~^~~ 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)

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;

(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.

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.)
(<?) Minus: Any excess of book value of assets over cost value.

(The result will be the total assets on the basis of actual cost.)

(d) Minus: Items 7. 8, '>. >. 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.

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

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-

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.)

(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.

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.)

(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.)
(</) 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;

Salaries, rents, expense bills, etc., due or accrued;

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;

(T) Returned premiums and reinsurance.
(< ') Minns: Depreciation, computed on the cost of buildings from

the date of acquisition to the beginning of the taxable

year.
(/) Minus : Inadmissible assets computed in accordance with

section 326 (c).
(ff) 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 CO days of the
taxable year;

(4) By payment of Federal income and profits taxes.
42. Computation of invested capital. In view of the fact that the va-
rious State laws differ in regard to the computation of the unpaid
claims reserve of stock casualty insurance companies, the computa-
tion of invested capital as outlined above must be based upon the
same annual statement upon which the net addition to reserve funds
is computed.

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) . Mutual insurance companies (other than
mutual life and mutual marine insurance companies) will be divided
into two classes:

(a) Those whose premium income consists of assessments, dues
and fees, or stipulated cash premiums;

(l>) 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-

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

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

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

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)

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 .

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 <MO IMOIB* No. 15)
Dividend* f>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 an<l traraiing oxpaoftat of iup>n'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<t aafaa ...........

Jl. Rpain aad MpuaM (other ibao taxet) on real etuu . .
$2. Tax oa raal ettaU ..............

13. State UM on pnntuM ............

34. Iwx-a&c* department licaue* and f' .......

i5. All ether IKOM, fe, aad laxee ^ir iuu aad amouau) :

19. Federal corporatioo tax other than tocom aad pro Ju tax .

37. Federal income and profit*

j*. _______________

W Ottw iHbufMDMU %ive

40. ...____...... ____ , m

41. -- _

42. --- _

43. ._. ___ ___

44. AcMU'UlaM-charff

W. Borrowed mooej repaid (TM) ......... ;

48- loteran on borrowed oay - . .......... .

437. Oron IOM M. eale or Baturity of led<er aiMU, via:

U) Real Eetole, par Schedule A ......... ... 1

() Boadi. par Schedule D .....

U) Stock., par Schedule D ...............

4J. Groai <irrni by d)utoi in book TehK of Udgtr a^eU. TU

U> RaalEeUU.pai Schedule A ............. I

<> Boode par Schedule D ttodudiDff I --------- for aaeoct*-

taUoa of pramhana) ..............

<c> Slocka. par SefceduJe D ...............

49. TotAl Dl*MTUUtEKT ................

10.

-1 .-,277 21-

AimOAt STATHftrTT Or THI
IV LEDGER ASSETS

.1. Cook rlut <J r*l Mt*I () 1 -i } ^ ' i \

1. Uartcig k>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<u4 to pouThoUnon tuiicocnpftny'apoIkMi UMfnod uc'-lli'^t!

S Premium* Mm on polio* in fort*, of tikh * . U for firl T~r I pr<oiwn> .

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

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 '.- <on.pwu for lomat or cli&M on policiat of thu cooOq>> .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' <lbtt b*Uoci, jm.*. *

40. LMM oc pmWud Mcuritj .Ddond or not. 1 v ; biU r*.*r.Wi r ..

42. O*rdut-J>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!

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 <d drforrcd prMuun.

t, doilomd on or ipponioiMd to .^.Ji.iJ.ntI pobrw p.y.11. to nobrrholdor. to nd inrbduif laonib)

It whrtl. ,-otilmf ant upon th pormcnl iif mptl proBUWM or o

_..., . .

. M> 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 .bo<o IjTir. iumt .11 J .nounu xponlol; >nd titlo f..i whit purpoo di jf >

rjjj

1*1 .

J i"

Si!

li,

j&L

;

$!:-

s ;*

lifi

JJj

Hi*

1 .

]

ijJU

1
i

jS'

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
<uut wktdt it not inciudtd in t\t financial ttaUinxnt far the ytar 13

! !

!|-

l j !

i
i

!=
1

IIP

i
i

k, SOLD, REDEEMED, or othaw

K
1

i
i

i!i
f

1
i

3
i

iii

9TATWTT OF THV

SCHEDULE K
SltotuMj all Etpenditurct in Connection with .Vaiten Effort Ltfitlotii* Bodiet, CfHecrt, or Department! of Government Durinf If

..,.

UfH

"VIST

"KXSK&

fX>rcVLnOM TBt'tk J N

ADDRMB

Tcffil.,

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

n-DICOMK

v AJTV m

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

)---- , ,

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 - . . ,

(.) 8<ockMr SeihJ. D ...,, ,

* .'

Lmouat M
t4teMi

JlMfer

iliiait

rwd.

- i

nstnujfci COMPACT

DISBURSEMENTS

1. 1 in Atul momi. pri f^ftaim. tm fc '!. fa MT.
riMudfikv |.__

TOTAL (I u>4 7 oolyj

. I>U nnrrior7 .o.:
U J Uin* o! (aid m<a

U) SUu, C. ,ul7 md Uiiuird

Ic) IV.

(A Rr. P.1T.J ^J SJr^, r<p. .

U A4nrlM>(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 [- S<hl J. A
Ol Bb. pv SduJiU D

uvnu. rrATiMutT or nn

TV LEDGIK ASSETS
I. Book nhu rf ml <Ute (!_ (... --------------- ncionbranc.u, fm Sokriul. A ...

. lo~. 00 rlUU.p8d.hUB.Bl ! .-<, -------- ............. ; olh. 0>in

s:l_M.<irWbjH**otbooV.lo^<*oth.eoU.t-^,p.r8eMd.C

4. BonkTtlu.ofboodB.8..-. , udploek.. I .pv&o-WwUD

(. CWiioeo.pMy'.ofot. ^ I

J. Dopoju in lru.1 compui.. ud buk. on inUrot. p Sehodid. 1* . .

i flgont.' hiliiMoj rirrM.TninVii.inw. Trr11t.li m^riiiiin In "rTrriir 1, Iff

. _{>' 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. , .

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<l tfcrati, I on colUtonl lo.i_, por ScboiluUC, put 1

30. InUrwt do*, t .nd wcruJ, I., on oth MHt (fir. itBU ud unounU)

J5. ,. . ~__- '

. RuJ., I udKcrtiod.l oncoBnuj'ti-op.tjrorl.-* . . .

M. krktt T_U. (nof i-.'Winy tMlrrr. in itm 18) of bond, fend Mock* owr loor to/tu, por Scaodal* I>

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

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 aJmilU<d MMU, Ukea in tdvu.c* nf prtnuiuiiM on open ourine ud inland

poliOM or otdWwiM, rcturoable on Mttlemmt, DO. included in it*ma S and 9 *bovo

^^^^^f^M^^M^^Uml^mfni^a^ad^Morim^\^ntH^

II. !*iUrtt du* or accnied, iftcludioj f on borrowtd monej

W. Di-ndwxU decUr-jd aaJ unpaid to itockfcoUlfrt, $ .. to polky holdt-n, |_^^ . . .

17. SftUriw, rcnu, fXp-man, bilb, aocotuiU, fet. etc., dne or accrued

18. btinulKl anumnt bareftr parabU for Federal, Stat*. aad nlhn Uxa baaed upon lln *mtim of tike year of llui *UU-

.mai.l{Fadr...} ...'.". J -

II*. Cbo amount broaf tr pTabU for FedWal inoome taxea aep*rat front all otlw laxei (Suto ud other)

19. O;nt.jy^lcom.ni.oMor(>thch.^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

II 1

3 ;

Si*

i '

* i! i

11 j

liH!

5
!

T o

Ill

{
i

i
i

5CHKDHU X -UNLISTED ASSETS

. or in ivMcn it torf any /nterut, on tht Hit day of Dtnembv. IS , which It not mtend on any otn
and union u not inobuied in Oufnandal italtmcnt for Uu year 7S

IK
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11!

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11

ANKDAl STATEMENT Or TBX

SCHEDUL3 S.
Sliowinf all Expenditure* in Connection with Jilatitn Before LtflilaUie Bodlet, Offloert, or Department! of CoLjrnmen: During 13

..,.

,.r..

"KS*

fSSKJ^!

^RBUW.

KAMI

kMBMi

T0 ,. t .

MISCELLANEOUS STOCK COMPANIES-CONVENTION EDITlOW

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

Organized under the Laws of the State of as made to the

INSURANCE COMMISSIONER of the STATE OF

pursuant to the laws thereof.

Incorporated - Commenced Business - _~ .

Home Office ~ __ , , , , ,

g-"""r Vice Presidents

Trcuurcr ______- ----- . ..- -

(43)

TBI

1-CAPITAJ. STOCK

T JUsovsU of (spits! paid "P i" "'V *

. Ajnoral of ledjersssetslss per Ulsoce'. December 31 o/"~ey"-'

,-of ps.d.up cspitsl dunn the re.r, .

5 Hesllh.

I. li.l.:,i,

7. Workmen'

t Fidelity. . . , - .

9 SurelJ. i' . . s '. j . .
10 Pis* (IMS, ....... .

II. SKsm toiler, . ,.' , ... . . ,

13 . BurtUrr snd lieft,

IJ Crrd.t .' . . .

H. Sprinkler. . . '

IS. Title

1 Flywheel

17. Automobile, end lesns property dsmss;e,

18. 'Workmen tcollccuee, . . . .

19. Livestock

JO. Tor.is, ... . .

31. Policy fees required or represented by spplicslions, . . .

1ft. inspections, .

CX Cross inurcst on mort^sfe losns. , .-r Schedule B, less I

acquired during 19 , . . . .

^4. Croes interest on coLJitereJ losns. per Schedule C, . '.* . .
.locks, less'l

ft. Grot* interest on depoftiu in tnwt comrwruM nd b*t>!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,

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<ol t^~-

44. Adrnuuc.
49. fncuaf.

47. Fjrtilur kad &Ktw.
4ft. Stockbohhn fot uttfrat ?
n. CUr dubimmu l(irt

U. Atwtt' Inkm clurpd otT

M. Bommd BOM? npud l(ra>)

4. 'nlMvt no borrowrd wooey, .
W Uni lorn M >4b or lint; o( UJjw i^Jb,
(4) Kl -uu p Ud>]' x

(i) Slocta.pw6<kM>D.
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, . .

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, _ _.. .

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,

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in tit*

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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.

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.)

(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