TAX PLANNING OPPORTUNITIES AND DETERMINING EARNINGS AND PROFITS FOR LIFE INSURANCE COMPANIES
Presented before the 49th International Conference of the Insurance Accounting and Statistical Association, Boston, Massachusetts - May 1971
by Leon McElvany Principal, Executive Office
In this article, discussion of the taxation of life insurance companies will be divided into two major areas.
First, we will consider a few of the many areas where lack of adequate planning produces unwanted tax results. Such unwanted results may be due to failure to consider a particular area in planning or to failure to thoroughly evaluate the effects of all points of a proposed action.
The second area of discussion will be the determination of earnings and profits for a life insurance company. This subject has not received a great deal of attention in life insurance taxation in prior years. I feel that it will become more important in the future because of the growth seen in recent years in the number of holding companies and multiple groups in the life insurance industry.
TAX PLANNING OPPORTUNITIES
The beginning point in tax planning for a life insurance company is to determine as accurately as possible the company's situation with regard to the three possible phases of taxation. This determination should be made for the current year and projected for succeeding years. Failure to recognize the current tax situation of a company or to consider that the company is about to change from one phase of taxation to another can upset the best of tax planning. At this point, I think that most companies are aware of the importance of an accurate projection of their position with respect to these tax situations. It has also been my experience that most companies have recognized the importance of determining marginal rates of return on investment income in their tax planning and have utilized marginal rates extensively in investment decisions over the years. I do not plan to discuss either of these concepts in this article.
• Bad Debts One common area where lack of planning can cause unwanted or