REVENUE RULE 91-22

1991-1 C.B. 91, 1991-12 I.R.B. 1.

Internal Revenue Service
Revenue Ruling

TITLE INSURANCE COMPANIES

Published: March 7, 1991

Section 832. Insurance Company Taxable Income, 26 CFR 1.832-4T: Gross income (temporary).

(See Also Section 7805; 301.7805-1)

Title insurance companies. Rev. Rul. 83-174 is modified so that, in the case of a title insurance company that does not include estimates of incurred but not reported losses in the determination of losses incurred under section 832(b)(5) of the Code, the Service will not apply the ruling to require a taxpayer to change its method of accounting for unearned premiums for tax years prior to January 1, 1987. Rev. Ruls. 83-174 and 84-107 are obsoleted with respect to tax years of title insurance companies beginning after December 31, 1986.

Rev. Rul. 83-174, 1983-2 C.B. 108, holds that amounts set aside by a title insurance company in a reserve pursuant to a state statute do not constitute "unearned premiums" as defined in former section 832(b)(4) of the Internal Revenue Code, as amended and in effect for tax years beginning prior to January 1, 1987. Rev. Rul. 83-174 states that, pursuant to the authority contained in section 7805(b), the Internal Revenue Service (Service) will not apply this holding to change a taxpayer's method of accounting with respect to unearned premiums for tax years beginning prior to November 28, 1983.

In Rev. Rul. 84-107, 1989-2 C.B. 122, the Service announced that it was reconsidering the holding of Rev. Rul. 83-174 in the case of title insurance companies that do not include estimates of incurred but not reported losses in the determination of losses incurred under section 832(b)(5) of the Code. Pursuant to the authority contained in section 7805(b), Rev. Rul. 84-107 also extended the effective date of Rev. Rul. 83-174 in these cases until after the first tax year beginning on or after November 28, 1983.

In the Tax Reform Act of 1986, section 1021, 1986-3 (Vol. 1) C.B. 312, Congress provided a special rule for the treatment of unearned premiums attributable to title insurance. Section 832(b)(4) of the Code, as amended by the Tax Reform Act of 1986, provides generally that in determining premiums earned, a property and casualty insurance company takes into account only 80 percent of the net increase (or decrease) in unearned premiums during the tax year as a reduction of (or increase to) the amount of its net written premiums. Section 832(b)(8) provides, however, that a title insurance company takes into account its net change in "discounted unearned premiums" during the tax year instead of the general 20 percent reduction in unearned premiums required by section 832(b)(4). "Discounted unearned premiums" are determined by discounting the amounts added during the tax year to a state statutory title insurance unearned premium reserve at the interest rate generally applicable to property and casualty unpaid loss reserves. The applicable statutory premium recognition pattern is used, however, instead of the loss payment pattern generally applicable to property and casualty unpaid loss reserves. Section 832(b)(8) is effective for tax years beginning after December 31, 1986.

HOLDING AND EFFECT ON OTHER RULINGS

Pursuant to the authority of section 7805(b) of the Code, Rev. Rul. 83- 174 is modified so that, in the case of a title insurance company that does not include estimates of incurred but not reported losses in the determination of losses incurred under section 832(b)(5), the Service will not apply the ruling to require a taxpayer to change its method of accounting with respect to unearned premiums for tax years beginning before January 1, 1987. Moreover, in view of the enactment of section 832(b)(8) by the Tax Reform Act of 1986, the holdings of Rev. Rul. 83-174 and Rev. Rul. 84-107 are obsolete with respect to tax years of a title insurance company beginning after December 31, 1986.

DRAFTING INFORMATION

The principal author of this revenue ruling is Gary Geisler of the Office of the Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact Mr. Geisler on (202) 566- 3478 (not a toll-free call).

Rev. Rul. 91-22, 1991-1 C.B. 91, 1991-12 I.R.B. 1.