Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 62-43

1962-1 C.B. 90

IRS Headnote

The net operating loss carryover of an insurance company previously taxable under section 831 of the Internal Revenue Code of 1954 may not be converted into an `operations loss deduction' for the taxable year when the taxpayer qualifies as a `life insurance company' under section 801 of the Code.

Full Text

Rev. Rul. 62-43 /1/

Advice has been requested whether the amount of a net operating loss carryover available under section 172 of the Internal Revenue Code of 1954 to an insurance company previously taxable under section 831 of the Code may be converted into an operations loss deduction under section 812 of the Code for the taxable year when the taxpayer qualifies as a `life insurance company' within the meaning of section 801 of the Code.

For several years the taxpayer has operated as an insurance company taxable under section 831 of the Code. During several of the most recent years, the taxpayer sustained net operating losses. As of the close of the taxable year 1960, the taxpayer had a net operating loss carryover available for use in computing its taxable income in succeeding taxable years.

On December 31, 1961, the taxpayer's life insurance reserves, plus its unearned premiums and unpaid losses on noncancellable life, health, or accident policies not included in life insurance reserves, comprised more than 50 percent of its total reserves and the taxpayer qualified as a `life insurance company' within the meaning of section 801 of the Code.

Under section 812 of the Code, a life insurance company is allowed an `operations loss deduction' equal to to the aggregate of the operations loss carryovers to such year, plus the operations loss carrybacks to such year. However, section 809(e)(5) of the Code specifically denies a life insurance company a deduction for net operating losses provided in section 172 of the Code. There is no provision of the Code which authorizes the conversion of an amount previously allowable to an insurance company as a net operating loss carryover into an operations loss deduction of a life insurance company.

For Federal income tax purposes, a deduction must be based upon explicit statutory authority. See New Colonial Ice Co., Inc. v. Helvering , 292 U.S. 435, at 440 (1934), Ct. D. 841, C.B. XIII-1, 194 (1934) and United States v. Olympic Radio and Television, Inc. , 349 U.S. 232, at 236 (1955), Ct. D. 1785, C.B. 1955-1, 376. In the absence of such authority, the carryover and deduction of such net operating losses by a life insurance company must be denied.

Accordingly, it is held that the amount of the net operating loss carryover available to the taxpayer insurance company under section 172 of the Code may not be converted into an operations loss deduction under section 812 of the Code for the taxable year 1961 when the taxpayer company qualifies as a `life insurance company' within the meaning of section 801 of the Code.

/1/ Also released as Technical Information Release 365, dated March 7, 1962.