~^~~ Treasury Department : : Bureau of Internal Revenue ._ Bulletin "H" INCOME TAX RULINGS PECULIAR TO INSURANCE COMPANIES April 9, 1921 WASHINGTON GOVERNMENT PRINTING OFFICE 1921 Treasury Department : : Bureau of Internal Revenue Bulletin "H" INCOME TAX RULINGS . PECULIAR TO INSURANCE COMPANIES April 9, 192) WASHINGTON GOVERNMENT PRINTING OFFICE 1921 PREFACE. This bulletin is issued for the use of employees of the Bureau en- gaged in the computation of the income and excess profits taxes of insurance companies and for the information of interested taxpayers. It is not intended as a set of regulations or as an amendment of the present Regulations 45 (1920 edition) but solely as a statement of the practice which has been established under those regulations. While not a complete manual of practice, it answers most of the ques- tions which present themselves in everyday practice. (2) CONTENTS. LIFE INSURANCE COMPANIES. Paragraph. Pago. 1. Basis of returns 5 2. Gross income of life insurance company ~> 3. Premiums reported during the year on monthly lists to War Risk Insurance Bureau. Item 20 (a) 5 4. Ledger assets other than premiums received from other companies for assuming their risks. Item 23 5 5. Miscellaneous income. Item 3G 6 (a) Commissions advanced in previous years now repaid 6 (1j) Bonuses received for payment or extension of mortgage loans_ 6 6. Exclusions from gross income 6 7. Deductions allowed life insurance companies 7 8. Reserve funds of life insurance companies 7 9. Dividends and interest held on deposit surrendered during the year. Item 18 7 10. Invested capital 7 11. Invested capital of mutual life insurance companies.! 8 12. Computation of invested capital 8 13. Computation of invested capital for prewar years 9 14. Uncollected and deferred premiums STOCK FIRE INSURANCE COMPANIES. 15. Basis of return 9 16. Change of basis 17. Premium income 9 18. Deposit premiums 19. Investment income 10 20. Miscellaneous income 10 2J.. Increase in liabilities during the year on account of reinsurance treaties 10 22. Items not to be included in gross income 10 23. Policy payments _ 10 24. General expenses and taxes 10 L'.".. Net addition to reserve funds 10 20. Decrease in liabilities during the year on account of reinsurance treaties 10 27. Items not to be included among deductions 11 28. Invested capital of fire insurance companies 11 STOCK MARINE INSURANCE COMPANIES. \"et income and invested capital 12 STOCK CASUALTY COMPANIES. 30. Basis of return VI 31. Readjustment of returns 12 32. Gross incotne VI (3) Page. 33. Policy fees required or represented by application. Item 21 12 ,">}. Compensation for inspections 13 35. Miscellaneous income 13 36. Payments on policies. Item 17 13 37. Addition to reserve funds. Items L'0 and 20 13 38. Net additions to reserve funds 13 39. Health and accident companies 13 40. Estimated expenses of investigation and adjustment of unpaid claims. Item 21 13 41. Invested capital 13 42. Computation of invested capital 14 MUTUAL INSURANCE COMPANIES. (Other than mutual life and mutual marine insurance companies.) 43. Mutual insurance companies (other than mutual life and mutual marine insurance companies) 15 44. Reciprocal insurance exchanges or associations 15 MUTUAL MARINE INSURANCE COMPANIES. 45. Special deductions allowed mutual marine insurance companies 15 CORPORATIONS ISSUING COMBINATION POLICIES. 46. Corporations issuing combination policies 16 FOREIGN INSURANCE COMPANIES. 47. Gross income 16 48. Income not subject to tax 16 49. Income from United States bonds 17 50. Company having agent in United States 17 51. Deductions allowed foreign insurance companies 17 52. Rate of exchange 17 53. Computation of tax of foreign insurance companies 17 EXEMPTIONS. n 1. Mutual insurance companies and like organizations 17 55. Mutual savings banks 18 56. Fraternal beneficiary societies 18 57. Insurance association incorporated to permit automobile owners to exchange contracts of insurance and indemnity IS Mutual health and accident associations 19 59. Travelers' associations '. 19 60. Mutual liability insurance company deriving its income in part from premiums 19 61. Proof of exemption 19 GENERAL PROVISIONS. 62. Net addition to reserve funds of insurance companies 20 APPENDIX. Page. Annual statement, life companies, convention edition 23-32 Annual statement, stock, fire, and marine companies, convention edition 33^2 Annual statement, miscellaneous stock companies, convention edition 43-52 LIFE INSURANCE COMPANIES. 1. Basis of returns. Returns of life insurance companies shall be made on a receipts and disbursements basis, as distinguished from an accrual basis, as being in accordance with the method of ac- counting regularly employed by such companies. Any life insur- ance company having life and casualty departments shall report separately the incomes, disbursements, and liabilities of the two departments, of the life department upon the basis of receipts and disbursements, of the casualty department on an accrual basis. 2. Gross income of life insurance company. The gross income of a life insurance company consists of its total revenue from the operation of the business and all other income from all other sources within the taxable year, except as otherwise provided by the statute. Gross income includes net premium receipts (that is, gross pre- miums less returned premiums on policies canceled, premiums on policies not taken, and such portions of any premiums received from individual policyholders as are paid back or credited to or treated as abatements of premiums of such policyholders within the taxable year), investment income, profit from the sale of assets, and all gains, profits, and income reported to the State insurance depart- ment except income specifically exempt from tax (see par. 6). A net decrease in, or release of, reserve funds required by law within the taxable year must be included in gross income unless the com- pany affected shall show that such decrease or release of reserve funds resulted from the application of reserves to the purpose for which they were established and did not increase its free assets. 3. Premiums reported during the year on monthly advance lists to War Risk Insurance Bureau. Item 20 (a) of the report to the State insurance officials, convention edition. This item will be included in income on the ground that the income is received by reason of the receipt of cash or the equivalent of cash. 4. Ledger assets other than premiums received from other companies for assuming their risks. Item 23. This item refers to the reinsurance of one company by another and does not contemplate the reinsurance of individual risks which are charged through premium and loss accounts. As a general rule there is no element of gain or loss as a result of a reinsurance, except in so far as the assets transferred are greater or less than the corresponding liabilities assumed. If there ! ay excess of the assets received over the liabilities assumed, the (5) 6 will represent a gain. Any assets, therefore, received by a reinsuring company and entered on its books under this item will be included in gross income for tax purposes. Payments made on ac- count of liabilities assumed will be allowed as deductions. If the payments made do not equal the assumed liabilities, the result is that the company is properly taxed upon the element of gain arising from the transaction. In so far as the liabilities assumed consist of reserve liabilities, the company will secure an immediate deduc- tion from income by reason of increasing its own reserve liability to such an extent. 5. Miscellaneous income. Item 36. Items appearing under this head can only be fully treated as they are presented by individual com- panies. (a) Commissions advanced in previous years now repaid. When a commission is advanced the security for the subsequent repayment of the advance is represented by commissions not jet accrued. The company treats the advances as disbursements and not as capital transactions. Having been so treated when paid out. it necessarily follows that the company must return any amount subse- quently repaid as income. The same reasoning applies to doubtful debts which require no different treatment in the case of insurance companies than in the case of corporations generally. (>) Bonuses received for payment or extension of mortgage loans. When a payment is received by a company either for the privilege of extending a mortgage held by it, or for the privilege of paying the principal of such mortgage in advance, the payment received constitutes gain and should be included in gross income. 6. Exclusions from gross income. A life insurance company shall not include in gross income such portion of any actual premium received from any individual policyholder as is paid back, or credited to. or treated as an abatement of premium of such policyholder within the taxable year. " Paid back '' means paid in cash. "Credited to" means applied by \\i\y of credit so as to reduce the premium received on the policy for the taxable year. It includes dividends applied (a) directly to the payment of the premium for the taxable year; (b) to purchase additional paid-up insurance or annuities (Item 8) ; or (c) to shorten the endowment or premium paying period (Item 15) ; or (d) left with the company to accumu- late at interest (Item 22). It does not include the amount of di- visible surplus annually ascertained and apportioned to deferred dividend policies. "Treated as an abatement of premium" means of the premium for the taxable year. Where the dividend paid back or credited to a policyholder is in excess of the premium received from such policyholder within the taxable year there may be excluded from gross income only the amount of the premium received, and where no premium is received from the policyholder within the taxable year the company is not entitled to exclude from its premiums received from other policy- holders any amount on account of such dividend payment. 7. Deductions allowed life insurance companies. Life insurance com- panies are entitled to the same deductions from gross income as other corporations, and also to the deduction of the net addition required by law to be made within the taxable year to reserve funds and of sums other than dividends paid within the taxable year on policy and annuity contracts. As payments on policies there should be reported all death, disability, and other policy claims (other than dividends elsewhere referred to) paid within the year, including matured endowments, annuities, payments on installment policies, and surrender values actually paid. " Paid," in the case of a life in- surance company, means actually paid as distinguished from ac- crued, since the returns are rendered upon the receipts and disburse- ments basis. 8. Reserve funds of life insurance companies. Generally speaking. Items 7, 8, and 9 of the liability page of the annual statement, con- vention edition, will be considered reserves as contemplated by the statute. The net addition to reserve funds arising from an increase in survivorship investment fund, is deductible from gross income. An increase in the reserve maintained by a life insurance company for the protection of deferred dividend policies, where such reserve. is required by statute, or by regulations promulgated by a State in- surance department in the exercise of appropriate power conferred by statute, may he deducted from gross income. 9. Dividends and interest held on deposit surrendered during the year. Item 18. Dividends held on deposit will not be allowed as deduc- tions from gross income in the year in which they are surrendered, inasmuch as when they are left on deposit they are not included in income, and. therefore, when surrendered are not properly deduct- ible. The interest paid thereon, being interest on indebtedness, may be deducted from gross income in the year in which it is paid. 10. Invested capital. Section :i-Ji of the Revenue Act of 1!> is. and article s:U of Regulations -l.\ define invested capital as including: ((() ('ash paid in for stock; (I) Tangible property paid in for stock; (c) Surplus and undivided profits: (d) Intangible property paid in for stock (to a limited amount) : (r) Less the same proportion of such aggregate sum as the amount of inadmissible assets beat's to the total assets. Invested capital does not include borrowed capital. 8 11. Invested capital of mutual life insurance companies. In the case of mutual life insurance companies there is no capital stock. Con- tributions by policyholders. notwithstanding that sudi policy- holders are the. owners of a mutual company, do not constitute or contribute to paid-in surplus. Contributions from policyholders affect only earned surplus. Invested capital, therefore, will not be changed in any year by the amount of any such contributions of policyholders. The surplus of mutual life insurance companies is generally derived through the ordinary course of business in re- taining certain portions of the excess of income over the cost of operation. All surplus is, therefore, earned and not paid in. For the purpose of determining invested capital it is necessary to in- quire as to the proper measure of earned surplus. The books of the company do not reflect the earned surplus, they take no account of reserves or in general of other liability items which appear in the report made by the companies to the State insurance officials. Re- serves (items 7, 8 and 9 of liabilities) are held to constitute liabil- ities which must be taken into account in determining the amount of earned surplus. The reserve funds of life insurance companies are not, therefore, to be included in computing invested capital. In addition to the reserve items, item 22, " dividends left with the company to accumulate at interest," will be excluded from earned surplus. The amount of this item represents money belonging to individuals left with the company on deposit. Such deposits are in no sense the earned surplus of the company. They constitute bor- rowed capital. 12. Computation of invested capital. The invested capital of life in- surance companies (both stock and mutual) comprise the following: (a) Ledger assets as shown in Item II of page 2 of the annual statement, convention edition, for the taxable year. (6) Plus: Any excess of cost value of assets over book value. (The result will be the total assets on the basis of actual cost.) (. >. Ml. and :V2 of liabilities. (e) Minus: Depreciation computed on the cost of the buildings from the date of acquirement to the beginning of the tax- able year. (This ruling is applicable to all buildings owned by the company whether acquired under foreclosure of mort- gage or not.) (/) Minus: Proportionate part of Federal income and profits taxes from the date due and payable. (g) Minus: Percentage which the inadmissible assets are of the total admissible and inadmissible assets. 9 13. Computation of invested capital for prewar years. Invested capi- tal for the prewar years will be computed generally on the same basis as for the taxable year. For 1917 the deduction from invested capital on account of inadmissible assets will be made in accordance with Regulations 41 as they apply to corporations generally. 14. TTncollected and deferred premiums. Uncollected and deferred premiums can not reduce reserves. The legal reserves, the net addi- tion to which is deducted from gross income, can not be reduced by the net uncollected and deferred premiums inasmuch as such pre- miums have not been included as premium income. It also logically follows that the same reserves, upon which the deduction of the net addition is computed for purposes of the income tax, should be taken into consideration in determining invested capital for excess-profits tax purposes. The regulations covering the adjustments by way of additions to, or deductions from, invested capital, applicable to corporations in general, will be observed and followed by insurance companies. STOCK FIRE INSURANCE COMPANIES. 15. Basis of return. Returns of stock fire insurance companies will be rendered on an accrual basis for the reason that such basis is in accordance with the method of accounting regularly employed by such companies, and clearly reflects their income. 16. Change of basis. Any company whose basis is changed in 1918 to an accrual basis will be required, in case the duplication or omis- sion of items arising through such change in basis results in a ma- terial change in tax imposed, to readjust its return for the year 1917 in accordance with the basis used in 1918. If, in the opinion of the Commissioner, such change of basis indicates that the return for the year 1910 did not reflect the true income, an amended return for that yea i- will also be required. 17. Premium income. The premium income of a stock fire insur- ance company will consist of the gross premiums written during the year, less reinsurance and returned premiums. The result is that .-lock lire insurance companies will return as premium income for the year the net premiums written a- shown by item 7. page _'. of the annual statement, convention edition, rendered to the in- suranc<> department. Ledger assets, other than premiums received from other companies for assuming their risks, must also be included in gross income. 18. Deposit premiums. Deposit premium^ <>n perpetual risk- re- ceived and returned by fire insurance companies should be excluded from income and disbursements, as no reserve will be recognized covering the liability for such deposits. However, the earnings on 45277-21 2 10 such deposits, including such portion, if any. of the deposits as are not returned to the policyholdera upon cancellation of the policies, must IK- included in gross income. 19. Investment income. The income from investments, received or accrued (except interest on obligations of the United States, limited to the extent provided by the respective Acts authorizing their issue, if issued since September 24, 1917, and- interest on obligations of any State, Territory, or political subdivision thereof), must be in- cluded in gross income after deducting amount paid for accrued interest on bonds acquired during the year. 20. Miscellaneous income. Agents' balances, previously charged off, recovered, and gross profit on sale or other disposition of ledger assets, must be included in gross income, subject to the regulations applicable to corporations in general. 21. Increase in liabilities during the year on account of reinsurance treaties. Assets received by one insurance company from another as security under reinsurance treaties, will be excluded from gross in- come, as no reserve will be recognized covering such liability. 22. Items not to be included in gross income. Borrowed money, pre- mium on capital stock sold, and increases by adjustment in book value of ledger assets will not be included in gross income. 23. Policy payments. The policy payments of a stock fire insurance company will consist of the gross amount accrued for losses, less salvage and reinsurance received or recoverable, but will not include any estimate for losses incurred but not reported during the tax- able year. 24. General expenses and taxes. The general expenses and taxes of a stock fire insurance company will consist of the amounts accrued during the taxable year for such purposes, except that the accrued taxes shown in item 18, page 5, of the annual statement must be so segregated as to show the amount of Federal income and excess profits taxes included therein. The deducibility of any item in- cluded in the foregoing classification will be governed by the reg- ulations applicable to corporations in general, except that amounts expended for rene\vals and replacements of furniture and fixtures may be deducted as an expense. Amounts expended for furniture and fixtures in the equipment of new offices will be treated as capital expenditures and are not deductible from gross income. 25. Net addition to reserve funds. The net addition to reserve funds of a stock fire insurance company will consist of the net increase dur- ing the 3 r ear in the unearned premium reserve as shown in item 10, page 5, of the annual statement, convention edition. 26. Decrease in liabilities during the year on account of reinsurance treaties. Assets received by an insurance company as security under reinsurance treaties, not being income when received, may not be de- 11 ducted from gross income when returned. However, any interest paid or accrued on such deposited funds may be deducted from gross income. 27. Items not to be included among deductions. Borrowed money re- paid, discount or commissions on capital stock sold, or decreases dur- ing the year due to adjustments in book value of securities, will not be included among deductions from gross income. 28. Invested capital of fire insurance companies. The invested capital of a stock fire iii-uranee company within the meaning of the statute is the capital paid in by the stockholders, the surplus and undivided profits of prior years remaining in the business at the close of the previous year, and the unearned premium reserve, less the defined deduction for inadmissible assets and such further adjustments as are contemplated by the statute. The computation of invested capital will be based upon the annual statement rendered to the insurance department at the close of the previous year. Generally speaking, the invested capital of a stock fire insurance company will comprise the following: (a) Gross assets at the close of the previous year. (b) Plus: Excess of cost price of real estate and securities over book value. (The result will be the gross assets on the basis of actual cost.) (c) Minus: (1) Excess of market value of real estate and securities over book value. (2) Excess of book value of real estate and securities over cost price. (The result will be the gross assets on the basis of actual cost.) (d) Minus: Amounts reclaimable by the insured on perpetual policies. (e) Minus: Depreciation computed on the cost of the buildings from the date of acquisition to the beginning of the taxable year. (/) Plus or minus: Changes in invested capital during the year. as follows : Additions : (1) By sale of capital stock for cash or other assets; (2) By payment of assessments or surplus by stock- holders. Deductions : (1) By payment of cash dividends out of earnings of prior years, or the first ('() days of the taxable year: (2) By payment of Federal income and profits taxes. (ff) Minus: Percentage of inadmissible assets computed in ac- cordajice with section 12 STOCK MARINE INSURANCE COMPANIES. 29. Net income and invested capital. The net income and invested capital of stock marine insurance* companies will be determined in the same manner as arc the net income and invested capital of stock fire insurance companies. STOCK CASUALTY COMPANIES. 30. Basis of return. The rule concerning the use of State reports and the requirement that returns be made upon an accrual basis are the same as in the case of stock fire insurance companies. See paragraph 15. 31. Readjustment of returns. Any company whose basis is changed in 1918 to an accrual basis will be required, in case the duplication or omission of items arising through such change in basis results in a material change in tax imposed, to readjust its return for the year 1917 in accordance with the basis used in 1918. If, in the opinion of the Commissioner, such change of basis indicates that the return for the year 1916 did not reflect the true income, an amended return for that year also will be required. 32. Gross income. The premium income of casualty or miscella- neous insurance companies is reported to the State insurance officials on the same basis as that of fire insurance companies ; in other words, upon a written basis. The amount of premiums written, but not re- ceived by the home office, is reported somewhat differently in the ca>e of casualty companies than in the case of fire companies. In fire in- surance companies the amounts are reported as agents' balances and in miscellaneous companies they are reported as premiums in the course of collection. The items, however, are of precisely the same character. Written premium income as shown in the report to the insurance commissioner includes: (a) Gross premiums written during the year, including premiums in the hands of agents or uncollected at the end of the year: (b) A deduction for any premiums uncollected at the end of the preceding year which are not paid for during the year. A~ in the case of fire insurance companies net premiums writ- ten, as shown in the State reports, constitute and clearly reflect the accrued or earned premium income. 33. Policy fees required or represented by application. Item 21. Policy fees are sometimes required with the application for insurance. Generally if the policy is subsequently not taken, the policy fee will he forfeited and retained by the agent. When disbursed this amount is shown in item '2-\ of disbursements and allowed as an expense of doing business in the return of annual net income. This item, therefore, is properly included in gross income. 13 34. Compensation for inspections. Inspections constitute a service rendered to the insured by the company. Where such service is com- pensated for, the compensation constitutes income and will be so reported under this item. 35. Miscellaneous income. Other items of income will be treated in accordance with the regulations applicable to corporations gen- erally. 36. Payments on policies. Item 17. Under this heading the total of item 17, page 3 of the annual statement, will be deducted. Since the unpaid losses and claims are included in the total reserves, the net addition to which is deducted from gross income, no accrued losses will be permitted as a deduction from gross income under this item. 37. Addition to reserve funds, items 20 and 26. Items -20 and 26 on the liability page are held to be reserve funds required by law or by the insurance commissioners of the various States, pursuant to the authority vested in them b} T statute. The net addition to these items is therefore deductible from gross income. 38. Net addition to reserve funds. The amount deductible as net ad- dition to reserve funds is the excess of the total reserve funds as required by law at the end of the taxable year, over the total of such reserve funds at the beginning of the year, regardless of the fact that daring the year the reserve funds are increased on account of new business and decreased when policies mature, lapse, or are surrendered. 39. Health and accident companies.- A law requiring casualty com- panies to establish certain reserves is to be construed as applying to companies issuing exclusively health and accident policies, unless the terms of the law are such as to indicate they are not to be included in that term, or unless they are held not to be included in that term by the courts of the jurisdiction in which that law was enacted. 40. Estimated expenses of investigation and adjustment of unpaid claims, item 21. This item i- not considered to constitute a legal re- serve; hence, the net addition thereto is not deductible as net addi- tion to reserve funds. 41. Invested capital. The invested capital of a stock casualty insur- ance company comprises the following: (a) Gross assets at the close of the preceding year. (b) Plus: Excess of cost price of real estate and securities over book value. (The result will be the gross assets on the basis of actual cost.) 14 (r) Minus: (1) Excess of market value of real estate and securities over book value as indicated by items 39 and 40 on page 4 of the annual statement, convention edi- tion; (2) Excess of book value of real estate and securities over cost. (The result will be the gross assets on the basis of actual cost.) () Those companies which require their members to make pre- mium deposits to provide for losses, expenses, and reinsurance reserves. Companies coming within class (a) will be treated in the same manner as stock fire and casualty companies except that their returns will be rendered on a receipts and disbursements basis. Companies coming within class (b) will be treated in the same manner as com- panies coming within class (a) except that additional deductions will be permitted on account of premium deposits written within the tax year returned to policyholders, and that portion of the premium deposits which is retained at the end of the year for payment of losses, expenses, and reinsurance reserves. In determining the amount of premium deposits retained by a mutual fire or mutual casualty insurance company falling within classification (b) for the payment of losses and expenses and reinsur- ance reserves, it is to be presumed that losses and expenses have been paid out of earnings and profits, other than premiums, to the extent of such earnings and profits. 44. Reciprocal insurance exchanges or associations. This class of in- surance companies will be subject to the specific provisions of the law as applied to mutual fire insurance companies and will l>e classified as are the latter companies in accordance with the method of doing business. The returns of such exchanges or associations will be rendered upon a receipts and disbursements basis in accordance with the reports made to the various State insurance departments, unless it can be shown to the satisfaction of the Commissioner that the accrual basis more clearly reflects the income and is the method regu- larly employed in keeping the books of account. MUTUAL MARINE INSURANCE COMPANIES. 45. Special deductions allowed mutual marine insurance companies. Mutual marine insurance companies should include in gross income the gross premiums written by them less amounts paid for reinsur- ance. They may deduct from gross income amounts repaid to policy- 16 holders on account of premiums previously paid by them, together with the interest actually paid upon such amounts between the date of ascertainment and the date of payment thereof. The remainder of the premiums form part of the net income, except to the extent that they are subject to the deductions allowed insurance companies gen- erally and other corporations. Returns will be rendered on a receipts and disbursements basis in accordance with the reports made to the various State insurance departments, unless it be shown to the satis- faction of the Commissioner that the accrual basis more clearly re- flects the income and is the method regularly employed in keeping the books of account. CORPORATIONS ISSUING COMBINATION POLICIES. 46. Corporations issuing combination policies. Corporations which issue combination policies of life, health, and accident insurance on the weekly premium payment plan, continuing for life and not sub- ject to cancellation, may deduct from gross income only such portion of the net addition, not required by law, made within the taxable year to reserve funds, as is needed for the protection of the holders of such combination policies. In general the net addition to any fund espe- cially maintained for the protection of such policyholders may be deducted. The determination by the company of the need for such addition is subject to review by the Commissioner, and the return of income should be accompanied with a full explanation of the basis upon which such fund, and the additions to it, are determined. It is required that the reserves be based upon certain standard and rec- ognized tables of experience covering disability benefits contained in policies issued by this particular class of companies. FOREIGN INSURANCE COMPANIES. 47. Gross income. The gross income of a foreign insurance company or association means its gross income from sources within the United States, including the interest on bonds, notes, or other interest-bear- ing obligations of residents, corporate or otherwise, and dividends from resident corporations. The income from business relating to a foreign country which is transacted by a United States branch or agency of a foreign insurance company or association must be re- turned as gross income. Foreign insurance companies or associa- tions transacting business or having an office in both the continental United States and Porto Rico are not, however, subject to income tax in continental United States upon its income derived from Porto Rico. 48. Income not subject to tax. Dividends on stock and interest on notes of corporations organized in the United States but doing no 17 business and owning no property therein paid to foreign insurance companies or associations are not subject to tax. 49. Income from United States bonds. By virtue of section 4 of the 1 Victory Liberty Loan Act of March 3, 1919, amending section 3 of the Fourth Liberty Bond Act of July 9, 1918, the interest received on and after March 3, 1919, on bonds, notes, and certificates of indebt- edness of the United States and bonds of the War Finance Corpo- ration, -while beneficially owned by a foreign insurance company or association not engaged in business in the United States, is exempt from all income, war profits, and excess profits taxes. 50. Company having agent in United States. A foreign insurance company not licensed in the United States but doing business therein through an agent is liable to tax. 51. Deductions allowed foreign insurance companies. Foreign insur- ance companies are allowed the same deductions from their gross income arising from sources within the United States as are allowed domestic insurance companies to the extent that such deductions are connected with such gross income, with the exception that the in- terest deductible is that proportion of so much of the entire interest paid on the corporate indebtedness as would be deductible if paid by a domestic insurance compam r which the gross income from sources within the United States bears to the total gross income, and that full deduction may be made for taxes imposed by the United States or any of its possessions, or by any State. Territory, or political subdivision thereof, except taxes for local benefits and income, war profits and excess profits taxes. 52. Rate of exchange. In applying a rate of exchange to reduce the statement of a foreign insurance company or association to terms of dollars and cents the current rate of exchange at the end of the taxable year will be used. 53. Computation of tax of foreign insurance companies. Sections 327 and 328 of the Revenue Act of 1918 provide for the computation of the excess profits tax in the case of a foreign corporation based upon the ratio between the lax and net income of representative corpora- tions engaged in a like or similar trade or business. Under this Act. therefore, no question is presented in connection with such tax other than the proper determination of what constitute representative corporations engaged in a like or similar trade or business. For this reason a foreign insurance company or association rendering a return of income on Form 1120, revised, should make no entry of invested capital thereon. . EXEMPTIONS. 54. Mutual insurance companies and like organizations. It is neces- sary to exemption that the income of the company be derived solely 45277 21 3 18 from assessments, dues, and fees collected from members for the sole purpose of meeting losses and expenses. If income is received from other sources, such as cash premiums <>r premium deposits, 4he insur- ance company or association is not exempt, even though its additional income is tax exempt. Income, however, from sources other than those specified does not prevent exemption where its receipt is a mere incident of the business of the company. Thus the receipt of interest upon a working bank balance, or of the proceeds of the sale of badges, office supplies, or equipment, will not defeat the exemption. The same is true of the receipt of interest upon Liberty bonds where they were purchased as a patriotic duty and were afterwards sold. Where, however, such bonds are bought as a permanent investment, the receipt of the interest destroys the exemption. The receipt of what is in substance an entrance fee. charged by a mutual fire insurance company as a condition of membership, does not render the company taxable, although this fee is called a premium. A local exchange or association to insure the owners of automobiles against fire, theft, collision, public liability, and property damage is exempt, since it performs functions of the same character as a mutual fire insurance company and is a like organization within the meaning of the statute. The phrase " of a purely local character " qualifies only "like organizations." An organization of a "purely local character " is one whose business activities are confined to a par- ticular community, place, or district irrespective, however, of political subdivisions. The word " purely intensifies and limits " local," and indicates a clear intention on the part of Congress to exempt from taxation only such " like organizations " as are entirely and un- qualifiedly " local " in their operations. 55. Mutual savings banks. A Massachusetts savings bank otherwise exempt, which establishes an insurance department under the statutes of that State, does not thereby become subject to tax upon the income received by such department. 56. Fraternal beneficiary societies. A fraternal beneficiary society is exempt from tax only if operated under the " lodge system," or for the exclusive benefit of the members of a society so operating. " Op- erating under the lodge system " means carrying on its activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. In order to be exempt it is also necessary that the society have an established system for the payment to its members or their dependents of life, sick, accident, or other benefits. 57. Insurance association incorporated to permit automobile owners to exchange contracts of insurance and indemnity. An insurance associa- tion incorporated for the purpose of permitting automobile owners 19 to exchange contracts of insurance and indemnity without becoming jointly liable as subscribers on any risk, its only source of income be- ing from assessments, dues, and fees collected from members for the sole purpose of meeting expenses, if its operations are confined to a single locality, is a " like organization of a purely local character " within the meaning of section 231 of the Revenue Act of 1918, and is exempt from income taxes. 58. Mutual health and accident associations. Mutual health and acci- dent associations are not " like organizations " and, therefore, are taxable under the Revenue Act of 1918. 59. Travelers' associations. A travelers' association providing for fixed death benefits to the beneficiaries of the members is held to be a mutual life association and not a fraternal beneficial society. Since the law provides for no exemption for mutual associations of this character, they are liable for returns and must pay the tax, if any, shown to be due. 60. Mutual liability insurance company deriving its income in part from premiums. A mutual liability insurance company deriving its in-- come in whole or in part from premiums is not within the class of corporations specifically exempted, and must file a return showing its net income. 61. Proof of exemption. In order to establish its exemption, and thus be relieved of the duty of filing returns of income and paying the tax, it is necessary that every insurance company claiming ex- emption file with the collector of the district in which it is located a copy of its charter and by-laws and an affidavit showing the char- acter of the organization, the purpose for which it was organized, the sources and disposition of its income, whether or not any of its income is credited to surplus or may inure to the benefit of any pri- vate stockholder or individual, and in general all facts relating to its operations which may affect its right to exemption. Upon receipt of the affidavit and other papers by the collector, he will inform the company or association whether or not it is exempt. If, however, the collector be in doubt as to the taxable status of the organization, he shall refer the affidavit and accompanying papers to the Commis- sioner for decision. When a company or association has established its right to exemption it need not thereafter make a return of income or any further showing with respect to its status under the law, unless it changes the character of its organization or operations or the purpose for which it was originally created. Collectors shall keep a list of all exempt corporations, and shall inquire from time to time into their status and ascertain whether or not they are observ- ing the conditions upon which the exemption is predicated. 20 GENERAL PROVISIONS. 62. Net addition to reserve funds of insurance companies. Insurance companies may deduct from gross income not only the net addition to reserves required by express statutory provisions, but also the net addition required by the rules and regulations of State insurance departments when promulgated in the exercise of an appropriate power conferred by statute ; but such reserves do not include assets re- quired to be held for the ordinary running expenses of the business. In the case of assessment insurance companies actual deposits of sums with State or Territory officers, pursuant to law, may be deducted as additions to guaranty or reserve funds. Only reserves peculiar to in- surance companies are to be taken into consideration in computing the net addition to reserve funds required by law. Any insurance com- pany under the law is permitted to make use of the highest reserve called for by any State within which business is done. It is required, however, that any company using the reserve of any State other than its home State as of the end of any year, shall use the reserve required, by the same State as of the beginning of the next succeeding year in determining the deductible net addition to reserve funds. To illus- trate, it is not permissible to compute the net addition to reserve funds upon the requirements of Ohio at the end of one year, and of New York as of the beginning of the following year, it being held that the reserve funds required by the statutes or regulations of thej State of Ohio must be used in both cases. APPENDIX. (21) LIFE COMPANIES. CONVENTION EDITION ANNUAL STATEMENT TO THE Internal Revenue -Bureau, Treasury Department WASHINGTON. D. G Supplemental to Returns of Annual Net Income For the Year Ending December 31, 19 OF THE CONDITION AND AFFAIRS OF THE Organized under the Laws of the State of . .Life Insurance Company . as made to the INSURANCE COMMISSIONER of the STATE OF pursuant to the laws thereof. Incorporated .. Homo Office . Commenced Buf:rirs . Preiident. Secretary- Vice President* Actuary . (23) 24 L CAPITAL STOCK . Amount of Mpiul ptid up in-run. . . Anut at Mr* < 1 p bttuo.) . ------ on of eipiioj during th yw. n. WCOM i original poBeie., without (Uductioa for iiM. 1 . I lor tat j !! applied U pay fm , 1. Toul 1m jreer . premium ! Dirxfcnd. applied lo purchoa. paid-up aJdMou and annui&a. M Cce-deration foe t nlixu iaroln^ Id. I premium, (ia addition lo item. 14, lo. and 17), without deduction ornmiwion. or othee aipana, leaa I . ...for Min- o* OD itaiuah. , 15. Dividend, applied to ahorUn the endowment or premium-paring period, 14 Surrender raluea applied to pay ream] premium., IT Renewal prenmna for deferral I 18. ToUl renewal f 19. Extra premium, for total and permanent c (or bBe$U I.. . ToUl premium income, . 31. (o) Consideration for .upplemenury eontract* ** inrolring lif. n. Diridendi left with tha company lo accumulate at ioure.1, . . . J3. Lodger ataela. other than premium., nceirad from other -orjpanie. for their riaka, 74. Groaa tntereat on mortgage loan*, per Schedule 3, lee. I . , mort^t^oi M^uirrd during 19 Sckodulo C. 2T. Groaa inureat on premium nole, poticr loan, or lieaa, 2J, Groa. intereat oo depoaita in .truu oompani^ and bank.. pwSchedul.E, . jo, Gro. Intereat on other deiiu due the c 40. From KniU' b.lue. preri<,l, durpd off. jr> SkK-ta. per Schnwale P, . Ceo* ioerette, b, adjuatmont, in book rain, of Udgar anaMa,.>i H () Real eaute par Schedule A (t* Tlond.. par Schedule D finclwdwg t . 25 LITE IHSCRAKCE COMPANY III DISBURSEMENTS I. "For dMth daiou (U* I reinnraoe*). t AddltiOM ? *For natured eodcwwenU (ke* I rcenMtraace). I.. . (a) For total aad permanent diaebiljtjr I'rmnaufns wkjtrd during lh4 J*r ..... I I'armeaie made to poUyholdm during tb year. (1) For idditkmal acc:daBtal death becefiu Krt uno-jfit pud (or toM u>d nuturod . For aocuiuee iaolruig life tnnlimimiai .................. Pretuum not* aod bn* roidd by lepee, la I ..................... ra*Vrt.M ..... Surraoder raluee paid IB e*ah or applied in liquidation of loan* or ooUt ' ....... Surrender rahiem applied to pay IMW pnmuw >'HM Income No. 6) . ; . t ..... ..... _ ..... To pay raoewel premium (** Income No. l> ........ _____________ Surrender Talue* applied U> purchase paid-up Lo*uruv_ uid uutuiti (AM locom* No. 6) I>ivido4i pud to poUcrfaoldm in cMa. or appUwl in liqutdatioo of lou* or t>ol . . . Dividend* tpphsd to pay no***] pnoiums {M locomc No. 14) ......... Dmdvnd* tppbd bo hortaa toe eodovneat or praauum-papng period pli*d to pwchaw pud-up dditiou 4Qtl ut&uiU (* lacom* No. A) ... iUi tb conpuir tu KeunuUU at mlrt (M Incon* No. 22) .... (Total p*M poticyholdart. I ..... o asd r lagal 17. Paid for clainu on nipploualar]r contncU n II. Diridaodj and inUrat thereon held en depcait mrrodar*i durinj tb jw 19. Paid itocktoldan for inUrat or div>dd. ......... .. , Firat TMT'C pncaiuaw. I ________ .......... .. ...... ; KMwd premium, I. Anaiutiai ((.riginaU, I .............................. , (Kowal). I. 21. Comautad nMwal eoouniMiou .......... .... 23. CompMattioo of autiAfan and ag*uU Dot paid by coi&masicn for aarncM ii 33. jLfatMj aufwo-iaiOD ann'ior (except cc>mpriMUa for home oflic* npcr- 24. Brnch office expecaat, indudiD( aalarie* of man^ar and clarka not taduded in IMO 22 iS. Uadkalautmaan'fen.l ............ _ ...... __ ......... ; upctiofi of riaki, t ....... :. SaJanat and all other compflBMUon of office, directon. mutate, aed Home Ofik* apk>ya 27. Beat including I... .................... for company 1 * occupancy o! JUowo t^uildinp. IM| ............ retaivad unvar eublMM . ......... .... ......... ulcpheae, and axprvM, $ ..... .. .................... ; axchanjo, t.. 25. UaJ upiflM not iaeludd in Itaco IS ........ tO. Furniture, &xtura. ars RaalEeUU.pai Schedule A ............. I <> Boode par Schedule D ttodudiDff I --------- for aaeoct*- taUoa of pramhana) .............. Slocka. par SefceduJe D ............... 49. TotAl Dl*MTUUtEKT ................ 10. -1 .-,277 21- 2G AimOAt STATHftrTT Or THI IV LEDGER ASSETS .1. Cook rlut ra on ml WUU, pr Sd^duk 8. fin* IUM I.- . Otlur Hun Tint li 3. Lor Mrund hy plodgi of Vndi to.-kft, or ollur rolUuvftl. p*r Srhdutc C . . . . , . 4. L>M . Book hi of boo*. 8 ; , 7. Cuh in company'* office . . . . - - 8. DfKiu in mm compuiioi ud Uiiki no* on Jhurwt. pw ScT^iulo . . . DfM^lt in ln-t compftou* r.d lul> on tileron, par SehJul E . . . . .-.:.. - II. ___ : . 1- 1 12. . T^TAI LEDOIB Awrr*, AS rn BALAKCB off FAOK. 3 , . llOK-UDGER ASSETS 15. Inuntt do. I . .nd ircKod. t : on colUUnl lou, p* 6Vkiol C. Put I A clu, I..'..... and nocnud. 8 V on premium nou4, policr IOUM, or li-r*. 17. Inural d, Jind ceruod. I 20. KiU du, t ud *nl, t 4. 22. Market vliw of r.I .rtu w ftoot J, py8dudulA 23. Mftri.et rln (nvf >--WJi A.? tnlo-Mf in IMQ 14) of bonds ud ttocU OMT (ooi valut, p*r Schwlufo D 34. DIM from '.- > .Tinurd "25. Crow j>rmimrn du* nd unreportod* on policie* in forc T)areml 31, 19 OM rrMUruic* prMnium) . '. -Tiinmsi am} . * . . 28. D*d^l lo-aing 29. Nt uoouot of unccUct*d u.d dfcrrd prMnranu 30-. All otlwr MMta (gir itms ud JBfKiaU).. , , 31. . . < 32. ; -. 34. . . . . 35. PBO AMTT . . . . DEDUCT ASSETS MOT ADMITTED IT Suppte. t*-Aioo-rT prinud tutUr t : furaiu*^ fixtan^ kad Mf. < M. CommuUd coaunMiom, J - - ; -onu' d .wxTuad iM.vwtOBbo6d.ii. dVmult . Book rlu of Udw MMto r* a*rtM ntw, T: AMOTTVD AMVTI f I1 OU*BJ pclicHi in tort, on lh. 31M d.r o( by tb ulto of BOTI^IIT ..-.d r.Ui o( uuron. T duo (or told tr.d porouncnt diMbtlitr botiefiu. In " B< r r" upoo ihich jmndr r.lu, nuj >.. 12. Cuuao for IWlh U*ef du< 3. Cluw for IVili LovMC^n procvM o( ftdju < Cl'o for Dull LOOM noorid for wtueh oo proofc hr. bwi r ft. Rrwr*. forliol Df*lh LjoMi lacojrtd but unrtporUd, . ' t CUin tot Ulmd Endowmuu da. ud upud. T nm for Dotl Louoi tnd otk> PO^T nun. miiud. C\um for loul od iMnninml dmbffitr bomTiU, I ; d for ulditioBd c [I.. l IM. nd u^iud on Annuity Chin in'olnn| li/ coi SO. Tirr*t Poucr Ct-uM> Jl llu. nd uupud on oupplwUDUr; contrut* n mrolrim lifo ronlinfonolK S3 I'rtcniuin. n*id ui MiruK.. iurluduiff urr*idr Toluw M ppUwi. . . 24. I'ftflorMd iBUfool *nd root pud in druK., . . ~ du. to iU on prnniui iioui lia pud. o ofonu. du. or kccruod. 5 SiUrm riu. oV. inpons. Wl nd tecounu duo or ceni! d 4.m*;J anwviint h(Wur p*f ibl. for FoJ^d Situ. wwl olhor U\M bMd upoiwtho bunnoM of Uio JMr of Out. o 31 AdrtArM byouVmor otkow oa ccoiiiit of *pono of orfftnuotjoa or ctlorviM a:. BorWMd *>007. 1 , tnd inurM llo. ... t dirio.00 to'uocklioUn 34 Iii. ..I., .h or oth> prefiu du. nobrMd4r> bvhi<)ii<( JIOH continonl on ptrmMtt of ouuumlinc pul .pportxKwd. |oviion.ll7 M,frt..nod cikuUlcd dcrliral. ot Md urulinf ipportimunwi upon J^tr ; :W^J policio. not K)udJ In lu M. . U Koiorn. .p id. or lurph. fund* not uKludcd .bond titlo f..i whit purpoo di jf > 28 29 : i ii I I ii Si 1 rjjj 1*1 . Ml Md J i" Si! 1 i H li, j&L ; i c $!:- LL ? s ;* i i i lifi ! iy i 30 1 ! | JJj 1 . . '! f Hi* ib m 1 a !i 1 1 . | f ] j 1 1 _ U ijJU B 5 ? 5 s i . i 1 i i 3 i 31 jS' il 5CHSDOTJI I-flTUJSTKB ASSETS " SJSnv/nf flff (-r.rf ~i 1-> >ir '** " *" 1 "''* ' 1 '* >tad mu intact, on Oit tilt ilau of Dfotnbv. 19 . nMek It not mttnd on any ath*r Adkte rcVLnOM TBt'tk J N .. ADDRMB i Tcffil., t STOCK. FIRE. AND MARINE COMPANIES-CONVENTION EDITION ANNUAL STATEMENT TO THE Internal Revenue Bureau, Treasury Department WASHINGTON. D. C. Supplemental to Returns of Annual Net Income. For the Year Ending December 31, 19 OF THE CONDITION AND AFFAIRS OF THE Insurance Company Organized -under the Laws of the State of as made to the INSURANCE COMMISSIONER of the STATE OF . pursuant. to the laws thereof. Home Office -_, President. Secretary , , ... . . Vice President Treasurer __-__ .. . i -_ j i (33) 1 UmCAL ITATIKIirr 01 THI ,,. I CAPITAL STOCK 1 n-DICOMK in v AJTV m wa 6. Dil: *. Onm tounn oo mortgip loui>. pv Sdwiul. B, ! 1 xcravl inural on 10. Onm mural on toU.urJ loin, por %i~!ui. C 41. Gron interest on bonds ud diridendi on ttocla Wi ft . MenMd inurat on 11. Cr. iatr.t oo d,pou b UM oempKiM. uxi buito, p Scirful. ..... . . . 11. Oroi. interat from >11 otbv ouot (pr. iun. ud uuonu): 1*. - 1U own buUdtcp, ! 1.. , iiuml on inouolthnoa, p> 3cniul. A . . . J&. From odur MuroM (fmi\ea*utd unooau): l n )---- , , it, . ...i - >> iKn^inlUbUiti.. H. From icviu' Ulun. pnioolj tlxrpd of 8t. Bomnwd 000*7 (fw)X , -..,.,- ... 91 Groti profit on M} or maturity of Ud|v MMM, n& : U) EW ouu, pit Uudiu. A . 0) Rood., p. SoMid. D , . . . . fe) Stncb, f- MxhJ. D . . 27. Ont inrnin, by xtjotoml, t kook n)n of bdpr i . rt.: (.' H-1-uu.p^S.lWul.i O) Boo*, po Scbdob D - . . , (.) 84 7 oolyj . I>U nnrrior7 .o.: U J Uin* o! (aid m(u>jKilrripuoi,> . Ail. btbec* cirri o ,, '(,). u H=4 Oftio bj Diuud 3UU. BnMk (r.) . -: Mocfc.1 lo urip k<*tar. l_ IT. Ore. oWnm. kj i U) Rl M [- Sin s:l_M.' l_uc_i ropmwUnc !___ wriu-i prior to Octobor 1, 1 1 10. Bill. roc.ir.bl., ukn for Burin, ud inUnd ridu 11. Bffl.roc-rJ^^uk.nforSr.ri.k.l . . 11, Otlur Udj *. TU- _ ^ , , .14. , . u. It. Toui. Luon Aam, urn BAUXO o> PAOI J NON-LEDGER ASSETS 17. lotarwt du., t ind ftoerood, t on morlf^v, ptr SchwluJo B . . . , 18. InUmt duo. I uid ctnid, 1 on borMi. pr Schohil. D put 1 . . 19 InUrot don, I _ ,.....n M. O.OM Aum DEDUCT ASSETS NOT ADMITTED >l. Conpuij'. rtorkovDod, I ; lo-o. on 8 , K. Suppli, prinlod m.u ud il.liouorj 11. r-roilur., n>tn> ud itlm 14. A|nto' baUnoH, rvpnMfltiog bniinoa written prior to October 1, 1* U. Bib ronrr.hu, put diu. uli for ourine, inland ud fin rki $5. E>oofbiU.rK*irul., notputdu.. ukn ( nr. rwi. OT It. Bmd pcBiua_ U_r-)n . M. UMJI. on pononAl Meuritj. indonod or not 17. Ormim ud nootwd burnt on bond, in dalult IS Mukot Tih of >pj.l dopotiu in .. -. of comuondini lubilitM., f, ptcU t^ail Khlul. 39. Book T_|M of r-J Mt.t. orr ourkot yd . 40. Book nlu of bond, and .lock. OYV nurkM T^U. . . 41. Book r_o. of othor bdpr OMOU onr turkot nhK " 43. TOTAL J 37 DfSUSANCE COMPANY V-LIABttrlTES. 1. Oral lc*ee *djueUd *nd lp*id: to) Doe . , 3. Groat cUim. for \omct in j,mc*m of .vdjuilinmt or in mpauM (plot tmtcr*, t. . fin aad S marine aaJ i&Und, forloa**. incurred prior to and of year of nUtment, of vbicb no notiM bJ than bean reti*d) . OroM dun for IOM nailed 4. TOTAL - . . 6. Deduct mMuraoc* a. p*> Seoedul* E, column. (3) ind (4) fl. Hot amount of unpaid loeM and claimi 7. GrOM premiun-nfl^ reiaurnce)r(v<>ived ..nd i"ee*iTabI* upon ill u.itpird;lr riaka; un*n>.d prtouunM pr notpituUtioii pijte 8, oohuna Cf . . . . r . ORM prtenoiiM (.(w rriiuunnc.?^ (cub acd bOb) rcc-Wrvd utd nosiT..I>. upon kll un*rp*rd t^ftfitian risks, $ , ; uitramed premium. (Jifty per ceatlj 9. OTOM prvmiatiu OeM *r*HMur.u.c) (cMb tad bills) netivtA ..ad rtccinbU upon til uD*pird ri*k, f ,. ;oM.u.Md pnaintiM (, .., pr cictll 10. ToUl uaMjTuid premiunu M compuUd .vbovt . % . 11. Amount n*l*iiut>l by Uw insurtd on prptu.J firt, mMrMiw policiw, being pcrc.M.tof tlb* prnu'um or depawt reo-jired . 13. Net pr*D*iura rtaerre ad 11 otlitr !.> iliti.*, exerpt ctpiul. nadw th life imunnc* or inj otlwr ip^dii department - . 13. Unued fc.vUnc.jn of bill* and iKitM included in aJmilUthch.^du6oraMed ...,.....,,., 10. Find, held ur.dw nb.nr.uw. Umtw. . ...,,. 31. Due aad to b*otM du. for .omnrad mootj ......,.., ,.. 33. All othar UabUiUftt, TU: .... ___ ^. ; . . U. ' TOTAL Awomrr or * M. Cbpital paid ap 37. Sa-rplw 0*W all JUbCitie. . , . Svplu. a* r . TOTAL 38 !u. per SdMduI* N", (7. Crce* interat bom .11 oiler sources (p.. items^ud s per Schedule A, .,....:... 94. From AfesiU' bejsnces prsnously chsr^ed off, 97. Bemnrsd sjr tpossll IM. Cross prott on ssb or nutunty of ]ed(n isseu <) Kssl EsUU, pst Schedule A, . . <1) Beeub. per Schedule D, . . . . . M Sucks, pe' Schedule D, ... >. Gross UKT.SSS b, sd,u.t,. i. beot^slosol Is) Bssl EsUU, per Schedule A,* . . O) Bood.. pe. Schedule. D. . . . . (,) Stock., psr Schedule D, . . . .. 40. TOTAL Ivoosn, 45 Amou.il bffrocfel forwd. - DISBURSEMENTS _J,Ay.l. .' 2. Hull*. .;.'.... 1. Liibilitv, . ' . i . . . 4 Knrim.o comp.OMU, . . Mlit7. ' Sonlr, 7. PUl* fl.M < Swun 1...J.I, . . ! . . BurfU., .mi tb.'fl. . . . Id Crrfit. . . . . . ' . . II Sprtokl.r, 13 Till. is. Fi7h.ri. 14 Auto .nd teUM pr .pmr TOT.U. IS JoTMtiftiion and tdjuttnwol of ctaim. m. 4 AcadrM. I , Ilrelil, t LubihlT. I.. M r,d.i.ir. I ; SMT. ,J Ru !-.. I su.boj, -" Si'SS 7 'c*, 32 Flwk: S . t" 33. Pi.lK.r fen r* tuned b> (enU.. 34. CmnyiorM er brckrraje. 1 tmount rtcTd on return premiuoM ft&d mturar* for tb fol 2S. Ar tl Ht. I : H.dtk, t U.bihtr J , Surely. I , PUU gU-, I _ ; StMtn boder, * M^'wxT Credit I taWte ' TilU j. nr.i-d. *,..._ -ISS.tieri !sr- . . Ju ^ 39 Sftbnw, ff**. IDd .11 clhcr ccmpaMlioa of officcn. dinetov. lnutM. uid hua* cffic* ttuplontt ;o Sl.n tr.rtUnf, Dd .11 other cip*n*c of iBto Dot pud by raauiUMioBi, . V , . .32. 'uipMtton. (otlirr Uun mrdird ad tUiOi 1 . . . 93. Htnti, inducing 3 : for eopaj'i occMpwxjr of itj own boildi&fi 35. T. r..l ! . ... 36. St.tt lute* on premium*, ' - 27. IMUMDC* DptliBDtUcriMM ud Itm, 99. FrdTBl forpor.tjofi I u otif r to&n iacomc ud profiu Ux .1 ...-..' I 40. Fldml u,roo. ud profit* u< 43. L
    ) 4. 'nlMvt no borrowrd wooey, . W Uni lorn M >4b or lint; o( UJjw i^Jb, (4) Kl -uu p Ud>]' x (i) Slocta.pw6D. M. Or dnM. ry <4UM1. o~t nlM I ( I ~1 BUU. pr SckduU A. . . (t) Bwb. p SaJ^. D, It) 84>ek>, p Ml>l> D, . . 46 4 HfmOAt STATtMlNT Of tttt IV-LEDGER ASSETS . Book Taloo of rot! teCal* Oo. _ nrxnhnnm) per Schedule A loan, on red eUte, per Schedule B. ftnt beta, Other thu Cnt, by pledf. of 'bondi, .locb, or other collateral., per Schedule C, company', oflot, , p Schedule N . . 7. Dopoaiui in but eompuie. and bub on inten.1, per Schedule N, . . . ft. Premium, in coorae of collection, TU: 0. Accident, 0. He!th 1. Utility, Workmen'. oompenaaUoo, Fidelity Steam boiler, BurrlAry and tWt, . . . Credit , Title Flylel Automobile Bad team, property Workmen'. coDeelin, Lin Mock, . . . Bill. rc.TT.bU, . . OthwIedicronU. Ti> 31. Lnoza AMBTV, AI not BALAXCX on AOI 3, , KON-LEDGER ASSETS 82. Intrreetdve, "--- _ nd accrued, e on mortgage*, per Schedule B, . . . U. interest due, $. tod wcrued, t .._- -. on bond., |-er Schwlule D, pert I, . . 34. InlrrcMdtM, 9 >- ud Accrued, 1.^ on eou.ter.1 loans, per Schedule C, part 1 Jj, ; 4ff. , , ... M. Rent, due, I and accrued, I _. w company 1 ! property or lea*., . , . S. laarketTalue of real Hate orer book Talua. per Schedule A, 40. Itarkel Talue (not including interot in Item 33) ol bond, and auek. onr book Tahie. per Schedule D, . 41. Other oonledgw aea, Til.: 43. 44. Onoa. Arr> Deduct Atxl. Not Admitted 45. Conpany'. .toek owned, I ; loan, on I 1 W. Bill. reeeiTable 47. rVraitur. and btuna, 48. SopphW, prinUd Batter, and Mationery 49. Loan, on panonal pecurity, Indoned or not, 50. Prunuicom of ceDecticenVin prior to October I, !._ 51. Orer-du* and aecned iflteravt on bond, in defatflt, , 12. Market nlue-of .pecial depoaiu in aice> of eomqnidinf li.Uliliee, par Special Depoail Schedule, pa(o 10, _ 83. Book Talue of real Mt.Le over market Talue I 54. Book nine ol bond, and atodoj orer mark.t nlu U. Book Talue of other ledger aweta onr markat nine, _ _.. . 47 V-LIABIUTIES I. Lceee. ind chine- I > It > t 2. Accident. J. Reeltb, 4. Fidelity f. Plate (Uae, . . . 4. Burglarr and tbeft. t. Credit (fyrSoVT"'). 1C. Sprinkler -II. Title. . . 14. Wcrkam'e collective, 15. U>e Mock. . l TOTAL., 17. Special reeerre for unpaid li.bil.ir ud . J. Special reeerre f r credit loan on pobctae eipmng in October, November, and December. 19 b per era: ; eroe. premiuM received on Mid pc-Uciee. leee I . paid during eaid vocitbe oo loaeei under eaui pouciee, 19. Special reecrre for eccrued lnaiei oo credit policies in fore. Dccereber 31, 19 being //(/ per cent of , eenwd preauuBM oo eeid poociee, 20. TOTAL tTr*iD ciAUta, . . 21. Eelnueled expense cf mrr.tigation end .djueunent of unpaid deiffia 22 Accident, I rUelth, I , Fid.lilr, I .....; Surety. 23 PUlefJee.. I Steam b. .1: ! Hurjlery end tbefl. !...._ .Credit. 24- Sprint'..- 1 Qlk I Fl.vwl.eel. 'I . -^^ '. . TOTAL VNrri' pmcHiiits AI CBOWM >T ucArrrviATion, FAOI ft ' 27. Coewbteeom. broketege, a&d otaer charge, due or to become doe to egeota or broken co pobcice effective oo or after October I, 19. . vu * Accident. I : . IleJlk, I Li.bitT. !...._ ~ I 2. Fidcblj. I Stirelr. I Plate (laaa, I - _ ; 94eu> boiler. ..... 3o tatter'!**' Credit. I ., Sprinkler, I .Title, I II. Flywheel. I f -f'r-- 1 : "CSS. I ;Lifeetock. ' I.-.. 32 SelariM. rente, iipan.ee. bill., ecconnu, feee. etc., dee or eccrued M Eetimated enwunt bcr..Jler per.bk for Federal, Stele, and otber lain beeed upon UK bueuuee of tbe rear of tiia uatemanl (Feiual) . Ue Soo* enHKinl kervafter pefeble for Federal iooone tana eeperate fron ell other tajtea CSi.te and other) ...'..... 34. DiriileBeb dectocd end unpaid to etockboldef*, t - to pofcjfcolden, I ._ ^ , JS Doe end to become due for bomxred mot-;- ...,,......'.. M iMereet dee or aonnell, . . . . . ^/ J7. Reur.nni.iea., ' i J iiannin:i. .....' M. Otker Itobilitiee, **.: : 4 . M 41. TOTAL atoctft or ALL UAaiuriu, I . Cepiul eeteell; paid up a ceen, M Surplu. ne ell lielilitiea. H. SuflJu. a. >-.). pcUjhOdere, .... . ' TOTH, 48 p H - ip < ! i I ! 52 8TATIMIRT OF THS SCHKDULB K Stioutnf aU Expenditure* in Connection with Mattfrt Before LrfblotiiM Bodttt, Offloen, or Departmenti of Government Durlnf 19.. TIXUT or riir OHAttOM riJIIKI ADDITIONAL COPIES OF THIS PVRUCATJON MAY BE PROCURED FROM THE SUPERINTENDENT OF DOCUMENTS GOVERNMENT PRINTING OFFICE WASHINGTON, D. C. AT 10 CENTS PER COPY BULLETIN 'H INCOME TAX RULINGS PECULIAR TO INSURANCE COMPANIES. ERRATA SLIP. PAGE 11, PARAGRAPH 28, SHOULD READ AS FOLLOWS: 28. Invested capital of stock fire insurance companies. The invested capital of a stock fire insurance company within the meaning of the statute is the capital paid in by the stockholders, the surplus and un- divided profits of prior years remaining in the business at the close of the previous year, and the unearned premium reserve, less the defined deduction for inadmissible assets and such further adjust- ments as are contemplated by the statute. The computation of in- vested capital will be based upon the annual statement rendered to the insurance department at the close of the previous year. Generally speaking, the invested capital of a stock fire insurance company will comprise the following: (a) Gross assets at the close of the previous year. (6) Plus: Excess of cost price of real estate and securities over book value. (The result will be the gross assets on the basis of actual cost.) or (c) Minus: (1) Excess of market value of real estate and securities over book value. (2) Excess of book value of real estate and securities over cost price. The result will be the gross assets on the basis of actual cost. (d) Minus: (1) Net amount of unpaid losses and claims less reserve for unreported losses; (2) Amounts reclaimable by the insured on perpetual policies ; 6136U 21 (d) Minus Continued. (3) Unused balances of bills and notes included in ad- mitted assets taken in advance of premiums on open marine and inland policies or otherwise, returnable on settlement; (4) Interest, salaries and rents due or accrued; (5) Estimated amount hereafter payable for all taxes other than Federal income and profits tax<>>: (6) Contingent commissions or other charges due or ac- / crued ; (7) Funds held under reinsurance treaties ; (8) Amounts due and to become due for borrowed money. (e) Minus: Depreciation computed on the cost of the buildings from the date of acquisition to the beginning of the taxable year. (/) .Plus or minus: Changes in invested capital during the year, as follows: Additions: (1) By sale of capital stock for cash or other assets; (2) By payment of assessments or surplus by stock- holders. Deductions : (1) By payment of cash dividends out of earnings of prior years, or the first 60 days of the taxable year; (2) By proportionate part of Federal income and profits taxes due and payable. (g) Minus: Percentage of inadmissible assets computed in ac- cordance with section 326 (c). PAGE 13, PARAGRAPH 41, SHOULD READ AS FOLLOWS: 41. Invested capital. The invested capital of a stock casualty insur- ance company comprises the following : (a) Gross assets at the close of the preceding year. (6) Plus: Excess of cost price of real estate and securities over book value. (The result will be the gross assets on the basis of actual cost.) or (c) Minus: (1) Excess of market value of real estate and securities over book value as indicated by items 39 and 40 on page 4 of the annual statement, convention edition ; (2) Excess of book value of real estate and securities over cost. The result will be the gross assets on the basis of actual cost. (d) Minus: (1) Estimated expenses of investigation and adjustment of unpaid claims ; (2) Commissions, brokerage, and other charges due, or to become due, to agents or brokers ; (3) Salaries, rents, expense bills, etc., due or accrued; (4) Estimated amount hereafter payable for taxes (ex- clusive of Federal income and profits taxes) ; (5) Amounts due or to become due for borrowed money; (6) Interest due or accrued ; (7) Returned premiums and reinsurance. (e) Minus: Depreciation computed on the cost of buildings from the date of acquisition to the beginning of the taxable year. (/) Plus or minus: Changes in invested capital during the year, computed in accordance with the regulations applicable to corporations in general, as follows : Additions : (1) By sale of capital stock for cash or other assets; (2) By payment of assessments or surplus by stock- holders. Deductions : (3) By payment of cash dividends out of the earnings of previous years or the first 60 days of the taxable year; (4) By proportionate part of Federal income and profits taxes due and payable. (g) Minus: Inadmissible assets computed in accordance with sec- tion 326 (c). WASHINGTON : GOVERNMHNT PRINTING OFTICr : 11 A A 000055768 6