Determination of Underwriting Income

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8857] RIN 1545-AU60

TITLE: Determination of Underwriting Income

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the
determination of underwriting income by insurance companies other
than life insurance companies. In computing underwriting income,
non-life insurance companies are required to reduce by 20 percent
their deductions for increases in unearned premiums. This
requirement was enacted as part of the Tax Reform Act of 1986. These
regulations provide guidance to non-life insurance companies for
purposes of determining the amount of unearned premiums that are
subject to the 20 percent reduction rule.

DATES: The regulations are effective January 5, 2000.

FOR FURTHER INFORMATION CONTACT: Gary Geisler, (202) 622-3970 (not a
toll-free number).

For this purpose, expenses incurred generally refers to the expenses
reported on the company's annual statement approved by the National
Association of Insurance Commissioners (NAIC) and filed for state
insurance regulatory purposes, less expenses incurred which are not
allowed as deductions under section 832(c). See section 832(b)(6).
Expenses incurred generally include premium acquisition expenses
attributable to unearned premiums on insurance contracts.

SUPPLEMENTARY INFORMATION:

Background

On January 2, 1997, the IRS published in the Federal Register a
notice of proposed rulemaking (REG-209839-96, 1997-1 C.B. 780 [62 FR
72]) proposing amendments to the Income Tax Regulations (26 CFR part
1) under section 832(b) of the Internal Revenue Code. The IRS
received a number of written comments on the proposed regulations.
On April 30, 1997, the IRS held a public hearing on the proposed
regulations. After consideration of all written and oral comments
regarding the proposed regulations, those regulations are adopted as
revised by this Treasury decision.

Explanation of Revisions and Summary of Comments

Underwriting income A non-life insurance company's underwriting
income equals its premiums earned on insurance contracts during the
taxable year less its losses incurred on insurance contracts and its
expenses incurred. See section 832(b)(3). To compute premiums
earned, the company starts with the gross premiums written on
insurance contracts during the taxable year, subtracts return
premiums and premiums paid for reinsurance, and makes an adjustment
to reflect the change in its unearned premiums over the course of
the taxable year. See section 832(b)(4). This computation results in
premiums being recognized in underwriting income over the term of
the insurance contract, rather than in the taxable year in which the
premiums are billed or received from the policyholder.

Prior to 1987, 100 percent of the change in unearned premiums during
the taxable year was taken into account as an increase or decrease
to written premiums in computing premiums earned. This treatment
"generally reflect[ed]" the accounting conventions (often referred
to as "statutory accounting principles") used to prepare a non-life
insurance company's annual statement for state insurance regulatory
purposes. See 2 H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-354
(1986), 1986-3 C.B. (Vol. 4) 354; S. Rep. No. 313, 99th Cong., 2d
Sess. 495 (1986), 1986-3 C.B. (Vol. 3) 495, H.R. Rep. No. 426, 99th
Cong., 1st Sess. 668 (1985), 1986-3 C.B. (Vol. 2) 668. Because
unearned premiums are computed on the basis of the gross premiums
for an insurance contract, the amount of unearned premiums reflects
not only the portion of the gross premium allocable to future
insurance claims but also the portion allocable to the insurance
company's expenses and profit on the insurance contract.

In 1986, Congress determined that deferring unearned premium income
and currently deducting premium acquisition expenses attributable to
unearned premiums resulted in a mismatch of an.4 insurance company's
net income and expense. Congress decided to require a better
measurement of net income for Federal income tax purposes. See H.R.
Rep. No. 426, 1986-3 C.B. (Vol. 2) at 669; S. Rep. No. 313, 1986-3
C.B. (Vol. 3) at 496. Rather than defer the deduction for premium
acquisition expenses attributable to unearned premiums, Congress
reduced by 20 percent the adjustment for unearned premiums. For
taxable years beginning on or after January 1, 1993, a non-life
insurance company's premiums earned is an amount equal to: (1) its
gross premiums written, less both return premiums and premiums paid
for reinsurance; plus (2) 80 percent of unearned premiums at the end
of the prior taxable year, less 80 percent of unearned premiums at
the end of the current taxable year. Section 832(b)(4). The
acceleration of income that is typically generated by the 20 percent
reduction of unearned premiums is intended to be roughly equivalent
to denying current deductibility for the portion of the insurance
company's premium acquisition expenses allocable to the unearned
premiums. See 2 H.R. Conf. Rep. No. 841, 1986-3 C.B. (Vol. 4) at
354-55; S. Rep. No. 313, 1986-3 C.B. (Vol. 3) at 495-98; H.R. Rep.
No. 426, 1986-3 C.B. (Vol. 2) at 668-70.

Role of the annual statement

The proposed regulations provide definitions of the items used to
determine premiums earned under section 832(b)(4) and timing rules
for taking these items into account for Federal income tax purposes.
The treatment provided in the proposed regulations would apply
regardless of the classification or method of reporting the items
used on an insurance company's annual statement.

Several comments questioned whether there is legal authority to
require an insurance company to use a method to calculate premiums
earned for Federal income tax purposes that differs from the method
that the company is permitted to use to calculate premiums earned on
its annual statement. As noted in the preamble to the proposed
regulations, the existing regulations under �1.832-4(a)(2) state
that the annual statement A . . . insofar as it is not inconsistent
with the provisions of the Code . . ." will be recognized and used
as a basis for computing the net income of a non-life insurance
company. Also, if statutory accounting principles permit alternative
practices, one or more of which do not clearly reflect income as
defined by the Code, the company is required for Federal income tax
purposes to use a method that clearly reflects income. Section
446(b) and �1.446-1(a)(2).

Gross premiums written

The proposed regulations generally define gross premiums written as
the total amounts payable for insurance coverage under insurance or
reinsurance contracts issued or renewed during the taxable year. The
proposed regulations, however, do not address situations where the
amounts charged for insurance coverage may change due to increases
or decreases in coverage limits, additions or deletions in property
or risks covered, changes in location or status of insureds, or
other similar factors.

The final regulations define an insurance company's A gross premiums
written @ on insurance contracts (which includes premiums
attributable to reinsurance contracts) as amounts payable for
insurance coverage for the effective periods of the contracts. The
label placed on a payment in a contract does not determine whether
an amount is a gross premiums written. The effective period of a
contract is the period over which one or more rates for insurance
coverage are guaranteed in the contract. If a new rate for insurance
coverage is guaranteed after the effective date of an insurance
contract, the making of the guarantee generally is treated as the
issuance of a new insurance contract with an effective period equal
to the duration of the new guaranteed rate for insurance coverage.

Under the final regulations, gross premiums written include: (1)
additional premiums resulting from increases in risk exposure during
the effective period of an insurance contract; (2) amounts
subtracted from a premium stabilization reserve that are used to pay
premiums; and (3) consideration for assuming insurance liabilities
under contracts not issued by the insurance company (that is, a
payment or transfer of property in an assumption reinsurance
transaction). Gross premiums written, however, do not include other
items of gross income described in section 832(b)(1)(C). To the
extent that amounts paid or payable to an insurance company with
respect to an arrangement are not gross premiums written, the
insurance company may not treat amounts payable to customers with
respect to the applicable portion of such arrangements as losses
incurred described in section 832(b)(5).

Method of reporting gross premiums written The proposed regulations
provide that a non-life insurance company reports the full amount of
gross premiums written for an insurance contract for the earlier of
the taxable year which includes the effective date of the contract
or the year in which all or a portion of the premium for the
contract is received. A variety of comments were received with
respect to the application of this timing rule to insurance
contracts with installment premiums. In response to comments, the
final regulations provide a number of exceptions from the general
rule with respect to when an insurance company reports gross
premiums written.

Advance premiums

Under the proposed regulations, a non-life insurance company that
receives a portion of the premium for an insurance contract prior to
the effective date of the contract includes the full amount of the
premium in gross premiums written for the taxable year during which
the portion of the premium was received.

Several comments addressed the treatment of advance premiums in the
proposed regulations. One comment endorsed the proposed treatment of
advance premiums, noting that it is proper under statutory
accounting principles to record the full amount of gross premiums
written and expenses incurred with respect to a casualty insurance
policy for the year in which an advance Prior to 1989, advance
premiums were required to be reported in written premiums and
unearned premiums on a non-life insurance company's annual
statement. However, statutory accounting principles were later
modified to permit advance premiums to be accumulated in a suspense
account and reported as a write-in liability on the annual
statement. A company electing to use this alternative treatment
would not report advance premiums in either written premiums or
unearned premiums on its annual statement until the effective date
of the underlying coverage premium is received. Other comments
argued that since the policyholder may demand a refund of an advance
premium prior to the policy's effective date, the company should be
permitted to treat an advance premium as a nontaxable deposit until
such time as coverage begins under the contract. Alternatively,
these comments urged that the company be permitted to report only
the advance premium (rather than the entire gross premium for the
contract) in gross premiums written for the taxable year of receipt,
and to report the remainder of the gross premium for the taxable
year that includes the contract's effective date. These comments
also indicated that companies generally do not deduct the full
amount of premium acquisition expenses for the contract in the
taxable year in which they receive advance premiums. In response to
comments, the final regulations permit an insurance company that
receives part of the gross premium for an insurance contract prior
to the effective date of the contract to report only the advance
premium (rather than the full amount of the gross premium written
for the contract) in gross premiums written for the taxable year of
receipt. The remainder of the gross premium for the insurance
contract is included in gross premiums written for the taxable year
which includes the effective date of the contract. This method of
reporting gross premiums written is available only if the company's
deduction for premium acquisition expenses attributable to the
contract does not exceed a limitation specified in the regulations,
which is intended to ensure that a company does not deduct premium
acquisition expenses attributable to an insurance contract more
rapidly than the company includes premiums for the insurance
contract in its gross premiums written. Companies that adopt this
method of reporting gross premiums written must use this method for
all insurance contracts with advance premiums.

Accident and health insurance contracts

The proposed regulations have no special rules for determining gross
premiums written with respect to accident and health insurance
contracts. Several comments indicated that the longstanding practice
of insurance companies that issue accident and health insurance
contracts with installment premiums is to include amounts in gross
premiums written for the taxable year in which the installment
premiums become due under the contracts. These comments also stated
that companies generally do not deduct premium acquisition expenses
allocable to installment premiums not yet due or received with
respect to accident and health insurance contracts.

In response to comments, the final regulations permit a non-life
insurance company that either issues or proportionally reinsures
cancellable accident and health insurance contracts with installment
premiums to report the installment premiums in gross premiums
written for the earlier of the taxable year in which the installment
premiums become due under the terms of the contract or the taxable
year in which the installment premiums are received. This method of
reporting gross premiums written for cancellable accident and health
insurance contracts with installment premiums is available only if
the company's deduction for premium acquisition expenses
attributable to those contracts does not exceed the matching
limitation specified in the regulations. Companies that adopt this
method of reporting gross premiums written must use it for all
cancellable accident and health insurance contracts with installment
premiums.

Multi-year contracts with installment premiums

The final regulations also provide an exception with respect to the
reporting of gross premiums written for a multi-year insurance
contract for which the gross premium is payable in installments over
the effective period of the contract. Under the final regulations, a
company may treat this type of multi-year insurance contract as a
series of separate insurance contracts. The first insurance contract
in the series will be treated as having an effective period of 12
months. Subsequent insurance contracts in the series will be treated
as having an effective period equal to the lesser of 12 months or
the remainder of the period for which the rates for insurance
coverage are guaranteed in the multi-year insurance contract.

Under section 848(e)(5), a contract that reinsures a contract
subject to section 848 is treated in the same manner as the
reinsured contract. This method of reporting gross premium written
for a multi-year insurance contract with installment premiums is
available only if the company's deduction for premium acquisition
expenses attributable to the contract does not exceed the matching
limitation specified in the regulations. Companies that adopt this
method of reporting gross premiums written for a multi-year
insurance contract must use it for all multi-year contracts with
installment premiums.

Contracts that give rise to life insurance reserves Some insurance
companies that are taxable under Part II of Subchapter L issue or
reinsure risks relating to guaranteed renewable accident and health
insurance contracts or other contracts that give rise to A life
insurance reserves @ (as defined in section 816(b)). For these
companies, section 832(b)(4) provides that unearned premiums
includes the amount of the company's life insurance reserves, as
determined under section 807. However, under section 832(b)(7), the
unearned premiums for contracts giving rise to life insurance
reserves are not reduced by 20 percent. Instead, an amount of
otherwise deductible expenses equal to a percentage of the net
premiums for the contracts must be capitalized and amortized as
specified policy acquisition expenses under section 848. For
purposes of determining the amount of specified policy acquisition
expenses under section 848, a non-life insurance company computes
net premiums for the contracts in accordance with section 811(a).

See section 848(d)(2). Thus, with respect to contracts described in
section 832(b)(7), a non-life insurance company does not take into
account unpaid premiums attributable to insurance coverage not yet
provided (such as deferred and uncollected premium installments) in
determining the amount of specified policy acquisition expenses
required to be amortized under section 848.

The proposed regulations do not provide special rules for
determining gross premiums written with respect to contracts
described in section 832(b)(7). Under the final regulations, a non-
life insurance company that issues or reinsures the risks related to
a contract described in section 832(b)(7) may report gross premiums
written for the contract in the manner required for life insurance
companies under sections 803 and 811. This method of reporting gross
premiums written for contracts described in section 832(b)(7) is
available only if the company also determines its deduction for
premium acquisition expenses for the contracts in accordance with
section 811(a), as adjusted by the amount required to be amortized
under section 848 based on the net premiums of the contracts. Thus,
the final regulations ensure that the rules for determining premium
income and amortizing premium acquisition expenses for contracts
described in section 832(b)(7) operate consistently, whether the
issuing company is a non-life insurance company or a life insurance
company.

Fluctuating risk contracts

The method of reporting gross premiums written for certain insurance
contracts covering fluctuating risks is reserved in the proposed
regulations. Some comments requested that the final regulations not
address the method of reporting gross premiums written for insurance
contracts covering fluctuating risks, noting that the method of
recording gross written premiums for these policies for annual
statement reporting purposes was being considered by the NAIC as
part of its project to codify statutory accounting principles.
Subsequently, the NAIC issued guidance permitting an insurance
company for annual statement purposes to report written premiums on
workers' compensation policies (but not on other casualty contracts
involving "fluctuating risks," such as commercial automobile
liability and product liability policies) either on the effective
date of the insurance contract or based on installment billings to
the policyholder. By contrast, with respect to other types of
casualty insurance policies, the NAIC reaffirmed the general rule
that gross premiums with respect to these policies must be recorded
on the annual statement on the effective date of the insurance
contract.

The final regulations do not permit a non-life insurance company to
report gross premiums written for a fluctuating risk contract based
on installment billings to the policyholder. Rather, the final
regulations require a company generally to report the gross premiums
written for the contract for the earlier of the taxable year which
includes the effective date of the contract or the year in which all
or a portion of the premium for the contract is received, with
special rules for advance premiums, cancellable accident and health
contracts, multi-year insurance contracts, and contracts described
in section 832(b)(7). The company reports any additional premiums
resulting from an increase in risk exposure in gross premiums
written for the taxable year in which the change in risk exposure
occurs.

Unless the increase in risk exposure is of temporary duration, the
company determines the additional premium resulting from a change in
risk exposure based on the remainder of the effective period of the
contract.

Return premiums

The proposed regulations define return premiums as amounts (other
than policyholder dividends or claims and benefit payments) paid or
credited to the policyholder in accordance with the terms of an
insurance contract. Under the final regulations, return premiums are
amounts previously included in an insurance company's gross premiums
written, which are refundable to the policyholder (or the ceding
company with respect of a reinsurance agreement) if the amounts are
fixed by the insurance contract and do not depend on the experience
of the insurance company or the discretion of its management. This
rule incorporates a specific definition of policyholder dividends.

The final regulations list a number of items which are included in
return premiums, to the extent they have previously been included in
gross premiums written. These items include:

(1) amounts that are refundable due to policy cancellations or
decreases in risk exposure during the effective period of an
insurance contract; (2) the unearned portion of unpaid premiums for
an insurance contract that is canceled or for which there is a
decrease in risk exposure during its effective period; and (3)
amounts that are either refundable or that reflect the unearned
portion of unpaid premiums for an insurance contract, arising from
the redetermination of the premium due to correction of posting or
other similar errors.

In addition, the final regulation provides timing rules for the
deduction of return premiums. If a contract is canceled, the return
premium arising from that cancellation is deducted in the taxable
year in which the contract is canceled. If there is a reduction in
risk exposure under an insurance contract that gives rise to a
return premium, such return premium is deductible in the taxable
year in which the reduction in risk exposure occurs.

Retrospectively rated insurance contracts

The proposed regulations provide that gross written premiums include
an insurance company's estimate of additional premiums (retro
debits) to be received with regard to the expired portion of a
retrospectively rated insurance or reinsurance contract.

The proposed regulations also provide that return premiums include
an insurance company's estimate of amounts to be refunded to
policyholders (retro credits) with regard to the expired portion of
a retrospectively rated insurance or reinsurance contract. The
proposed regulations, therefore, would modify the treatment of retro
credits under �1.832-4(a)(3)(ii) of the existing regulations, which
treat retro credits as unearned premiums. At the option of the
taxpayer, however, the proposed regulations permit a company to
continue to include gross retro credits (but not gross retro debits)
in the amount of unearned premiums subject to the 20 percent
reduction under section 832(b)(4)(B).

A variety of comments were received with respect to the treatment of
retro debits and retro credits in the proposed regulations. Most
comments approved of the proposed rule to modify the treatment of
retro credits in �1.832-4(a)(3)(ii) and, instead, to permit retro
credits to be accounted for as part of return premiums. Some
comments contended, however, that the method of netting retro debits
and retro credits as an adjustment to unearned premiums was required
under NAIC accounting rules, prior case law, and the Service's
published rulings interpreting �1.832-4(a)(3)(ii). These comments
argued that the enactment of the 20 percent reduction rule in 1986
did not authorize the Service to change the items included in
unearned premiums, including the historical treatment of retro
debits and retro credits as part of unearned premiums. Other
comments contended that retro debits (but not retro credits) should
be discounted using the applicable discount factors for unpaid
losses under section 846. These comments argued that there is a
direct correlation between amounts reported by an insurance company
as retro debits and the company's related liabilities for unpaid
losses and unpaid loss adjustment expenses. Therefore, the comments
urged that, to achieve proper matching of these items, a non-life
insurance company should be permitted either to report retro debits
as a subtraction from unearned premiums or to discount the retro
debits using the applicable discount factors under section 846 for
the related line of business.

The treatment of retro debits and retro credits in the proposed
regulations was premised on the assumptions that retrospectively
rated arrangements could qualify as insurance contracts for tax
purposes, and that all amounts payable under such arrangements could
be considered to have been paid for insurance coverage. The final
regulations provide that gross premiums are amounts paid for
insurance coverage. Similarly, unearned premiums and return premiums
only include amounts included in gross written premiums. The final
regulations also provide that retro credits are not included in
unearned premiums, and retro debits cannot be subtracted from
unearned premiums. The final regulations do not permit amounts
includable in gross premiums written to be discounted, regardless of
when such amounts are paid to the insurance company.

The final regulations do not provide any inference as to whether
some or all of a retrospective arrangement can qualify as an
insurance contract, or as to whether or the extent to which amounts
paid or payable to an insurance company with respect to a
retrospective arrangement are for insurance coverage.

In Rev. Rul. 97-5, 1997-1 C.B. 136, the Service revoked Rev. Rul.
70-480, 1970-2 C.B. 142, which had held that amounts held by a non-
life insurance company in a premium stabilization reserve funded by
retro credits are not unearned premiums under section 832(b)(4).
Rev. Rul. 97-5 reasoned that the assumption in Rev. Rul. 70-480 that
stabilization reserves are part of the insurance company's surplus
was erroneous.

Premium stabilization reserves

Several comments asked for clarification of the treatment of premium
stabilization reserves. As noted below, the final regulations
provide that retro credits are not unearned premiums for Federal
income tax purposes. Thus, retro credits added to premium
stabilization reserves are not unearned premiums for Federal income
tax purposes. The final regulations also provide that amounts
withdrawn from a premium stabilization reserve to pay premiums are
included in gross premiums written for the taxable year in which
these amounts are withdrawn from the stabilization reserve for that
purpose.

Unearned premiums

The proposed regulations define unearned premiums as the portion of
the gross premiums written that is attributable to future insurance
coverage to be provided under an insurance or reinsurance contract.
The final regulations generally retain the rules relating to
unearned premiums. Consistent with the existing regulations under
�1.801-4(a), the final regulations provide that an insurance company
must exclude from unearned premiums amounts attributable to the net
value of risks reinsured with, or retroceded to, another insurance
company. The final regulations also provide that unearned premiums
do not include a liability established by an insurance company on
its annual statement to cover premium deficiencies.

The proposed regulations provide that an insurance company may
consider the incidence or pattern of the insured risks in
determining the portion of the gross premium written that is
attributable to the unexpired portion of the insurance coverage. The
final regulations clarify that, if the risk of loss under an
insurance contract does not vary significantly over the effective
period of the contract, the unearned premium attributable to the
unexpired portion of the effective period of the contract is
determined on a pro rata basis. However, if the risk of loss under
an insurance contract varies significantly over the effective period
of the contract, the insurance company may consider the pattern and
incidence of the risk in determining the portion of gross premium
which are attributable to the unexpired portion of the effective
period of the contract, provided that the company maintains
sufficient information to demonstrate that its method of computing
unearned premiums accurately reflects the pattern and incidence of
the risk for the insurance contract.

Effective date and transition rules

Under the proposed regulations, the new rules apply to the
determination of premiums earned for insurance contracts issued or
renewed during taxable years beginning after the date on which final
regulations are published in the Federal Register. Several comments
requested that the regulations permit an insurance company to adopt
the new rules for determining premiums earned as a change in method
of accounting deemed made with the Commissioners' consent, with
audit protection for prior years.

These comments also urged that the insurance company be given the
option of either implementing the change in method of accounting on
a cut-off basis or spreading the section 481(a) adjustments
resulting from the change over a number of years consistent with the
Commissioner's general administrative procedures when a taxpayer
files a request to change a method of accounting under section
446(e).

In response to these comments, the final regulations permit
taxpayers to change their method of accounting for determining
premiums earned to comply with the final regulations under the
automatic change in method of accounting provisions of Rev. Proc.
99-49, 1999-52 I.R.B. 725, subject to certain limitations. A
taxpayer makes the automatic change in method of accounting on its
Federal income tax return for the first taxable year beginning after
December 31, 1999. The scope limitations in section 4.02 of Rev.
Proc. 99-49 do not apply to a taxpayer's automatic change in method
of accounting pursuant to this regulation. The timely duplicate
filing requirement in section 6.02 of Rev. Proc. 99-49 also does not
apply to this change. If the taxpayer's method of computing earned
premiums was an issue under consideration (within the meaning of
section 3.09 of Rev. Proc. 99-49) on January 5, 2000, however, then
the audit protection rule in section 7.01 of Rev. Proc. 99-49 does
not apply to the taxpayer's change in method of accounting.

Special Analyses

It has been determined that this Treasury Decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations, and,
because these regulations do not impose on small entities a
collection of information requirement, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, the notice of proposed rulemaking
preceding these regulations was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.

Drafting Information

The principal author of these regulations is Gary Geisler, Office of
the Assistant Chief Counsel (Financial Institutions and Products),
IRS. However, other personnel from the IRS and Treasury Department
participated in their development.

Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1
is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.832-4 is amended
as follows:

1. Paragraph (a)(3) is revised.

2. Paragraphs (a)(4) and (a)(5) are redesignated as paragraphs (a)
(13) and (a)(14).

3. New paragraphs (a)(4) through (a)(12) are added. The additions
and revisions read as follows:

�1.832-4 Gross income.

(a) * * *

(3) Premiums earned. The determination of premiums earned on
insurance contracts during the taxable year begins with the
insurance company's gross premiums written on insurance contracts
during the taxable year, reduced by return premiums and premiums
paid for reinsurance. Subject to the exceptions in sections 832(b)
(7), 832(b)(8), and 833(a)(3), this amount is increased by 80
percent of the unearned premiums on insurance contracts at the end
of the preceding taxable year, and is decreased by 80 percent of the
unearned premiums on insurance contracts at the end of the current
taxable year.

(4) Gross premiums written--(i) In general. Gross premiums written
are amounts payable for insurance coverage. The label placed on a
payment in a contract does not determine whether an amount is a
gross premium written. Gross premiums written do not include other
items of income described in section 832(b)(1)(C) (for example,
charges for providing loss adjustment or claims processing services
under administrative services or cost-plus arrangements). Gross
premiums written on an insurance contract include all amounts
payable for the effective period of the insurance contract. To the
extent that amounts paid or payable with respect to an arrangement
are not gross premiums written, the insurance company may not treat
amounts payable to customers under the applicable portion of such
arrangements as losses incurred described in section 832(b)(5).

(ii) Items included. Gross premiums written include--

(A) Any additional premiums resulting from increases in risk
exposure during the effective' period of an insurance contract;

(B) Amounts subtracted from a premium stabilization reserve to pay
for insurance coverage; and

(C) Consideration in respect of assuming insurance liabilities under
insurance contracts not issued by the taxpayer (such as a payment or
transfer of property in an assumption reinsurance transaction).

(5) Method of reporting gross premiums written--(i) In general.
Except as otherwise provided under this paragraph (a)(5), an
insurance company reports gross premiums written for the earlier of
the taxable year that includes the effective date of the insurance
contract or the year in which the company receives all or a portion
of the gross premium for the insurance contract. The effective date
of the insurance contract is the date on which the insurance
coverage provided by the contract commences. The effective period of
an insurance contract is the period over which one or more rates for
insurance coverage are guaranteed in the contract. If a new rate for
insurance coverage is guaranteed after the effective date of an
insurance contract, the making of such a guarantee generally is
treated as the issuance of a new insurance contract with an
effective period equal to the duration of the new guaranteed rate
for insurance coverage.

(ii) Special rule for additional premiums resulting from an increase
in risk exposure. An insurance company reports additional premiums
that result from an increase in risk exposure during the effective
period of an insurance contract in gross premiums written for the
taxable year in which the change in risk exposure occurs. Unless the
increase in risk exposure is of temporary duration (for example, an
increase in risk exposure under a workers' compensation policy due
to seasonal variations in the policyholder's payroll), the company
reports additional premiums resulting from an increase in risk
exposure based on the remainder of the effective period of the
insurance contract.

(iii) Exception for certain advance premiums. If an insurance
company receives a portion of the gross premium for an insurance
contract prior to the first day of the taxable year that includes
the effective date of the contract, the company may report the
advance premium (rather than the full amount of the gross premium
for the contract) in gross premiums written for the taxable year in
which the advance premium is received. An insurance company may
adopt this method of reporting advance premiums only if the
company's deduction for premium acquisition expenses for the taxable
year in which the company receives the advance premium does not
exceed the limitation of paragraph (a)(5)(vii) of this section. A
company that reports an advance premium in gross premiums written
under this paragraph (a)(5)(iii) takes into account the remainder of
the gross premium written and premium acquisition expenses for the
contract in the taxable year that includes the effective date of the
contract. A company that adopts this method of reporting advance
premiums must use the method for all contracts with advance
premiums.

(iv) Exception for certain cancellable accident and health insurance
contracts with installment premiums. If an insurance company issues
or proportionally reinsures a cancellable accident and health
insurance contract (other than a contract with an effective period
that exceeds 12 months) for which the gross premium is payable in
installments over the effective period of the contract, the company
may report the installment premiums (rather than the total gross
premium for the contract) in gross premiums written for the earlier
of the taxable year in which the installment premiums are due under
the terms of the contract or the year in which the installment
premiums are received. An insurance company may adopt this method of
reporting installment premiums for a cancellable accident and health
insurance contract only if the company's deduction for premium
acquisition expenses for the first taxable year in which an
installment premium is due or received under the contract does not
exceed the limitation of paragraph (a)(5)(vii) of this section. A
company that adopts this method of reporting installment premiums
for a cancellable accident and health contract must use the method
for all of its cancellable accident and health insurance contracts
with installment premiums.

(v) Exception for certain multi-year insurance contracts. If an
insurance company issues or proportionally reinsures an insurance
contract, other than a contract described in paragraph (a)(5)(vi) of
this section, with an effective period that exceeds 12 months, for
which the gross premium is payable in installments over the
effective period of the contract, the company may treat the
insurance coverage provided under the multi-year contract as a
series of separate insurance contracts. The first contract in the
series is treated as having been written for an effective period of
twelve months. Each subsequent contract in the series is treated as
having been written for an effective period equal to the lesser of
12 months or the remainder of the period for which the rates for
insurance coverage are guaranteed in the multi-year insurance
contract. An insurance company may adopt this method of reporting
premiums on a multi-year contract only if the company's deduction
for premium acquisition expenses for each year of the multi-year
contract does not exceed the limitation of paragraph (a)(5)(vii) of
this section. A company that adopts this method of reporting
premiums for a multi-year contract must use the method for all
multi-year contracts with installment premiums.

(vi) Exception for insurance contracts described in section 832(b)
(7). If an insurance company issues or reinsures the risks related
to a contract described in section 832(b)(7), the company may report
gross premiums written for the contract in the manner required by
sections 803 and 811(a) for life insurance companies. An insurance
company may adopt this method of reporting premiums on contracts
described in section 832(b)(7) only if the company also determines
the deduction for premium acquisition costs for the contract in
accordance with section 811(a), as adjusted by the amount required
to be taken into account under section 848 in connection with the
net premiums of the contract. A company that adopts this method of
reporting premiums for a contract described in section 832(b)(7)
must use the method for all of its contracts described in that
section.

(vii) Limitation on deduction of premium acquisition expenses. An
insurance company's deduction for premium acquisition expenses (for
example, commissions, state premium taxes, overhead reimbursements
to agents or brokers, and other similar amounts) related to an
insurance contract is within the limitation of this paragraph (a)(5)
(vii) if

(A) The ratio obtained by dividing the sum of the company's
deduction for premium acquisition expenses related to the insurance
contract for the taxable year and previous taxable years by the
total premium acquisition expenses attributable to the insurance
contract; does not exceed

(B) The ratio obtained by dividing the sum of the amounts included
in gross premiums written with regard to the insurance contract for
the taxable year and previous taxable years by the total gross
premium written for the insurance contract.

(viii) Change in method of reporting gross premiums. An insurance
company that adopts a method of accounting for gross premiums
written and premium acquisition expenses described in paragraph (a)
(5)(iii), (iv), (v), or (vi) of this section must continue to use
the method to report gross premiums written and premium acquisition
expenses unless the company obtains the consent of the Commissioner
to change to a different method under section 446(e) and
�1.446-1(e).

(6) Return premiums--(i) In general. An insurance company's
liability for return premiums includes amounts previously included
in an insurance company's gross premiums written, which are
refundable to a policyholder or ceding company, provided that the
amounts are fixed by the insurance contract and do not depend on the
experience of the insurance company or the discretion of its
management.

(ii) Items included. Return premiums include amounts

(A) Which were previously paid and become refundable due to policy
cancellations or decreases in risk exposure during the effective
period of an insurance contract;

(B) Which reflect the unearned portion of unpaid premiums for an
insurance contract that is canceled or for which there is a decrease
in risk exposure during its effective period; or

(C) Which are either previously paid and refundable or which reflect
the unearned portion of unpaid premiums for an insurance contract,
arising from the redetermination of a premium due to correction of
posting or other similar errors.

(7) Method of reporting return premiums. An insurance company
reports the liability for a return premium resulting from the
cancellation of an insurance contract for the taxable year in which
the contract is canceled. An insurance company reports the liability
for a return premium attributable to a reduction in risk exposure
under an insurance contract for the taxable year in which the
reduction in risk exposure occurs.

(8) Unearned premiums--(i) In general. The unearned premium for a
contract, other than a contract described in section 816(b)(1)(B),
generally is the portion of the gross premium written that is
attributable to future insurance coverage during the effective
period of the insurance contract. However, unearned premiums held by
an insurance company with regard to the net value of risks reinsured
with other solvent companies (whether or not authorized to conduct
business under state law) are subtracted from the company's unearned
premiums. Unearned premiums also do not include any additional
liability established by the insurance company on its annual
statement to cover premium deficiencies. Unearned premiums do not
include an insurance company's estimate of its liability for amounts
to be paid or credited to a customer with regard to the expired
portion of a retrospectively rated contract (retro credits). An
insurance company's estimate of additional amounts payable by its
customers with regard to the expired portion of a retrospectively
rated contract (retro debits) cannot be subtracted from unearned
premiums.

(ii) Special rules for unearned premiums. For purposes of computing
A premiums earned on insurance contracts during the taxable year @
under section 832(b)(4), the amount of unearned premiums includes--

(A) Life insurance reserves (as defined in section 816(b), but
computed in accordance with section 807(d) and sections 811(c) and
(d));

(B) In the case of a mutual flood or fire insurance company
described in section 832(b)(1)(D) (with respect to contracts
described in that section), the amount of unabsorbed premium
deposits that the company would be obligated to return to its
policyholders at the close of the taxable year if all its insurance
contracts were terminated at that time;

(C) In the case of an interinsurer or reciprocal underwriter that
reports unearned premiums on its annual statement net of premium
acquisition expenses, the unearned premiums on the company's annual
statement increased by the portion of premium acquisition expenses
allocable to those unearned premiums; and

(D) In the case of a title insurance company, its discounted
unearned premiums (computed in accordance with section 832(b)(8)).

(9) Method of determining unearned premiums. If the risk of loss
under an insurance contract does not vary significantly over the
effective period of the contract, the unearned premium attributable
to the unexpired portion of the effective period of the contract is
determined on a pro rata basis. If the risk of loss varies
significantly over the effective period of the contract, the
insurance company may consider the pattern and incidence of the risk
in determining the portion of the gross premium that is attributable
to the unexpired portion of the effective period of the contract. An
insurance company that uses a method of computing unearned premiums
other than the pro rata method must maintain sufficient information
to demonstrate that its method of computing unearned premiums
accurately reflects the pattern and incidence of the risk for the
insurance contract.

(10) Examples. The provisions of paragraphs (a)(4) through (a)(9) of
this section are illustrated by the following examples:

Example 1. (i) IC is a non-life insurance company which, pursuant to
section 843, files its returns on a calendar year basis. IC writes a
casualty insurance contract that provides insurance coverage for a
one-year period beginning on July 1, 2000 and ending on June 30,
2001. IC charges a $500 premium for the insurance contract, which
may be paid either in full by the effective date of the contract or
in quarterly installments over the contract's one year term. The
policyholder selects the installment payment option. As of December
31, 2000, IC collected $250 of installment premiums for the
contract.

(ii) The effective period of the insurance contract begins on July
1, 2000 and ends on June 30, 2001. For the taxable year ending
December 31, 2000, IC includes the $500 gross premium, based on the
effective period of the contract, in gross premiums written under
section 832(b)(4)(A). IC's unearned premium with respect to the
contract was $250 as of December 31, 2000. Pursuant to section
832(b)(4)(B), to determine its premiums earned, IC deducts $200
($250 x .8) for the insurance contract at the end of the taxable
year.

Example 2. (i) The facts are the same as Example 1, except that the
insurance contract has a stated term of 5 years. On each contract
anniversary date, IC may adjust the rate charged for the insurance
coverage for the succeeding 12 month period. The amount of the
adjustment in the charge for insurance coverage is not substantially
limited under the insurance contract.

(ii) Under paragraph (a)(5)(i) of this section, IC is required to
report gross premiums written for the insurance contract based on
the effective period for the contract. The effective period of the
insurance contract is the period for which a rate for insurance
coverage is guaranteed in the contract. Although the insurance
contract issued by IC has a stated term of 5 years, a rate for
insurance coverage is guaranteed only for a period of 12 months
beginning with the contract's effective date and each anniversary
date thereafter. Thus, for the taxable year ending December 31,
2000, IC includes the $500 gross premium for the 12 month period
beginning with the contract's effective date in gross premiums
written. IC's unearned premium with respect to the contract was $250
as of December 31, 2000. Pursuant to section 832(b)(4)(B), to
determine its premiums earned, IC deducts $200 ($250 x .8) for the
insurance contract at the end of the taxable year.

Example 3. (i) The facts are the same as Example 1, except that
coverage under the insurance contract begins on January 1, 2001 and
ends on December 31, 2001. On December 15, 2000, IC collects the
first $125 premium installment on the insurance contract. For the
taxable year ended December 31, 2000, IC deducts $20 of premium
acquisition expenses related to the insurance contract. IC's total
premium acquisition expenses, based on the insurance contract's $500
gross premium, are $80.

(ii) Under paragraph (a)(5)(iii) of this section, IC may elect to
report only the $125 advance premium (rather than the contract's
$500 gross premium) in gross premiums written for the taxable year
ended December 31, 2000, provided that IC's deduction for the
premium acquisition expenses related to the insurance contract does
not exceed the limitation in paragraph (a)(5)(vii). IC's deduction
for premium acquisition expenses is within this limitation only if
the ratio of the insurance contract's premium acquisition expenses
deducted for the taxable year and any previous taxable year to the
insurance contract's total premium acquisition expenses does not
exceed the ratio of the amounts included in gross premiums written
for the taxable year and any previous taxable year for the contract
to the total gross premium written for the contract.

(iii) For the taxable year ended December 31, 2000, IC deducts $20
of premium acquisition expenses related to the insurance contract.
This deduction represents 25% of the total premium acquisition
expenses for the insurance contract ($20/$80 = 25%). This ratio does
not exceed the ratio of the $125 advance premium to the insurance
contract's $500 gross premium ($125/$500 = 25%). Therefore, under
paragraph (a)(5)(iii) of this section, IC may elect to report only
the $125 advance premium (rather than the $500 gross premium) in
gross premiums written for the taxable year ending December 31,
2000. IC reports the balance of the gross premium for the insurance
contract ($375) and deducts the remaining premium acquisition
expenses ($60) for the insurance contract in the taxable year ending
December 31, 2001.

Example 4. (i) The facts are the same as Example 3, except that for
the taxable year ending December 31, 2000, IC deducts $60 of premium
acquisition expenses related to the insurance contract.

(ii) For the taxable year ended December 31, 2000, IC deducted 75%
of total premium acquisition expenses for the insurance contract
($60/$80 = 75%). This ratio exceeds the ratio of the $125 advance
premium to the $500 gross premium ($125/$500 = 25%). Because IC's
deduction for premium acquisition expenses allocable to the contract
exceeds the limitation in paragraph (a)(5)(vii) of this section,
paragraph (a)(5)(i) of this section requires IC to report the $500
gross premium in gross premiums written for the taxable year ending
December 31, 2000. IC's unearned premium with respect to the
contract was $500 as of December 31, 2000. Pursuant to section
832(b)(4)(B), to determine its premiums earned, IC deducts $400
($500 x .8) for the insurance contract at the end of the taxable
year.

Example 5. (i) IC is a non-life insurance company which, pursuant to
section 843, files its returns on a calendar year basis. On August
1, 2000, IC issues a one-year cancellable accident and health
insurance policy to X, a corporation with 80 covered employees. The
gross premium written for the insurance contract is $320,000.
Premiums are payable in monthly installments. As of December 31,
2000, IC has collected $150,000 of installment premiums from X. For
the taxable year ended December 31, 2000, IC has paid or incurred
$21,000 of premium acquisition expenses related to the insurance
contract. IC's total premium acquisition expenses for the insurance
contract, based on the $320,000 gross premium, are $48,000.

(ii) Under paragraph (a)(5)(iv) of this section, IC may elect to
report only the $150,000 of installment premiums (rather than the
$320,000 estimated gross premium) in gross premiums written for the
taxable year ended December 31, 2000, provided that its deduction
for premium acquisition expenses allocable to the insurance contract
does not exceed the limitation in paragraph (a)(5)(vii). For the
taxable year ended December 31, 2000, IC deducts $21,000 of premium
acquisition expenses related to the insurance contract, or 43.75% of
total premium acquisition expenses for the insurance contract
($21,000/$48,000 = 43.75%). This ratio does not exceed the ratio of
installment premiums to the gross premium for the contract
($150,000/$320,000 = 46.9%). Therefore, under paragraph (a)(5)(iv)
of this section, IC may elect to report only $150,000 of installment
premiums for the insurance contract (rather than $320,000 of gross
premium) in gross premiums written for the taxable year ending
December 31, 2000.

Example 6. (i) IC is a non-life insurance company which, pursuant to
section 843, files its returns on a calendar year basis. On July 1,
2000, IC issues a one-year workers' compensation policy to X, an
employer. The gross premium for the policy is determined by applying
a monthly rate of $25 to each of X's employees. This rate is
guaranteed for a period of 12 months, beginning with the effective
date of the contract. On July 1, 2000, X has 1,050 employees. Based
on the assumption that X's payroll would remain constant during the
effective period of the contract, IC determines an estimated gross
premium for the contract of $315,000 (1,050 x $25 x 12 = $315,000).
The estimated gross premium is payable by X in equal monthly
installments. At the end of each calendar quarter, the premiums
payable under the contract are adjusted based on an audit of X's
actual payroll during the preceding three months of coverage. (ii)
Due to an expansion of X's business in 2000, the actual number of
employees covered under the contract during each month of the period
between July 1, 2000 and December 31, 2000 is 1,050 (July), 1,050
(August), 1,050 (September), 1,200 (October), 1,200 (November), and
1,200 (December). The increase in the number of employees during the
year is not attributable to a temporary or seasonal variation in X's
business activities and is expected to continue for the remainder of
the effective period of the contract.

(iii) Under paragraph(a)(5)(i) of this section, IC is required to
report gross premiums written for the insurance contract based the
effective period of the contract. The effective period of X's
contract is based on the 12 month period for which IC has guaranteed
rates for insurance coverage. Under paragraph (a)(5)(ii), IC must
also report the additional premiums resulting from the change in
risk exposure under the contract for the taxable year in which the
change in such exposure occurs. Unless the change in risk exposure
is of temporary duration, the additional gross premiums are included
in gross premiums written for the remainder of the effective period
of the contract. Thus, for the taxable year ending December 31,
2000, IC reports gross premiums written of $348,750 with respect to
the workers' compensation contract issued to X, consisting of the
sum of the initial gross premium for the contract ($315,000) plus
the additional gross premium attributable to the 150 employees added
to X's payroll who will be covered during the last nine months of
the contract's effective period (150 x $25 (monthly premium) x 9.35
= $33,750). IC's unearned premium with respect to the contract was
$180,000 as of December 31, 2000, which consists of the sum of the
remaining portion of the original gross premium ($315,000 x 6/12 =
$157,500), plus the additional premiums resulting from the change in
risk exposure ($33,750 x 6/9 = $22,500) that are allocable to the
remaining six months of the contract's effective period. Pursuant to
section 832(b)(4)(B), to determine its premiums earned, IC deducts
$144,000 ($180,000 x .8) for the insurance contract at the end of
the taxable year.

Example 7. (i) The facts are the same as Example 6, except that the
increase in the number of X's employees for the period ending
December 31, 2000 is attributable to a seasonal variation in X's
business activity.

(ii) Under paragraph (a)(5)(ii) of this section, for the taxable
year ending December 31, 2000, IC reports gross premiums written of
$326,500, consisting of the sum of the initial gross premium for the
contract ($315,000) plus the additional premium attributable to the
temporary increase in risk exposure during the taxable year (150 x
$25 x 3 = $11,250). The unearned premium that is allocable to the
remaining six months of the effective period of the contract is
$157,500. Pursuant to section 832(b)(4)(B), to determine its
premiums earned, IC deducts $126,000 ($157,500 x .8) for the
insurance contract at the end of the taxable year.

Example 8. (i) IC, a non-life insurance company, issues a
noncancellable accident and health insurance contract (other than a
qualified long-term care insurance contract, as defined in section
7702B(b)) to A, an individual, on July 1, 2000. The contract has an
entry-age annual premium of $2,400, which is payable by A in equal
monthly installments of $200 on the first day of each month of
coverage. IC incurs agents' commissions, premium taxes, and other
premium acquisition expenses equal to 10% of the gross premiums
received for the contract. As of December 31, 2000, IC has collected
$1,200 of installment premiums for the contract.

(ii) A noncancellable accident and health insurance contract is a
contract described in section 832(b)(7). Thus, under paragraph (a)
(5)(vi) of this section, IC may report gross premiums written in the
manner required for life insurance companies under sections 803 and
811. Accordingly, for the taxable year ending December 31, 2000, IC
may report gross premiums written of $1,200, based on the premiums
actually received on the contract. Pursuant to section (a)(5)(vi) of
this section, IC deducts a total of $28 of premium acquisition costs
for the contract, based on the difference between the acquisition
costs actually paid or incurred under section 811(a) ($1,200 x .10 =
$120) and the amount required to taken into account under section
848 in connection with the net premiums for the contract ($1,200 x
.077 = $92).

(iii) Under paragraph (a)(8)(ii)(A) of this section, IC includes the
amount of life insurance reserves (as defined in section 816(b), but
computed in accordance with section 807(d) and sections 811(c) and
(d)) in unearned premiums under section 832(b)(4)(B). Section 807(d)
(3)(A)(iii) requires IC to use a two-year preliminary term method to
compute the amount of life insurance reserves for a noncancellable
accident and health insurance contract (other than a qualified long-
term care contract). Under this tax reserve method, no portion of
the $1,200 gross premium received by IC for A's contract is
allocable to future insurance coverage. Accordingly, for the taxable
year ending December 31, 2000, no life insurance reserves are
included in IC's unearned premiums under section 832(b)(4)(B) with
respect to the contract.

Example 9. (i) IC, a non-life insurance company, issues an insurance
contract with a twelve month effective period for $1,200 on December
1, 2000. Immediately thereafter, IC reinsures 90% of its liability
under the insurance contract for $900 with IC-2, an unrelated and
solvent insurance company. On December 31, 2000, IC-2 has an $825
unearned premium with respect to the reinsurance contract it issued
to IC. In computing its earned premiums, pursuant to section 832(b)
(4)(B), IC-2 deducts $660 of unearned premiums ($825 x .8) with
respect to the reinsurance contract.

(ii) Under paragraph (a)(8)(i) of this section, unearned premiums
held by an insurance company with regard to the net value of the
risks reinsured in other solvent companies are deducted from the
ceding company's unearned premiums taken into account for purposes
of section 832(b)(4)(B). If IC had not reinsured 90% of its risks,
IC's unearned premium for the insurance contract would have been
$1,100 ($1,200 x 11/12) and IC would have deducted $880 ($1,100 x
.8) of unearned premiums with respect to such contract. However,
because IC reinsured 90% of its risks under the contract with IC-2,
as of December 31, 2000, the net value of the risks retained by IC
for the remaining 11 months of the effective period of the contract
is $110 ($1,100 -$ 990). For the taxable year ending December 31,
2000, IC includes the $1,200 gross premium in its gross premiums
written and deducts the $900 reinsurance premium paid to IC-2 under
section 832(b)(4)(A). Pursuant to section 832(b)(4)(B), to determine
its premiums earned, IC deducts $88 ($110 x .8) for the insurance
contract at the end of the taxable year.

(11) Change in method of accounting--(i) In general. A change in the
method of determining premiums earned to comply with the provisions
of paragraphs (a)(3) through (a)(10) of this section is a change in
method of accounting for which the consent of the Commissioner is
required under section 446(e) and �1.446-1(e).

(ii) Application. For the first taxable year beginning after
December 31, 1999, a taxpayer is granted consent of the Commissioner
to change its method of determining premiums earned to comply with
the provisions of paragraphs (a)(3) through (a)(10) of this section.
A taxpayer changing its method of accounting in accordance with this
section must follow the automatic change in accounting provisions of
Rev. Proc. 99-49, 1999-52 I.R.B. 725 (see �601.601(d)(2) of this
chapter), except that

(A) The scope limitations in section 4.02 of Rev. Proc. 99-49 shall
not apply;

(B) The timely duplicate filing requirement in section 6.02(2) of
Rev. Proc. 99-49 shall not apply; and

(C) If the method of accounting for determining premiums earned is
an issue under consideration within the meaning of section 3.09 of
Rev. Proc. 99-49 as of January 5, 2000, then section 7.01 of Rev.
Proc. 99-49 shall not apply.

(12) Effective date. Paragraphs (a)(3) through (a)(11) of this
section are applicable with respect to the determination of premiums
earned for taxable years beginning after December 31, 1999.

* * * * *

Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue
Approved December 23, 1999
Jonathan Talisman,
Acting Assistant Secretary of the Treasury

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