Eligibility
Available to insurance companies with specified policy acquisition expenses under $10,000,000 for the taxable year; the $5,000,000 benefit phases out dollar-for-dollar for expenses between $10M and $15M.
Frequently Asked Questions
Who is eligible for the Accelerated 5-Year Amortization for Small Insurance Companies?
Available to insurance companies with specified policy acquisition expenses under $10,000,000 for the taxable year; the $5,000,000 benefit phases out dollar-for-dollar for expenses between $10M and $15M.
How does the Accelerated 5-Year Amortization for Small Insurance Companies work?
Allows insurance companies to amortize the first $5,000,000 of specified policy acquisition expenses over 60 months instead of the standard 180 months.
What law authorizes the Accelerated 5-Year Amortization for Small Insurance Companies?
The Accelerated 5-Year Amortization for Small Insurance Companies is authorized under IRC §848(b) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §848
Source: Internal Revenue Code, Title 26, United States Code
§ 848. Capitalization of certain policy acquisition expenses(a) General ruleIn the case of an insurance company—(1) specified policy acquisition expenses for any taxable year shall be capitalized, and
(2) such expenses shall be allowed as a deduction ratably over the 180-month period beginning with the first month in the second half of such taxable year.
(b) 5-year amortization for first $5,000,000 of specified policy acquisition expenses(1) In generalParagraph (2) of subsection (a) shall be applied with respect to so much of the specified policy acquisition expenses of an insurance company for any taxable year as does not exceed $5,000,000 by substituting “60-month” for “180-month”.
(2) Phase-outIf the specified policy acquisition expenses of an insurance company exceed $10,000,000 for any taxable year, the $5,000,000 amount under paragraph (1) shall be reduced (but not below zero) by the amount of such excess.
(3) Special rule for members of controlled groupIn the case of any controlled group—(A) all insurance companies which are members of such group shall be treated as 1 company for purposes of this subsection, and
(B) the amount to which paragraph (1) applies shall be allocated among such companies in such manner as the Secretary may prescribe.
For purposes of the preceding sentence, the term “controlled group” means any controlled group of corporations as defined in section 1563(a); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply, and subsection (b)(2)(C) of section 1563 shall not apply to the extent it excludes a foreign corporation to which section 842 applies.
(4) Exception for acquisition expenses attributable to certain reinsurance contractsParagraph (1) shall not apply to any specified policy acquisition expenses for any taxable year which are attributable to premiums or other consideration under any reinsurance contract.
(c) Specified policy acquisition expensesFor purposes of this section—(1) In generalThe term “specified policy acquisition expenses” means, with respect to any taxable year, so much of the general deductions for such taxable year as does not exceed the sum of—(A) 2.09 percent of the net premiums for such taxable year on specified insurance contracts which are annuity contracts,
(B) 2.45 percent of the net premiums for such taxable year on specified insurance contracts which are group life insurance contracts, and
(C) 9.2 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A) or (B).
(2) General deductionsThe term “general deductions” means the deductions provided in part VI of subchapter B (sec. 161 and following, relating to itemized deductions) and in part I of subchapter D (sec. 401 and following, relating to pension, profit sharing, stock bonus plans, etc.).
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