Opinion ID: 415638
Heading Depth: 2
Heading Rank: 1

Heading: Proper Taxable Years

Text: 69 Section 815(d)(2)(A) provides that, if for any taxable year [a life insurance company] is not an insurance company, it must include its policyholders surplus account in its computation of taxable income for the last preceding taxable year for which it was a life insurance company. I.R.C. Sec. 815(d)(2)(A). The IRS issued deficiency notices as to Southern for its taxable year 1970 and as to Standard for its taxable year 1971. Security contends that these deficiencies were improperly assessed, arguing that 1970 was not the last year for which Southern was an insurance company and that 1971 was not the last year for which Standard was an insurance company. We find Security's argument to be without merit. 70 The definition of insurance company found in the pertinent regulations provides as follows: 71 The term insurance company means 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. 72 Treas.Reg. Sec. 1.801-3(a). See also Industrial Life Insurance Co. v. United States, 344 F.Supp. 870, 875 (D.S.C.1972), aff'd 481 F.2d 609 (4th Cir.1973); Cardinal Life Insurance Co. v. United States, 300 F.Supp. 387, 391-92 (N.D.Tex.1969). 73 An examination of the character of the business actually done by Southern in 1971 and by Standard in 1972 refutes Security's contention that they were insurance companies for those years. Southern transferred all its assets to OIC on January 5, 1971 and filed its Final Return on June 12, 1971, for its taxable year 1970. No further income tax returns were filed by Southern. In the case of Standard, the transfer of assets was completed on December 31, 1971. Standard's Final Return, for its taxable year 1971, was filed on April 24, 1972, and no other income tax returns were ever filed on its behalf. Neither Southern in 1971 nor Standard in 1972 were engaged in issuing insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies. See Treas.Reg. Sec. 1.801-3(a). Thus, we hold that Southern and Standard were not insurance companies for income tax purposes during 1970 and 1971, respectively, and that the notices of deficiency were issued for the proper taxable years.