Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-31

1966-1 C.B. 170

Sec. 805

IRS Headnote

A life insurance company, in calculating assets under section 805(b)(4) of the Internal Revenue Code of 1954, may not reduce the asset `cash' by amounts on deposit in its bank account because of taxes withheld from employees, escrow funds relating to mortgage loans, and standby commitment fees received from proposed mortgagors.

Full Text

Rev. Rul. 66-31

Advice has been requested whether a life insurance company, in calculating assets under section 805(b)(4) of the Internal Revenue Code of 1954, may reduce the asset `cash' by amounts on deposit in its bank account because of taxes withheld from employees, escrow funds relating to mortgage loans, and standby commitment fees received from proposed mortgagors (where the agreement provides for the return of the fee in the event the mortgage loan is consummated).

Section 805(b)(4) of the Code provides that the term `assets' means all assets of the company (including nonadmitted assets) other than real and personal property (excluding money) used by it in carrying on a trade or business.

Section 1.805-5(a)(4)(i) of the Income Tax Regulations specifically provides that the term `money' as used in section 805(b)(4) of the Code includes cash, currency, bank deposits (including time deposits) whether or not interest bearing, share accounts in savings and loan associations, checks (whether or not certified), drafts, money orders, and any other items of similar nature.

Section 1.805-5(a)(4)(i) of the regulations further states that only certain items (enumerated therein) may be excluded from the term `assets' as being considered used by the life insurance company in carrying on an insurance trade or business, which items do not include those involved in the instant case.

Section 1.805-5(a)(4)(iii) of the regulations provides in general that the valuation of assets under section 805(b)(4) of the Code shall not be reduced by the amount of any encumbrance, lien, mortgage, etc.

In view of the broad nonexclusive provisions of section 805(b)(4) of the Code and section 1.805-5(a)(4) of the regulations, it is apparent that all money items of a life insurance company generally are included in `assets' as that term is defined in section 805(b)(4) of the Code. It follows that such money items are included in assets whether or not their use is restricted to certain designated purposes and whether or not they are allocated to any particular account, or are held in the form of cash or bank deposits.

Accordingly, a life insurance company, in calculating assets under section 805(b)(4) of the Code, may not reduce the assets `cash' by amounts on deposit in its bank account because of taxes withheld from employees, escrow funds relating to mortgage loans, and standby commitment fees received from proposed mortgagors.