REVENUE RULE 92-78
1992-2 C.B. 143, 1992-39 I.R.B. 9.
Internal Revenue Service
Revenue Ruling
MUTUAL LIFE INSURANCE COMPANIES; DIFFERENTIAL EARNINGS RATE
September 10, 1992
Section 809. Reduction in Certain Deductions of Mutual Life Insurance Companies
Mutual life insurance companies; differential earnings rate. The differential earnings rate for 1991 and the recomputed differential earnings rate for 1990 are set forth for use by mutual life insurance companies to compute their income tax liability for 1991.
This revenue ruling contains the differential earnings rate for 1991 and the recomputed differential earnings rate for 1990. Under section 809 of the Internal Revenue Code, mutual life insurance companies use these rates in computing their income tax liability for 1991. This revenue ruling also contains some of the figures on which the determinations of these rates are based. Announcement 92-42, 1992-11 I.R.B. 46, contained tentative determinations of these same rates.
Section 809(a) of the Code provides that, in the case of any mutual life insurance company, the amount of the deduction allowable under section 808 for policyholder dividends shall be reduced (but not below zero) by the "differential earnings amount." Any excess of the "differential earnings amount" over the amount of the deduction allowable under section 808 shall be taken into account as a reduction in the closing balance of reserves under subsections (a) and (b) of section 807. The "differential earnings amount" for any taxable year is an amount equal to the product of (a) the life insurance company's average equity base for the taxable year multiplied by (b) the "differential earnings rate" for that taxable year. The "differential earnings rate" for the taxable year is the excess of (a) the "imputed earnings rate" for the taxable year over (b) the "average mutual earnings rate" for the second calendar year preceding the calendar year in which the taxable year begins. The "imputed earnings rate" for any taxable year is an amount which bears the same ratio to 16.5 percent as the "current stock earnings rate" for the taxable year bears to the "base period stock earnings rate."
Section 809(f) of the Code provides that, in the case of any mutual life insurance company, if the "recomputed differential earnings amount" for any taxable year exceeds the differential earnings amount for that taxable year, the excess shall be included in life insurance gross income for the succeeding taxable year. If the differential earnings amount for any taxable year exceeds the "recomputed differential earnings amount" for such taxable year, the excess shall be allowed as a life insurance deduction for the succeeding taxable year. The "recomputed differential earnings amount" for any taxable year is an amount calculated in the same manner as the differential earnings amount for that taxable year, except that the average mutual earnings rate for the calendar year in which the taxable year begins is substituted for the average mutual earnings rate for the second calendar year preceding the calendar year in which the taxable year begins.
Notice 88-106, 1988-2 C.B. 444, states that regulations under section 809 will provide that the differential earnings rate and the recomputed differential earnings rate may not be negative. Thus, for any taxable year, if the imputed earnings rate for the taxable year is less than the average mutual earnings for the second calendar year preceding the calendar year in which the taxable year begins, the differential earnings rate for the taxable year is zero. Similarly, for any taxable year, if the imputed earnings rate for the taxable year is less than the average mutual earnings rate for the calendar year in which the taxable year begins, then the recomputed rate is zero. Proposed Income tax Regulations under section 809 were published in the Federal Register on August 19, 1992 (57 FR 37495).
For purposes of section 809 of the Code, the differential earnings rate for 1991, the rate used to calculate the recomputed differential earnings amount for 1990 (the recomputed differential earnings rate for 1990), and the figures on which these two rates are based are set forth in Table 1.
Rev. Rul. 92-78 Table 1
Differential earnings rate for 1991
[Fn1]
Recomputed differential earnings rate for 1990 0.885
Imputed earnings rate for 1991
14.057
Base period stock earnings rate
18.221
Current stock earnings rate for 1991
15.523
Stock earnings rate for 1981
17.316
Stock earnings rate for 1982
18.812
Stock earnings rate for 1983
18.535
Stock earnings rate for 1988
13.355
Stock earnings rate for 1989
18.106
Stock earnings rate for 1990
15.108
Average mutual earnings rate for 1989
16.507
Average mutual earnings rate for 1990
11.401
Fn1. But for the rule described in Notice 88-106, 1988-2 C.B. 444, this figure would be -2.450.
Final regulations under section 809 of the Code have not yet been issued, and when these regulations are issued, they may be effective prior to the date of their issuance. Even if that is the case, however, in determining the rates that are to be used in computing 1991 tax liability, the Internal Revenue Service will not change the administrative procedures that govern its determination of the rates announced in this revenue ruling. Moreover, the Service generally will not restate any of the rates announced in this ruling to reflect subsequent changes in the data on which the rate is based, such as a change resulting from the audit of a life insurance company. Regulations or other pronouncements, however, may result in a change in these and other procedures for determination of the rates to be used in computing the tax liability of subsequent years.
DRAFTING INFORMATION
The principal author of this revenue ruling is Katherine A. Hossofsky of the office of the Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact Ms. Hossofsky on (202) 622-3970 (not a toll-free call).
Rev. Rul. 92-78, 1992-2 C.B. 143, 1992-39 I.R.B. 9.