors has submitted the plan to the sole shareholder for its review and approval now therefore be it resolved that it is in the best interest of the company that the business and affairs of the company be terminated and wound up and that the cash property and other assets of the company be distributed to the sole shareholder of the company after payment of or adequate provisions of the company's debts taxes obligations policy claims and liabilities if any no later than december 20xx department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer org explanation of items year period ended schedule no or exhibit plan to liquidate on before december 20xx facts 20xx 20xx 20xx further resolved that the directors and officers of the company shall continue in office solely for the purpose of winding up the business affairs of the company and shall take no action which is or which may be construed to be inconsistent with the process of complete_liquidation and dissolution of the company further resolved that the directors officers and management of the company shall be and hereby are in conjunction with legal counsel and other advisees authorized and directed to do any and all acts and things including the execution attestation acknowledgment and delivery of appropriate forms as they may deem necessary or appropriate in connection with the aforesaid complete_liquidation and dissolution of the company including but not limited to obtaining any approval required by the territory registrar of international business companies the governor of the territory of the territory the territory financial services department or the territory commissioner of insurance and making any and all filings as may be required with the internal_revenue_service and any other governmental agencies further resolved that the plan is hereby approved and adopted dated as of the day of april 20xx co-51 an state corporation by manager-2 president signed the shareholder consent of org sole shareholder co-51 approved and adopted on 20xx is illustrated within exhibit department of the treasury - internal_revenue_service form 886-a rev page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org plan to liquidate on before december 20xx facts 20xx 20xx 20xx plan of complete_liquidation the plan_of_liquidation referred to in org’s special board meeting held on 20xx and in the consent approved by co-51 on 20xx contain sec_11 articles given here in verbatim plan_of_liquidation org a territory international business_company the company’ has issued and outstanding zero common shares of the par_value of zero and no dollars dollar_figure each the company intends to cease the active_conduct of its business and wind up its affairs and this plan is intended to accomplish the liquidation and distribution of all of the company's assets in complete_liquidation less any assets retained to meet claims on or before december 20xx approval the plan shall be considered adopted by the company when it has been approved by its board_of directors and sole shareholder cessation of business effective june 20xx the company ceased writing any new insurance_business and has not conducted any insurance_business other than administration and payment of claims the company shall continue its efforts to wind up the insurance_business and its investment activity shall be consistent with the winding up and liquidation of the company winding down the company's board_of directors shall manage the winding up of the company and the distribution of its assets to shareholders once that process is concluded the company hereby appoints professional service company from and after that date to serve as liquidator for the company to effectuate the final liquidation of the company form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org plan to liquidate on before december 20xx facts 20xx 20xx 20xx authorization of terms of sale after the plan has thus been adopted and approved the board_of directors subject_to liquidator’s supervision shall proceed to accomplish the liquidation of the company by a sale of those of its assets and properties as the sole shareholder does not wish to receive in-kind for such consideration and upon such terms and conditions as may be determined to be in the best interest of the company and its sole shareholder the proposed terms and conditions of any such sale shall be submitted to the sole shareholder and no agreement for sale shall be executed or delivered on behalf of the company until such sale and the terms and conditions thereof have been authorized by the sole shareholder the company shall pay or make adequate provision for the full amount of all creditor claims and policyholder claims and shall make no distribution of amounts to the sole shareholder that are required to pay in full all claims and potential claims of creditors and policyholders interim distributions the board_of directors of the company may from time to time authorize one or more distributions of property of the company in cash or in_kind in a series of distributions in complete_liquidation retaining such assets as they may dem necessary to meet claims or liabilities of the company and to continue the operation of such properties of the company as have not been sold at the time of any such intermediate distribution notwithstanding the foregoing the company's admitted_assets and statutorily required capital shall not be distributed until all claims have been paid on policies written by the company and all requirements of the territory insurance code have been satisfied final distribution final distribution to the sole shareholder shall occur no later than 20xx cancellation of outstanding shares each of the foregoing distributions which constitutes a series of partial liquidations or one complete_liquidation shall be in exchange solely for and a complete redemption and cancellation of and in complete payment for all of the outstanding common shares of the company and sole shareholder shall if the board_of directors so determines surrender their certificates for such shares for recording thereon receipt of distributions prior to the final distribution and shall surrender such certificates for cancellation upon receipt of the final distribution contemplated herein form 886-a rev department of the treasury - internal_revenue_service page schedule no or exhibit form 886a department of the treasury - internal_revenue_service explanation of items name of taxpayer year period ended org plan to liquidate on before december 20xx facts 20xx 20xx 20xx dissolution the officers and directors of the company shall proceed with the voluntary dissolution of the company under the laws of territory at such time as they may deem appropriate prior to december 20xx authorization of necessary acts the officers and directors of the company are authorized empowered and directed to do any and all things in its name including the execution and filing of all necessary documents to carry out the purposes and intentions of this plan which they deem necessary or advisable the officers and directors shall be held harmless by the company for any_action under the plan taken in good_faith and any expense or liability so incurred by them shall be that of the compnay intent it is intended that this plan of complete_liquidation shall be a plan of complete_liquidation within the terms of sec_332 and sec_337 of the internal_revenue_code of as amended this plan shall be deemed to authorize such action as in the opinion of counsel for the company may be necessary to conform with the provisions of those sections org’s plan of complete of liquidation is illustrated within exhibit form 886-a rev department of the treasury - internal_revenue_service page form_8 a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended org law 20xx 20xx 20xx code sec_501 and sec_501 for taxable years prior to r c sec_501 provides that certain entities are exempt from taxation included in these entities are i nsurance companies or associations other than life including interinsurers and reciprocal underwriters if the net written premiums or if greater direct written premiums for the taxable_year do not exceed dollar_figure sec_501 for taxable years beginning after date sec_501 a i provides in relevant part for exemption for insurance_companies other than life including interinsurers and reciprocal underwriters if i the gross_receipts for the taxable_year do not exceed dollar_figure and ii more than percent of such gross_receipts consist of premiums for purposes of determining gross_receipts the gross_receipts of all members of a controlled_group of which the company is part are taken into account the joint_committee report for h_r states a company that does not meet the definition of an insurance_company is not eligible to be exempt from federal_income_tax under the provision for this purpose the term_insurance company means any company more than half of the business of which during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies sec_816 and new sec_831 a company whose investment activities outweigh its insurance activities is not considered to be an insurance_company for this purpose see eg 56_tc_497 affd per curiam 469_f2d_697 cir it is intended that irs enforcement activities address the misuse of present-law sec_501 form 886-a rev department of the treasury - internal_revenue_service page form 886a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended org law 20xx 20xx 20xx definition of an insurance_company neither sec_501 nor its corresponding regulations define an insurance_company subchapter_l of the code i r c however addresses the taxation of insurance_companies the term_insurance company has the same meaning under sec_501 as it does in subchapter_l see h conf_rep no 99th cong 2nd sess vol il reprinted in vol c b sec_816 formerly sec_801 defines a life_insurance_company as part of this definition i r c sec_816 provides the term ‘insurance company’ means any company more than half of the business of which during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies sec_1_801-3 defines an insurance_company as a company whose primary and predominant business activity during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies thus though its name charter powers and subjection to state insurance laws are significant in determining the business which a company is authorized and intends to carry on it is the character of the business actually done in the taxable_year which determines whether a company is taxable as an insurance_company under the internal_revenue_code sec_1_801-3 emphasis added see also 285_us_182 the irs has not ruled on whether the more stringent greater than half’ test set forth in sec_816 applies to an insurance_company other than a life_insurance_company instead to determine whether a non-life insurance_company qualifies as an insurance_company for tax purposes the primary and predominant business activity test set forth in sec_1_801-3 applies see revrul_68_27 1968_1_cb_315 form 886-a rev department of the treasury - internal_revenue_service page form 886a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org law 20xx 20xx 20xx the courts and the irs have also at times looked to whether the transaction has characteristics traditionally associated with insurance and whether the company conducts business like an insurance_company several courts have addressed the issue of whether a company qualifies as an insurance_company based on the company’s primary and predominant business activity the seminal case addressing this issue is 285_us_182 in bowers the supreme court determined that the taxpayer was primarily engaged in the lending of money on real-estate security the sale of bonds and mortgages given by borrowers and use of the money received from purchasers to make additional loans similarly secured bowers u s pincite although the taxpayer in bowers earned premiums that amounted to approximately one-third of its income for the taxable years at issue these premiums were attributable to the excess of the interest_paid to the taxpayer by borrowers over the amount the taxpayer paid the purchasers to whom it subsequently sold bonds and mortgages id pincite n the premiums also included fees the taxpayer charged for guaranteeing mortgage loans which it did not make or sell the court noted that the premiums the taxpayer earned included agency and other services provided by the taxpayer which were not generally provided under traditional insurance contracts id pincite id at because the taxpayer's premium income was incidental to its business of lending money the bowers court held that the taxpayer was not an insurance_company for tax purposes id pincite the court explained t he lending fees extension fees and accrued interest appertain to the business of lending money rather than to insurance and may not reasonable be attributed to the subordinate element of guaranty in taxpayer's mortgage loan business id pincite cf 285_us_191 holding that taxpayer was insurance_company where taxpayer derived over of its income from the insurance of titles and guarantees of mortgages form 886-a rev department of the treasury - internal_revenue_service page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx in 56_tc_497 aff'd per curiam 469_f2d_697 cir the taxpayer issued and reinsured and insurance policies earning premiums totaling dollar_figure dollar_figure dollar_figure and dollar_figure during the taxable years and respectively inter-american t c pincite virtually all of the reinsurance contracts issued by the taxpayer came from another insurance_company which was owned by the same two shareholders as the taxpayer id similarly almost all of the directly written insurance policies issued by the taxpayer were issued to the same two shareholders of the taxpayer id the taxpayer also engaged in the sale of real_property and stock earning investment_income totaling dollar_figure dollar_figure dollar_figure and dollar_figure over the four years at issue id in inter-american the tax_court compared the taxpayer's income from its insurance-related activities to its income from other activities and held that the taxpayer was not an insurance_company according to the tax_court the insurance premiums the taxpayer earned were de_minimis comprising less than of the taxpayer's gross_investment_income id insurance contracts id the tax_court concluded that because the taxpayer's primary and predominant source_of_income was from its investments and because the taxpayer did not focus its primary and predominant efforts in pursuit of its insurance_business it was not an insurance_company id pincite in addition the taxpayer had no sales force in place to sell the tax_court also acknowledged that it was cognizant of the problems indigenous to new life_insurance_companies in particular that the initial years of anew life_insurance company’s operations are generally difficult because the initial expenses_incurred in ‘putting policies on the books’ are greater than the premium received id citing s rept no cong sess c b the court explained however that it was basing its decision on the fact that the taxpayer did not focus its capital and efforts primarily’ on its insurance_business not on the fact that the taxpayer’s insurance_business was not profitable id citing 300_fsupp_387 n d tex department of the treasury - internal_revenue_service form 886-a rev page form_8 a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org law 20xx 20xx 20xx in 300_fsupp_387 n d tex rev'd on other grounds 425_f2d_1328 cir the taxpayer earned no income from insurance in two of the five years under examination and earned and of its total income from insurance during the remaining three taxable years at issue cardinal life f_supp pincite instead the taxpayer earned a majority of its income from dividends interest rent and capital_gains id like inter-american the taxpayer in cardinal life failed to employ any brokers solicitors agents or salesmen id premiums id the court noted that the taxpayer's income from insurance policies was insignificant compared to the total income earned by the taxpayer explaining it did however pay an actuary on a fee basis to determine the amounts of its while plaintiff's insurance activities were insignificant it was generating substantial income from dividends on stocks rental income on real_estate rental income on trailers interest_income and capital_gains upon disposal of real_estate and stocks these types of income constitute personal_holding_company_income which congress has specifically stated is subject_to a tax in addition to ordinary_income tax the plaintiff is seeking to remove itself from the grasp of the personal_holding_company provisions by claiming life_insurance_company status through the issuance of a small and insignificant amount of insurance contracts id pincite in 344_fsupp_870 d s c aff'd per curiam 481_f2d_609 cir the fourth circuit rejected the taxpayer’s claim that it was an insurance_company where the taxpayer earned of its income from selling credit life_insurance and issuing life_insurance policies to its officers and the balance of its income from its investment portfolio and the sale and leasing of real_estate the court explained it is obvious from the financial information that the premium income for these years was small when compared with income from real_estate mortgages and investment it is also important to note that more than half of the premium income came from policies on the lives of the only officers and stockholders of the company form 886-a rev department of the treasury - internal_revenue_service page form_886 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx id pincite the court likened the facts of industrial life to those of cardinal life id by contrast in 189_fsupp_282 d neb aff'd on other grou293_f2d_78 cir the court held that the taxpayer was an insurance_company where it had over dollar_figure worth of life_insurance on its books over big_number individual policies in force and approximately dollar_figure in premium income’ over a four year period id pincite the service life court acknowledged that whether a company is considered an insurance_company turns on the character of the business conducted by the company not any percentage of income id pincite the court did however compare the taxpayer’s premium income to its investment_income to determine the business activity of the taxpayer id pincite although the taxpayer also generated income from mortgage loans and investments over half of the taxpayer's income was from its insurance premiums and over half of its income-producing assets were held for insurance_policy reserves id department of the treasury - internal_revenue_service form 886-a rev page form_886 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx what constitutes insurance and an insurance_contract the principal test for what constitutes insurance is set out in 312_us_531 in that case the supreme court states that th istorically and commonly insurance involves risk-shifting and risk-distribution further the court stated that the risk must be an ‘insurance risk’ as opposed to an ‘investment risk’ the court in 199_f2d_508 7th cir defined an insurance_contract as a contract whereby for an adequate_consideration one party undertakes to indemnify another against loss from certain specified contingencies or perils neither the internal_revenue_code nor the regulations specifically define the term_insurance contract the courts have generally required that a transaction involve both risk shifting from the insured's perspective and risk_distribution from the insurer's perspective in order to be characterized as insurance 312_us_531 914_f2d_396 3rd cir risk shifting occurs when a person facing the possibility of a loss transfers some or all of the financial consequences of the loss to the insurer revrul_88_72 1988_2_cb_31 clarified by revrul_89_61 1989_1_cb_75 the risk transferred pursuant to an insurance_contract must be a risk of economic loss allied fidelity corp v commissioner 66_tc_068 affd 572_f2d_1190 439_us_835 cir cert_denied risk_distribution incorporates the statistical phenomenon known as the law of large numbers when additional statistically independent risk exposure units are insured although the potential total losses increase there is also an increase in the predictability of average loss this increase in the predictability of the average loss decreases the amount of the capital that an insurance_company needs per risk unit to remain at a given solvency level see revrul_89_61 1989_1_cb_75 distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as premiums and set_aside for the payment of such a claim by assuming numerous relatively small independent risks that occur randomly over time the insurer smooths out losses to match more closely its receipt of premiums 811_f2d_1297 cir department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit org law 20xx 20xx 20xx risk_distribution necessarily entails a pooling of premiums so that a potential in humana inc v insured is not in significant part paying for its own risks commissioner 881_f2d_247 cir the united_states court_of_appeals for the sixth circuit held that arrangements between a parent_corporation and its insurance_company subsidiary did not constitute insurance for federal_income_tax purposes the court also held however that arrangements between the insurance_company subsidiary and several dozen other subsidiaries of the parent operating an even larger number of hospitals qualified as insurance for federal_income_tax purposes because the requisite risk shifting and risk_distribution were present but see 62_f3d_835 cir concluding the lack of a business_purpose the undercapitalization of the offshore captive insurance subsidiary and the existence of related_party guarantees established that the substance of the transaction did not support the taxpayer's characterization of the transaction as insurance in 40_fedclaims_42 the united_states court of federal claims concluded that an arrangement between the captive insurance subsidiary and each of the operating subsidiaries of the same parent constituted insurance for federal_income_tax purposes as in humana the insurer in kidde insured only entities within its affiliated_group during the taxable years at issue revrul_2002_90 i r b date held that a subsidiary’s arrangement to provide liability insurance coverage to of its parent company's subsidiaries constituted insurance contracts for federal tax purposes and thus the amounts paid as premiums by each subsidiary were deductible as business_expenses under the arrangement the subsidiaries were charged arm's length premiums according to customary industry ratings and none had liability coverage for less than percent or more than percent of the total risk insured by the subsidiary as a result the professional liability risks of the subsidiaries were shifted to the insurer subsidiary as required to constitute an insurance_contract for federal tax purposes the common ownership of the subsidiaries including the insurer by the parent did not affect the determination that the arrangements constituted insurance contracts department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit org law 20xx 20xx 20xx reliance upon and revocation of irs determination_letter the exempt status of an organization may be recognized by the internal_revenue_service through the application process described in revproc_90_27 1990_1_cb_514 although not required to apply for a determination_letter in order to claim exempt status organizations seeking recognition of exemption from the internal_revenue_service under r c sec_501 must file a form_1024 application_for recognition of exemption under sec_501 a determination_letter recognizing tax exempt status is issued by the internal_revenue_service to an organization where its application and supporting documents establish that it meets the requirements of the category of exemption it claims revproc_90_27 allinformation by the applicant must be provided under sec_5 1990_1_cb_514 penalties of perjury revproc_2003_4 2003_1_irb_123 the application process ends with the issuance of a determination_letter a determination letter’ is a written_statement issued by the internal_revenue_service in response to a written inquiry by an individual or an organization that applies to the particular facts sec_601_201 an organization may ordinarily rely on a favorable determination_letter received from the internal_revenue_service sec_1_501_a_-1 revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq 2003_1_cb_123 an organization may not rely on a favorable determination_letter however if the organization omitted or misstated a material fact in its application or in supporting documents in addition an organization may not rely on a favorable determination if there is a material_change inconsistent with exemption in the organization’s character purposes or methods of operation after the determination_letter is issued sec_601 n ii revproc_90_27 1990_1_cb_514 any such changes must be reported to the service so that continuing recognition of exempt status can be evaluated determination_letter issued to esp contains this requirement the the commissioner may revoke a favorable determination_letter for good cause sec_1_501_a_-1 a favorable determination_letter may be revoked by written notice to the organization to whom the determination originally was issued sec_601_201 cross-referencing reg sec_601_201 revproc_90_27 1990_1_cb_514 department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx if the commissioner revokes the tax-exempt status of an organization the remaining question is whether the revocation should be applied prospectively or retroactively generally revocation of a determination_letter is prospective revproc_2003_4 dollar_figure cross-referencing dollar_figure et seq however be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented sec_601_201 revproc_90_27 revproc_2003_4 dollar_figure cross- referencing dollar_figure et seq revocation of a determination_letter may in cases where the organization omitted or misstated a material fact revocation may be retroactive to all open years under the statute see sec_601 cases where revocation is due to a material_change inconsistent with exempt status in the character the purpose or the method of operation revocation will ordinarily take effect as of the date of the material_change sec_601_201 i revproc_90_27 in any event revocation will ordinarily take effect no later than the time at which the organization received written notice that its exemption ruling or determination_letter might be revoked sec_601_201 in qualification for relief under code sec_7805 under certain circumstances however the commissioner may in his discretion grant relief from retroactive revocation under r c sec_7805 of the code b of the internal_revenue_code provides section application to rulings the secretary may prescribe the extent if any to which any ruling including any judicial decision or any administrative determination other than by regulation relating to the internal revenue laws shall be applied without retroactive effect sec_301_7805-1 of the regulations delegates authority granted by sec_7805 to the commissioner or the commissioner's delegate an organization that wishes to limit the retroactive effect of revocation must request that the commissioner tax_exempt_and_government_entities_division the commissioner of internal revenue’s delegate exercise discretionary authority under sec_7805 to limit the retroactive effect of revocation revproc_2003_4 to make such a request the organization must follow the procedures provided for in revproc_2003_4 dollar_figure cross-referencing revproc_2003_5 c b department of the treasury - internal_revenue_service form 886-a rev page form_886 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx to request sec_7805 relief the organization must submit a statement in support of the application of sec_7805 as described in revproc_2003_4 see also revproc_2003_5 the organization's statement must expressly assert that the request is being made pursuant to r c sec_7805 the organization’s statement must also indicate the relief requested and give the reasons and arguments in support of the relief requested it must also be accompanied by any documents bearing on the request the organization's explanation and arguments should discuss the five factors bearing on retroactivity listed in revproc_2003_4 cross-referencing as they relate to the situation at issue these five items are in effect the same as the factors provided in sec_601_201 and sec_601_201 statement of procedural rules which states except in rare or unusual circumstances the revocation or modification of a ruling will not be applied retroactively with respect to the taxpayer to whom the ruling was originally issued or to a taxpayer whose tax_liability was directly involved in such ruling if there has been no misstatement or omission of material facts the facts at the time of the transaction are not materially different from the facts on which the determination_letter was based there has been no change in the applicable law the determination_letter was originally issued for a proposed transaction and the taxpayer directly involved in the determination_letter acted in good_faith in reliance upon the determination_letter and revoking or modifying the determination_letter retroactively would be to the taxpayer's detriment department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org law 20xx 20xx 20xx if relief is granted under sec_7805 the effective date of revocation of a determination_letter is no later than the date on which the organization first received written notice that its exemption might be revoked sec_601_201 85_tc_743 affd 799_f2d_903 4th cir this does not preclude the effective date of revocation being earlier than the date on which the organization first received written notice that its exemption might be revoked virginia education fund v commissioner t c pincite the supreme court has held that the commissioner has broad discretion under ilr c sec_7805 and its predecessor in deciding whether to revoke a ruling retroactively 353_us_180 see also 381_us_68 is reviewable by the courts only for abuse of that discretion commissioner 85_tc_743 the commissioner's determination virginia education fund v department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_8 a name of taxpayer explanation of items year period ended schedule no or exhibit org government’s position 20xx 20xx 20xx org does not meet the definition of an insurance_company under sec_501 to be exempt from federal_income_tax under sec_501 as an entity described in sec_501 the entity must be an insurance_company or life including inter-insurers and reciprocal underwriters in association other than addition it must meet a premium income requirement the government holds that org did meet the definition of an insurance_company or association for purposes of sec_501 during the period s covered within this report facts discussed below supporting this conclusion show that - a b c investments were org’s primary and predominant activity org failed to use its capital and efforts primarily to earn income from its insurance activity org insurance policies lacked risk shifting and risk_distribution a investments were org’s primary and predominant activity here org should not be classified as an insurance_company for tax purposes because its primary and predominant activity was investments not insurance this is evidenced by org’s sources of revenue where revenue from org’s sales of real_property interests was and of aggregate revenue respectively for years 20xx-20xx and investment revenue was of aggregate revenue for year 20xx org’s reported revenue for 20xx-xx is summarized below department of the treasury - internal_revenue_service form 886-a rev page revenue premiums written premiums assumed - interest on savings temp cash inv - dividends and interest net rental income form_8 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx form_990 part i line year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure - program service - other investment -0 -0 income -0 misc revenue - line of credit fee premiums insurance premiums subject_to reinsurance - net gain from sale of non-inventory assets securities non-securitie sec_11 - other revenue org’s sales of real_property interests in 20xx-20xx line clearly involved a pattern of investment activity beginning in year 20xx and continuing through year 20xx whereby property interests having a low basis were contributed by org’s sole shareholder the lp-1 and sold by org for substantial tax-sheltered gains in the following year this pattern of investment activity involved businesses controlled owned by director-1 family members on 20xx the lp-1 contributed to org one-third interests in two properties having a total basis of dollar_figure- - total revenue property-1 - county county state dollar_figure property-2 - county county state dollar_figure department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx during year 20xx org sold the one-third interests in these properties to obtain the dollar_figure net gain reported in form_990 line liability company controlled owned by director-1 family members purchased the one- third interests in these properties the remaining two-thirds interests in these properties were sold by org’s territory captive affiliates - co-7 and co-5 - that were also controlled owned by director-1 family members five limited_partnerships and one limited on 20xx the lp-1 contributed to org a one-third interest in property described as property-3 within county county state having a basis of dollar_figure during year 20xx org sold its one-third interest in this property to obtain the dollar_figure gain reported in form_990 line the co-6 one of the five limited_partnerships that purchased property interests from org in year 20xx was the sole purchaser of this property interest minutes of org’s board meeting held on 20xx evidence this pattern of investment activity where assets and net_income were noted to have increased substantially as a result of org’s sale of the property-3 property interest which was referred to as appreciated_property carried on the books at basis it was noted that the company now has dollar_figure in assets compared with dollar_figure in the prior year the increase is mainly a result of the sale of appreciated_property property-3 which was carried on the books at basis the breakdown of total assets is as follows cash and cash equivalents dollar_figure - cash and money market account investments and receivables dollar_figure - money invested in real_estate and real_estate investment companies in 20xx the company made additional investments in companies whose business is real_estate investment these companies loan money secured_by real_estate department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer explanation of items year period ended schedule no or exhibit org government’s position 20xx 20xx 20xx manager-2 completed his review of the balance_sheet and then conducted a brief review of the income statement for the year noting the company showed net_income of dollar_figure compared with dollar_figure in the prior year this was mainly attributable to the sale of property-3 total investment revenue was dollar_figure compared with dollar_figure for the prior year emphasis added to above underlined areas this pattern of investment activity is further evident in the minutes of org’s board meeting held on february 20xx where org’s board acknowledged that a substantial decrease in net_income resulted from sales of interests in appreciated real_property not recurring in year 20xx the balance_sheet review was finished and then a brief review of the income statement for the year was conducted it was noted that the company showed a net_loss of dollar_figure compared with net_income of dollar_figure in the prior year the decrease is due to the sale of appreciated_property in prior years not recurring this year total investment revenue was dollar_figure compared with dollar_figure in the prior year premium income for the year was dollar_figure compared with dollar_figure for the prior year emphasis added to underlined area org’s investment operations were also evident within its other investment_income that came from equity held in limited_liability companies whose business was real_estate investment see org board meetings held on 20xx and 20xx these llcs were described in org audited financials as associates affiliates and subsidiaries and were explained by org to have been formed for the purpose of making an investment in a specific real_property loan or to make a specific real_estate investment org reported its other investment_income from this source on part --line as dollar_figure for year 20xx and dollar_figure for year 20xx _ department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx b org failed to use its capital and efforts primarily to earn income from its insurance activity the courts also consider the manner in which the company conducts its business activities in determining whether it qualifies as an insurance_company for federal_income_tax purposes from the issuance of contracts of insurance cardinal life f_supp pincite a taxpayer must use its capital and efforts primarily in earning income org's capital and efforts were not focused primarily on insurance operations as supported by having only two direct-written policies in effect during 20xx-20xx and having only five direct-written policies in effect during 20xx in addition to the low volume of direct-written insurance activity during 20xx-20xx other facts reveal that org’s capital and efforts were focused substantially upon investments rather than conducting insurance - org was substantially over-capitalized relative to its insurance activities org’s expenses were not directed towards marketing and or promoting an insurance program but rather towards investments within the diversified conglomerate of businesses known as the companies the term companies is defined within org’s business plan org did not use any internal or independent actuarial risk analysis to determine premium charges for its direct-written policies org treated its insurance arrangements informally org ceased writing insurance when the change in gross_receipts requirements became effective to qualify as a non-life insurance_company under code sec_501 first org failed to use its capital and efforts primarily to earn income from its insurance activity by being substantially over-capitalized relative to its insurance activities short-term cash investments eg money market funds that could be liquidated quickly to make real-estate related loans were a substantial portion of asset balances in years 20xx-20xx these short-term investments in years 20xx-20xx came from the tax-sheltered gains that org realized from selling property interests acquired from its sole shareholder the lp-1 department of the treasury - internal_revenue_service form 886-a rev page form_8 a department of the treasury - internal_revenue_service explanation of items name of taxpayer org government's position schedule no or exhibit year period ended 20xx 20xx 20xx account receivable and notes loans receivable balances increased substantially during 20xx-20xx supporting that org loaned its funds from the tax-sheltered gains to benefit investments within the diversified conglomerate of businesses known as the companies the summary of asset balances reported for years 20xx-20xx given below discloses short-term cash investments decreasing while receivable balances increased form_990 part iv line - savings temp cash inv - securities investment sec_55 - investments - land building equip - other investment sec_57 - land building equipment total investment_assets year 20xx dollar_figuredollar_figuredollar_figure year 20xx dollar_figuredollar_figuredollar_figure dollar_figuredollar_figuredollar_figure year 20xx dollar_figure - other notes loan sec_45 -non-interest bearing cash - accounts_receivable rec - land building equipment - other assets line of credit - total assets further evidence of org being substantially over-capitalized relative to its insurance activities was org’s management not believing that a loss reserve for its policies was necessary having no reserve set_aside to cover policy losses demonstrates that org’s assets were not dedicated towards insurance operations but rather towards investments within the diversified conglomerate of businesses known as the companies department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx notes within org’s audited financials report that org’s management did not believe that a reserve for policy losses was necessary for example note e loss reserve at page of org audited financials for year 20xx stated management does not believe that a reserve for policy losses and related expenses is necessary however because of the length of time required for the ultimate liability for losses and loss expenses to be determined the net amounts that will ultimately be paid to settle any liability may vary significantly from the nil amount provided for in the statement of assets and liabilities the company does not provide for losses on incurred but not yet reported cases it has been the company’s experience that incidents which may give rise to claims are invariably reported almost immediately and therefore any additional provision for this category of claim is unnecessary although management believes that no additional provision is necessary any reserve to cover the ultimate payment of such amounts is not presently determinable org's liabilities reported for years 20xx-20xx consisted of accounts_payable and other liabilities described as ibnr reserve in response to item of idr years 20xx- 20xx that requested support for the dollar_figure ibnr reserve org explained that this documentation could not be located this item was based upon the recommendation of the company's insurance consultants the company has not been able to locate the supporting documentation form_990 part iv line - accounts_payable and accrued expense sec_65 - other liabilities ibnr reserve - total liabilities dollar_figure dollar_figure year 20xx year 20xx year 20xx dollar_figure dollar_figuredollar_figuredollar_figure dollar_figuredollar_figuredollar_figure dollar_figuredollar_figuredollar_figure department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit org government’s position 20xx 20xx 20xx second org failed to use its capital and efforts primarily to earn income from its insurance activity by devoting most of its expenses towards investments within the diversified conglomerate of businesses known as the companies rather than towards marketing an insurance program org’s only expenses that directly supported insurance activities were those within the quarterly co-23 computations for org’s assumed re-insurance premiums -- insurance commissions incurred claims and experience refunds in both cardinal life and inter-american life where the courts determined that the primary and predominate business of each company was not insurance neither company employed a sales force reinsurance contracts during the years at issue the district_court noted in cardinal life although the taxpayer sold some plaintiff did not have an active sales force soliciting or selling insurance policies each of the insurance policies actually written by plaintiff was as the result of reinsurance agreements wherein other companies ceded to plaintiff certain amounts of insurance written by them these reinsurance contracts were negotiated either by the president and sole stockholder of plaintiff and or the company’s actuary who rendered services to plaintiff plaintiff otherwise did not have any employees brokers on a fee basis agents or salesmen soliciting and selling insurance for it and the only insurance written by plaintiff was through reinsurance agreements cardinal life f_supp pincite similarly in inter-american life the court considered the fact that the taxpayer did not maintain an active sales staff soliciting or selling insurance policies during the taxable years at issue as evidence of the taxpayer's lack of concentrated effort on the insurance_business 56_tc_497 org’s payment of a claim for one of its direct written policies and management fees support expenses being devoted towards investment activities of the companies economic group rather than towards insurance department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx org paid a dollar_figure claim to the lp-3 in year 20xx for its direct policy -01 written for year 20xx this payment was for one-third of a dollar_figure amount billed for drilling services rendered by co-44 inc trade_name is co-44 org’s claim form described these costs as epa clean-up expenses which were consistent with the lp-3’s business operations devoted towards owning operating retail petroleum facilities primarily in state and state engaged in real_estate speculation and development in state and devoted in private and public equity investments org paid management fees of dollar_figure year 20xx and dollar_figure year 20xx to a director-1 companies affiliate the co-2 co-2 to manage the property-3 activities were further evident by org’s sole shareholder the lp-1 transferring a one third interest in the property-3 property to org at a basis of dollar_figure in 20xx which org disposed of for a dollar_figure tax-sheltered gain in 20xx co-2 was one-third equally owned by the sole shareholders of org and its two captive affiliates - real_estate lp-1--sole shareholder of org lp-3- sole shareholder of co-7 lp-2--sole shareholder of co-5 org reported dollar_figure of management fees for asset management services provided during the year’ by its sole shareholder the lp-1 for year 20xx no documentation was provided to substantiate that any services were rendered for the dollar_figure management fees reported which were based upon of org's net assets in 20xx- 20xx 20xx management fee paid to lp-1 20xx management fee paid to lp-1 dollar_figure dollar_figure see org correspondence dated 20xx responding to item of idr years 20xx-20xx org recorded the dollar_figure and dollar_figure management fees in its g l as pay-downs of the line-of-credit loan owed by the lp-1 the reductions in the line-of-credit loan owed by the lp-1 are actually liquidating distributions consistent with org's liquidation plans reported within note subsequent events at page of org audited financials for year 20xx stating department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer explanation of items year period ended schedule no or exhibit org government's position 20xx 20xx 20xx there are plans in place to liquidate the company as at december 20xx liquidating distributions will be made periodically until the end of next year in addition to org’s paid claim and management fees supporting investment activities other instances where org expenses were devoted towards investments within the companies rather than to market an insurance program include - legal fees of dollar_figure year 20xx dollar_figure year 20xx and dollar_figure year 20xx consisting primarily of dollar_figure monthly charges for general administrative services having no direct connection with policies in effect during 20xx-20xx the advisory firm-2 - one of the legal fee recipients - employed org director director-1 during 20xx to provide real_estate advisory and management services interest_expense of dollar_figure year 20xx actually being a fee for a real_estate loan made by org’s investment affiliate co-34 the fee was based upon of org’s initial capital_contribution investment in the amount of dollar_figure that org made within the co- property taxes of dollar_figure year 20xx dollar_figure year 20xx and dollar_figure year 20xx paid primarily for investment properties and investment fees department of the treasury - internal_revenue_service form 886-a rev page form_886 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org government’s position 20xx 20xx 20xx third org failed to use its capital and efforts primarily to earn income from it insurance activity by not using actuarial risk analysis to determine premium charges for its direct- written policies this is supported by documentation requested during the irs field exam to determine whether org conducted any actuarial risk analysis in computing premium charges for policies in effect during years 20xx-20xx in response to a request for rate charts and actuarial reports to support whether risk_transfer and risk_distribution existed for org’s direct premium policies - and - org stated that actuarial documentation was not available and that risk was personally assessed by management the risks insured under these policies are non-standard risks concerning which actuarial information and analysis were not available management of the company personally assessed this risk based upon their knowledge of the insureds and the insureds’ businesses the company engaged outside insurance counsel to tailor the policy coverages and limitations to match their business assessments of risk the policies clearly transfer risk from the insureds to the company the direct written policies together with reinsurance business also clearly distribute risk among many insureds response to item of idr issued for year 20xx the irs’ follow-up request for documentation supporting org management's personal assessment of risk based upon their knowledge of the insureds and the insureds’ business resulted in org stating that no documentation existed the company's management was very familiar from personal observation and evaluation with the direct insured risks because of the familiarity no ‘underwriting memo’ or similar document exists response to item 2a of idr issued for year 20xx in response to the irs request for an actuarial analysis supporting computation of premium charges risk_transfer and risk_distribution for policies in effect during the month periods ended december 20xx-20xx org stated that actuarial analysis was not necessary department of the treasury - internal_revenue_service form 886-a rev page form_8 a department of the treasury - internal_revenue_service name of taxpayer explanation of items schedule no or exhibit year period ended org government's position 20xx 20xx 20xx the directly written policies were of risks well known to the company and no actuarial analysis was necessary co-23 advises that its retrocession arrangement was never subjected to actuarial analysis and that it had no reason to do so response to item 4e of idr issued for years 20xx-20xx emphasis added to above underlined areas - fourth org failed to use its capital and efforts primarily to earn income from its insurance activity by treating its insurance arrangements informally this was evident in the payment pattern of org’s direct insureds where premiums were paid substantially after their policies’ coverage commenced on january of years 20xx 20xx the industry practice for companies primarily engaged in the insurance_business is to obtain at least a portion of the insurance premium on or about the time when policy coverage begins in contrast org’s direct insureds paid their premiums substantially after january for policies in effect for year 20xx org’s insureds paid their respective premiums on 20xx lp-3 and on 20xx co-3 company for policies in effect for year 20xx org’s insureds paid their respective premiums on 20xx co-3 company and on 20xx lp-3 for policies in effect for year 20xx org’s company and lp-3 -- paid their premiums on 20xx org deposited these payments on 20xx insureds -- co-4 lp-10 co-6 co-3 fifth org ceased writing insurance_business in 20xx with no policies written and or renewed in that year this decision resulted in org’s capital and efforts not being committed for org to continue qualification as an insurance_company described under code sec_501 that primarily earned its income from insurance activities meeting gross_receipts criteria that would be in effect for tax years after 20xx gross_receipts for the taxable_year not to exceed dollar_figure more than of such gross_receipts to consist of premiums form 886-a rev department of the treasury - internal_revenue_service page form_8 a department of the treasury - internal_revenue_service name of taxpayer year period ended explanation of items schedule no or exhibit org government's position 20xx 20xx 20xx the government emphasizes that org’s cessation of insurance writing occurred simultaneous with changes in gross_receipts criteria for continued qualification as an insurance_company described under code sec_501 becoming effective as of 20xx and was consistent with predominant operations as an investment_company as evidenced by the relationship of org’s revenue expenses and assets to investments - particularly real_estate in summary org’s primary and predominant business activity was not insurance but investments org did not devote its capital and efforts primarily to its insurance_business org’s expenses were not made to employ knowledgeable employees or a sales force neither did org advertise or otherwise promote its insurance_business org treated its insurance_business too informally for the transactions to be respected as true insurance for the taxable years at issue org is held to have operated primarily as an investments holding_company or a shell like cardinal life org is seeking to avoid tax by claiming tax exempt small insurance_company status through r c sec_501 based on its reinsurance of an insignificant amount of insurance contracts form 886-a rev department of the treasury - internal_revenue_service page form_886 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx org insurance policies lacked risk shifting and risk_distribution - org’s policy contracts do not constitute insurance because they do not involve both risk-shifting and risk-distribution as established in 312_us_531 in making this determination the terms risk-shifting and risk-distribution as defined within revrul_2002_90 were applied no risk shifting org’s business plan evidences the companies’ having exclusive control_over selection and risk management of org’s insured parties which negated any risk shifting ofa potential economic loss to org as the insurer sec_1a ib ha iib iic and iib of org’s business plan given here support this fact with an emphasis added for underlined areas section ia - general description overview the company will insure various business activities of the director-1 companies a diversified conglomerate of businesses located primarily in state insurance as described herein companies the company will also accept third-party section ib - general description purpose the purpose of the company is to provide access to non-traditional insurance policies with which risks of loss businesses are commonly faced but to which limited or no insurance coverage is currently available the company believes that it faces several risks over the next few years for which traditional insurance is either too expensive or unavailable also the company hopes to obtain profitable reinsurance business in addition the company may cede certain risks to reinsurers section iia - marketing planned areas and type of business the company will operate as a property and casualty insurance_company and will not issue life_insurance policies insurance will be written on the company to enable better risk management and allow the company to obtain non-traditional insurance at better price points section iib - marketing method of solicitation the company does not presently intend to have insurance agents or solicitors all insurance initially will either come directly from the company or be obtained by the company's insurance manager department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx section iic - marketing source of business the company expects that zero percent or more of its business will come from the company the company is a diversified conglomerate of companies with numerous employees and assets and is currently faced the company will seek to with all of the below-described insurable risks engage in management of its risks and containing the cost of acquiring the foregoing classes of insurance the balance of the insurance underwriting business will be accepted by way of reinsurance of unrelated licensed insurance_companies section iiib - details of underwriting the company will be highly selective as to the risks which it will underwrite in the early stages of its development the company will continue to obtain regular commercial property and casualty insurance from standard providers and will primarily use the company to provide non-traditional insurance and to access the reinsurance market no risk_distribution distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as premiums and set_aside for the payment of such a claim by assuming numerous relatively small independent risks that occur randomly over time the insurer smooths out losses to match more closely its receipt of premiums 811_f2d_1297 cir risk_distribution necessarily entails a pooling of premiums so that a potential insured is not in significant part paying for its own risks see 881_f2d_247 cir org’s direct insurance policies did not involve risk_distribution which requires the statistical phenomenon known as the law of large numbers during years 20xx-20xx org had only two policies in effect covering two insureds in year 20xx org had only five policies in effect covering five insureds risk_distribution did not therefore exist under the law of large numbers within the very small populations of policies in effect during these years department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx year 20xx - co-3 company policy lp-3 policy xx - year 20xx - co-3 company policy lp-3 policy xx - year 20xx - f e e e r e co-3 company policy lp-3 policy - co-6 policy - lp-10 policy - co-4 policy - the lack of risk_distribution in org’s policies is further evident by comparing them with the liability insurance coverage provided by the captive insurer discussed within revrul_2002_90 in revrul_2002_90 twelve subsidiaries comprising the insured parties and the insurer had common ownership by a parent company none of the insured parties had less than percent or more than percent of the total risk insured by their affiliated meaning that the parent company’s common ownership of the insured subsidiaries and the insurer did not impact the determination that the arrangements constituted insurance contracts in contrast the parties covered under org’s direct insured policies had substantially larger percentages of the total risk because they involved substantially smaller populations of policies commissioner supra also see humana inc v years 20xx-20xx policies total risk distributed per policy policies total risk distributed per policy year 20xx with respect to org’s assumed reinsurance from co-23 the government emphasizes that org reinsured pro-rata shares of group disability insurance and related claims involved small portions of co-23’s aggregate reinsurance any risk_distribution assumed from co-23 was therefore irrelevant in determining whether org was predominately involved with insurance for federal tax purposes in support the government notes that org's pro-rata share of group disability insurance and related claims assumed from co-23 were only during 20xx-20xx and in 20xx department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form_886 a name of taxpayer explanation of items year period ended schedule no or exhibit org government's position 20xx 20xx 20xx org cannot continue to rely upon its determination ruling letter dated october 20xx recognizing the organization’s exempt status under sec_501 for the tax_year s at issue because it did not operate as an insurance_company as that term is used in sec_501 when the internal revenue service's issued a favorable ruling to org in its determination_letter dated october 20xx the ruling was based upon information that org provided at the application stage the irs clearly stated within this letter that the ruling was not only contingent upon org actually operating as it represented that it would within its application but also required that org inform the irs as to any change in purposes character or method of operation based on the information supplied and assuming your operations will be as stated in your application_for recognition of exemption we have determined you are exempt from united_states income_tax under sec_501 of the code as an organization described in sec_501 commencing on january 20xx for tax years when your net written premiums or if greater your direct written premiums do not exceed the dollar_figure limit prescribed by sec_501 kk this ruling is based on the financial and other information submitted in support of your application based solely on that information we have concluded you are a company or association within the meaning of sec_501 of the code and have the business_purpose of conducting the activities described in your application this ruling is not effective unless you actually operate as represented we are not ruling on issues other than exempt status we have not been asked and we have not considered whether any of your transactions would give rise to the application of the provisions of either sec_842 or sec_845 of the code please notify the state tax exempt and government entities te_ge customer service office if there is any change in your name address sources of support purposes or method of operation if you amend your organizational document or bylaws please send a copy of the amendment to that office the mailing address is customer service address city state zipcode internal_revenue_service te_ge emphasis added for underlined department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government's position 20xx 20xx 20xx an organization may not rely on a favorable determination_letter if the organization omitted or misstated a material fact in its application or in supporting documents an organization also may not rely on a favorable determination if there is a material_change inconsistent with exemption in the organization's character purposes or methods of operation after the determination_letter is issued sec_601_201 revproc_2004_1 2004_1_irb_1 revproc_90_27 1990_1_cb_514 the government's conclusion that org cannot rely upon its favorable determination_letter dated october 20xx is based upon a comparison between information submitted by org to the irs within its form_1024 application_for tax-exempt status with org’s financial and operational information identified within this report favorable determination_letter dated october 20xx the government emphasizes that the signing of org’s form_1024 under penalties of perjury by org’s director director-1 on 20xx occurred weeks after org engaged in its first sale of real_property interests on 20xx this sale involved org’s one-third interest in the property-2 real_property resulting in gross_proceeds of dollar_figure and a net gain of dollar_figure the form_1024 gave no disclosure about this sale and subsequent sales of real_property interests that occurred in november- december 20xx even though org had already held interests in the property-2 and property-1 properties when director-1 signed it on 20xx in concluding that org cannot rely on its the government further emphasizes that it was critical for org to have submitted complete financial information and an accurate description of its proposed activities during the application process in consideration of director-1’s position as officer director his level of education and hi sec_30 years of business experience which placed him in a position that he knew about org’s real_property sales occurring in july november and december of year 20xx department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx misrepresentation of sources of financial support and nature of expenses in response to part il - line of form_1024 which requires an applicant to list its present and future sources of financial support beginning with the largest source org represented to the irs that insurance premiums would be its largest source of financial support followed by investment_income and shareholder capital contributions in response to part iil-section a and schedule of form_1024 org represented to the irs that its revenues were entirely from premiums and expenses related entirely to its exempt_purpose without making any projections with respect to tax-sheltered sales of real_property interests five factors support that org misrepresented its financial information within form oe as discussed above org’s first during year 20xx org had a gain from the sale of its real_property interests that was of aggregate revenue relative to org’s premium revenue being of aggregate revenue direct written premiums reinsurance premiums total premiums second org’s form_1024 application failed to disclose the sale of its land interest in the property-2 property on 20xx for which it obtained sales proceeds of dollar_figure and a net gain of dollar_figure officer director director-1 signed the form_1024 on 20xx and was in position to have known about this transaction due to his position with org his level of education and hi sec_30 years of business experience third org’s form_1024 application failed to make any projection as to the subsequent sales of its interests in the property-2 and property-1 properties that occurred on 20xx and 20xx along with expenses relating to these sales such as legal costs and property taxes fourth org’s form_1024 application did not disclose legal and management expenses having no connection with insurance operations that were paid in 20xx these expenses included dollar_figure paid to the advisory firm-2 check dated 20xx as monthly activity for entitlement properties dollar_figure paid to the co-2 wire transfer on 20xx to manage property described as property-3 and dollar_figure paid for an invoice dated 20xx billed to the companies by the legal firm of law firm-3 fifth director-1’s education and business experience described within his resume’ along with his being an officer director of org support his being knowledgeable about org’s financial and operational information when he signed org’s form_1024 on 20xx under penalties of perjury department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx misrepresentations of proposed activities in response to part il-ltem of form_1024 org represented the following description in regard to proposed activities org is a small property and casualty insurance_company formed in such capacity it is and licensed under the laws of the territory licensed to conduct property and casualty related insurance its activities are specifically limited to the underwriting of activities property and casualty related risks on both a direct and reinsurance basis these are as follows underwriting select lines of property and casualty insurance coverages for business entities that are both related and unrelated hereto these insurance risks can be categorized by way of example errors and omissions insurance_business economic loss business interruption bankruptcy protection employment practices loss of key_employee services and other lines of property and casualty related risks total organizational time devoted to underwriting and administration of insurance estimated to be to accepting and issuing reinsurance coverage for select lines of property and casualty insurance risks including credit disability insurance no credit life is envisioned within the company total organizational time devoted to reinsurance related administration is estimated to be to emphasis added to underlined areas department of the treasury - internal_revenue_service form 886-a rev page form_886 a name of taxpayer explanation of items department of the treasury - internal_revenue_service schedule no or exhibit year period ended org government’s position 20xx 20xx 20xx three factors support that org misrepresented its proposed activities within form first proposed activities were stated to be specifically limited to the underwriting of property and casualty related risks on both a direct and reinsurance basis’ this statement conflicts with org’s assets sources of revenue and nature of expenses being based primarily upon investment activities rather than from operating an insurance_business by org not applying actuarial risk computations to determine its direct policy premium charges and by org having no program and staff to expand its insurance market org failed to represent within its form_1024 that it would not have risk_distribution by having policies in effect during 20xx-20xx and policies in effect during 20xx second total organizational time was stated to be devoted at an estimated to towards the underwriting and administration of insurance which conflicts with a b c d org’s direct insurance being limited to the various business activities of its director note general information’ at page of org’s financial statements for the 12-month_period ended december 20xx org not employing insurance agents or market solicitors the companies was expected to provide at least of org’s business and to engage in risk management and cost containment sections iib and lic of org business plan premiums for org’s direct insured policies not being based upon actuarial risk computations and had no documentation supporting how they were computed instead director-1 -- as org’s management - personally assessed the risk of the direct insureds based upon his knowledge of them eg org response to item of idr year 20xx requesting rate charts and actuarial reports to support risk_transfer and risk_distribution between org and its direct insureds org’s expectation to have a low frequency of claims that would be dealt with on an ad hoc basis section iiid of org business plan org’s ad hoc handling of claims was evident in the informality in paying dollar_figure for a claim filed by the lp-3 by waiving policy deductibles and allowing the claim to be paid for an event occurring outside of the policy coverage period org paid the claim under what it described as a business decision made outside the terms of the policy and related to possible future business from this insured and its affiliates form 886-a rev department of the treasury - internal_revenue_service page department of the treasury - internal_revenue_service form_8 a name of taxpayer explanation of items year period ended schedule no or exhibit org government’s position 20xx 20xx 20xx third total organizational time was stated to be devoted at an estimated to towards reinsurance related administration which conflicts with - a org s reinsuring a pro-rata portion of group coverage through its agreement with co-23 not justifying - of organizational time devoted towards reinsurance related administration co-23 not org functioning as the reinsurance administrator by providing org with its quarterly retrocession computations that org used to report its assumed premium and related deductions within form_990 b org is recommended to not qualify for relief under sec_7805 in the circumstances presented because it cannot continue to rely upon its initial determination_letter the government recommends retroactive revocation of org’s determination_letter because there were omissions and misstatements of material fact during the application process and material changes in operation after the determination_letter was issued accordingly it is recommended that org’s revocation be effective as of january 20xx the first day of the first tax period covered under this report and retroactive revocation of org’s determination_letter dated october 20xx while revocation of a determination_letter is generally not retroactive revocation of a determination_letter may be retroactive if the organization omitted or misstated a material fact or operated in a manner materially different from that originally represented sec_601_201 rev_proc dollar_figure cross-referencing dollar_figure et seq 1990_1_cb_514 a material fact revocation may be retroactive to all open years under the statute see sec_601_201 inconsistent with exempt status in the character the purpose or the method of operation revocation will ordinarily take effect as of the date of the material_change sec_601_201 revproc_90_27 in any event revocation will ordinarily take effect no later than the time at which the organization received written notice that its exemption ruling or determination_letter might be revoked sec_601_201 in cases where revocation is due to a material_change in cases where the organization omitted or misstated department of the treasury - internal_revenue_service form 886-a rev page form_886 a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org government’s position 20xx 20xx 20xx effective date of org’s revocation if the commissioner exercises discretion to grant relief under sec_7805 upon request by org the commissioner te_ge may grant relief from retroactive revocation under sec_7805 of the code should org make a request for relief from retroactive revocation following the procedures under revproc_2003_4 which cross references rev_proc the commissioner is urged to deny such relief in requesting relief under sec_7805 org must address each of the following factors there has been no misstatement or omission of material facts the facts subsequently developed are not materially different from the facts on which the ruling was based there has been no change in the applicable law the ruling was originally issued with respect to a prospective or proposed transaction and the taxpayer directly involved in the ruling acted in good_faith in reliance upon the ruling and the retroactive revocation would be to his detriment sec_601_201 statement of procedural rules revproc_96_4 sec_12 1996_1_irb_94 revproc_90_27 1990_1_cb_514 if the commissioner grants relief to org under sec_7805 the effective date for revocation of org’s determination_letter should be not later than the date on which the organization first received written notice that its exemption might be revoked sec_601_201 85_tc_743 aff'd 799_f2d_903 4th cir this does not preclude the effective date of revocation being earlier than the date on which the organization first received written notice that its exemption might be revoked virginia education fund v commissioner t c pincite department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org 20xx 20xx 20xx taxpayer’s position to date org’s position is unknown with respect to the issues facts applicable law and government's position discussed in this report org will be allowed a reasonable if considered amount of time necessary report and respond with review this rebuttal to a conclusion summary for tax periods ended december 20xx-20xx org is not an insurance_company described under i r c sec_501 and cannot continue to rely upon its initial determination_letter dated october 20xx recognizing it as exempt under that code section this determination was based upon org not qualifying as an insurance_company and org policy contracts not constituting insurance as supported by - a b investments were org’s primary and predominant activity org failed to use its capital and efforts primarily to earn income from its insurance activity org insurance policies lacked risk shifting and risk_distribution c org cannot continue to rely upon its determination ruling letter dated october 20xx recognizing the organization’s exempt status under sec_501 because that ruling was contingent not only upon org actually operating as it represented that it would within its application but also that org would inform the irs as to any change in purposes character or method of operation facts identified within this examination_report that were compared with information from org’s form_1024 application disclose that org misrepresented information during the application process with respect to sources of financial support the nature of expenditures and proposed activities department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer schedule no or exhibit year period ended department of the treasury - internal_revenue_service explanation of items org 20xx 20xx 20xx org is recommended to not qualify for relief under sec_7805 in the circumstances presented because it cannot continue to rely upon its initial determination_letter dated october 20xx the government recommends that org’s revocation be effective as of january 20xx - the first day of the first tax period covered under this report -- and retroactive revocation of org’s determination_letter dated october 20xx this recommendation is based upon omissions and misstatements of material fact during the application process of org’s form_1024 and material changes in operation after org’s determination ruling letter was issued if the commissioner grants relief to org under sec_7805 the effective date for revocation of org’s determination_letter should be not later than the date on which the organization first received written notice that its exemption might be revoked this does not preclude the effective date of revocation being earlier than the date on which the organization first received written notice that its exemption might be revoked exhibits exhibits supporting facts presented within this report are listed below department of the treasury - internal_revenue_service form 886-a rev page department of the treasury - internal_revenue_service form 886a name of taxpayer explanation of items year period ended schedule no or exhibit org 20xx 20xx 20xx exhibit description exhibit 3a 3b org memorandum of association org license no under sections and of the territory insurance act of org form_990 filed for years 19xx-20xx prelnsurance application_for tax-exempt status org foreign_insurance_company election under code sec_953 org form_1024 application_for recognition of exemption under sec_501 9a thru 9c oa thru oc 11a thru 11c irs ruling letter dated october 20xx issued to org and org general ledger for - a year 20xx b year 20xx and c year 20xx org audited financial statements for - a year 20xx b year 20xx and c year 20xx recognizing org as exempt from federal_income_tax org business plan resume’ of director-1 org forms filed for - a year 20xx b year 20xx and c year 20xx special warranty deeds executed by the lp-1 on 20xx to transfer an undivided one third interest in two properties located in the state of state - a county county and b county county special warranty deed executed by the lp-1 on 20xx to transfer an undivided one third interest in a property located in county county state described as property-3 minutes of org’s board meeting held on 20xx schedule_k-1 filed for year 20xx by the co-18 ein minutes of org board held on 20xx org policy - written for year 20xx org policy - written for year 20xx 12b 12a department of the treasury - internal_revenue_service form 886-a rev page form 886a name of taxpayer explanation of items year period ended department of the treasury - internal_revenue_service schedule no or exhibit org 20xx 20xx 20xx exhibit description exhibit 27a thru 27c law firm-3 invoice dated 20xxx billed in the amount of dollar_figure to the companies org policy - written for year 20xx org policy - written for year 20xx org policy - written for year 20xx org policy - written for year 20xx org policy - written for year 20xx org policy - written for year 20xx org policy - written for year 20xx org agreement with co-23 and co-23 quarterly retrocession computations for - a year 20xx b year 20xx and c year 20xx org s resolution passed on november 20xx approving line-of- credit financing to the lp-1 copy of the lp-1’s check dated 20xx payable in the amount of dollar_figure to org for the accrued loan origination fee and copy of org’s bank statement for month of february 20xx showing 20xx deposit of the lp-1’s check org claim form relating to the dollar_figure claims payment co-44’s invoice dated november 20xx billed in the amount of dollar_figure and org check dated 20xx paying the dollar_figure claim to the lp-3 under policy - shareholder consent of org sole shareholder co-51 approved and adopted on 20xx org plan of complete of liquidation minutes of org board meetings held on 20xx 20xx 20xx and 20xx 30a thru 30d department of the treasury - internal_revenue_service form 886-a rev page