This notice provides guidance as to the meaning of “gross receipts”
for purposes of § 501(c)(15)(A) of the Internal Revenue Code.
Section 501(a) of the Code provides generally that an organization described
in § 501(c) shall be exempt from federal income taxation. An insurance
company (as defined in § 816(a)), other than a life insurance company,
is described in § 501(c)(15), and is therefore exempt from income
tax under § 501(a), if its gross receipts for the taxable year do
not exceed $600,000 and more than 50 percent of those gross receipts consist
of premiums. Section 501(c)(15)(A)(i). A non-life mutual insurance company
not meeting the requirements of the previous sentence is nonetheless described
in § 501(c)(15) if its gross receipts for the taxable year do not
exceed $150,000 and more than 35 percent of those gross receipts consist of
premiums. Section 501(c)(15)(A)(ii). Amounts received by all members of
the insurance company’s controlled group (as defined in section 501(c)(15)(C))
are taken into account for purposes of these tests. Section 501(c)(15)(B).
The gross receipts and percentage of income from premium requirements
described above were added to the Code in 2004 by § 206 of the Pension
Funding Equity Act, Pub. L. No. 108-218 (the “Act”). The legislative
history of the Act states that “it is intended that the provision not
permit the use of small companies . . . to shelter investment income”.
H.R. Conf. Rep. 108-457, at 48 (2004).
SECTION 3. DETERMINATION OF GROSS RECEIPTS
This notice advises taxpayers that the Service will include amounts
received from the following sources during the taxable year in “gross
receipts” for purposes of § 501(c)(15)(A):
Premiums (including deposits and assessments), without reduction for
return premiums or premiums paid for reinsurance;
Items described in § 834(b) (gross investment income of a
non-life insurance company); and
Other items that are properly included in the taxpayer’s gross
income under subchapter B of chapter 1, subtitle A, of the Code.
Thus, gross receipts include both tax-free interest and the gain (but
not the entire amount realized) from the sale or exchange of capital assets,
because those items are described in § 834(b). Gross receipts do
not, however, include amounts other than premium income or gross investment
income unless those amounts are otherwise included in gross income. Accordingly,
the term gross receipts does not include contributions to capital excluded
from gross income under § 118, or salvage or reinsurance recovered
accounted for as offsets to losses incurred under § 832(b)(5)(A)(i).
SECTION 4. DRAFTING INFORMATION
The principal author of this notice is Sarah R. Katz of TE/GE Division,
Exempt Organizations. For further information regarding this notice, contact
Ms. Katz at (202) 283-8934 (not a toll-free call).
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