Determination of Earned Premiums

DEPARTMENT OF THE TREASURY

26 CFR Part 1

[REG-209839-96]

RIN 1545-AU60

Determination of Earned Premiums

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the

requirement that insurance companies other than life insurance

companies reduce by 20 percent their deductions for increases in

unearned premiums. This requirement was enacted as part of the Tax

Reform Act of 1986. These regulations are necessary in order to provide

guidance to nonlife insurance companies that are subject to the 20

percent reduction rule. This document also contains a notice of a

public hearing on the proposed regulations.

DATES: Written comments must be received by April 2, 1997. Requests to

speak and outlines of oral comments to be discussed at the public

hearing scheduled for April 30, 1997 at 10:00 a.m. must be received by

April 2, 1997.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209839-96), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered between the

hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209839-96), Courier's

Desk, Internal Revenue Service, 1111 Constitution Avenue NW,

Washington, DC. Alternatively, taxpayers may submit comments

electronically via the internet by selecting the ``Tax Regs'' option on

the IRS Home Page, or by submitting

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comments directly to the IRS internet site at http://

www.irs.ustreas.gov/prod/tax__regs/comments.html. The public hearing

will be held in the Auditorium, Internal Revenue Service Building, 1111

Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Gary

Geisler, (202) 622-3970; concerning submissions and the hearing,

Evangelista Lee, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

A nonlife insurance company's underwriting income equals its

premiums earned on insurance contracts during the taxable year less its

losses incurred and its expenses incurred. For taxable years beginning

on or after January 1, 1993, a company's premiums earned on insurance

contracts during the taxable year is an amount equal to the gross

premiums written on insurance contracts during the taxable year, less

return premiums and premiums paid for reinsurance, plus 80 percent of

unearned premiums at the end of the prior taxable year, less 80 percent

of unearned premiums at the end of the current taxable year.

The gross premiums written for an insurance or reinsurance contract

is the total amount charged by the insurance company for the insurance

coverage provided under the contract, including amounts charged

covering the company's expenses and overhead. Written premiums are

generally recorded for the full term of coverage for the year in which

the contract is issued. Upon recording a written premium, the company

establishes an unearned premium liability to reflect the portion of the

written premium which relates to the unexpired portion of the insurance

coverage.

The term ``unearned premium'' historically referred to the portion

of the gross premiums written that would have to be returned to the

policyholder upon cancellation of the policy and that was in direct

proportion to the unexpired term of the policy. See, e.g., Buckeye

Union Casualty Co. v. Commissioner, 448 F.2d 228, 230 (6th Cir. 1971),

aff'g 54 T.C. 13, 20 n.5 (1970). Cases and rulings expanded this

definition to include premiums paid for a future benefit, the cost of

which was fixed when the policy was issued. See, e.g., Massachusetts

Protective Ass'n. v. United States, 114 F.2d 304 (1st Cir. 1940);

C.P.A. Co. v. Commissioner, 7 T.C. 912 (1946) (nonlife company), acq.

1947-1 C.B. 1; Rev. Rul. 55-705, 1955-2 C.B. 280. But cf. Bituminous

Casualty Corp. v. Commissioner, 57 T.C. 58 (1971), acq. in result 1973-

2 C.B. 1 (stating in dictum that ``unearned premiums'' had a

substantially broader definition than the one developed in the cases

and rulings cited above).

Prior to 1987, the increase in unearned premiums during the taxable

year was deducted from gross premiums written in the computation of

premiums earned. For example, if a company on September 1st issued a

one-year fire insurance policy with a premium of $1,200, the company on

that date would record a gross written premium of $1,200 and establish

a $1,200 unearned premium reserve. On December 31st, the company would

have earned one-third of the premium, $400, but would have an $800

unearned premium reserve liability for the remaining eight months of

coverage to be provided in periods after the close of the taxable year.

The subtraction of the full amount of unearned premiums from the gross

written premium ``generally reflect[ed]'' the accounting conventions

(often referred to as ``statutory accounting principles'') used to

prepare the annual statement for state insurance regulatory purposes. 2

H.R. Conf. Rep. No. 841, 99th Cong., 2d Sess. II-354 (1986), 1986-3

C.B. (Vol. 4) 354; S. Rep. No. 313, 99th Cong., 2d Sess. 495 (1986),

1986-3 C.B. (Vol. 3) 495; H.R. Rep. No. 426, 99th Cong., 1st Sess. 668

(1985), 1986-3 C.B. (Vol. 2) 668.

A nonlife company generally deducts expenses incurred in the

taxable year in which the expenses are reported on the company's annual

statement. These expenses include premium acquisition expenses

attributable to unearned premiums.

In 1986, Congress determined that the combination of deferring

unearned premiums and currently deducting premium acquisition expenses

attributable to unearned premiums under the accounting conventions used

to prepare a nonlife insurance company's annual statement resulted in a

mismatch of income and expense. Congress decided to require a better

measurement of income for Federal income tax purposes. H.R. Rep. No.

426, 1986-3 C.B. (Vol. 2) at 669; S. Rep. No. 313, 1986-3 C.B. (Vol. 3)

at 496. Rather than require a nonlife company to capitalize and

amortize premium acquisition expenses, Congress reduced by 20 percent

the current deduction for unearned premiums. See section 832(b)(4)(B);

2 H.R. Conf. Rep. No. 841, 1986-3 C.B. (Vol. 4) at 354-55; S. Rep. No.

313, 1986-3 C.B. (Vol. 3) at 495-98; H.R. Rep. No. 426, 1986-3 C.B.

(Vol. 2) at 668-70. This reduction in unearned premiums is sometimes

referred to as the ``20 percent haircut.'' The acceleration of income

as a result of the 20 percent haircut is intended to be roughly

equivalent to denying current deductibility for a portion of the

premium acquisition expenses.

Congress intended the 20 percent haircut to apply to all amounts

(other than life insurance reserves and title insurance reserves) that

were considered unearned premiums for Federal income tax purposes as of

1986. The House Report states that ``[a]ll items which are included in

unearned premiums under section 832(b) of present law are subject to

this reduction in the deduction.'' H.R. Rep. No. 426, 1986-3 C.B. (Vol.

2) at 669. In describing the House bill, the Conference Report

reiterates that ``[a]ll items which are included in unearned premiums

under section 832(b) of present law are subject to this reduction in

the deduction'' and describes the Senate amendment as ``the same as the

House bill, except that life insurance reserves which are included in

unearned premium reserves under section 832(b)(4) are not subject to

this reduction.'' 2 H.R. Conf. Rep. No. 841, 1986-3 C.B. (Vol. 4) at

354-55. The Report's description of the Conference agreement states

that the agreement ``follows the Senate amendment'' but ``provides

special treatment of title insurance unearned premium reserves.'' Id.

See sections 832(b) (7) and (8) for the rules applicable to life

insurance and title insurance reserves.

Following the imposition of the 20 percent haircut on unearned

premiums, the National Association of Insurance Commissioners (NAIC)

revised the statutory accounting principles used to prepare a nonlife

insurance company's annual statement. In general, these changes

permitted a nonlife company to defer recording written premiums and/or

to reduce the amount of unearned premiums reported on the company's

annual statement. The affected items included advance premiums,

additional premiums on retrospectively rated insurance policies, and

the reporting of written premiums for workers' compensation policies

and certain other casualty policies where the covered risk varies over

the policy term.

Prior to 1989, advance premiums were required to be reported in

written premiums and unearned premiums on the annual statement for the

year in which the advance premiums were received. However, statutory

accounting principles now permit advance premiums to be accumulated in

a suspense account and reported as a write-in liability on the annual

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statement. A company electing to use this alternative treatment would

not report advance premiums in either written premiums or unearned

premiums on the annual statement until the effective date of the

underlying coverage.

Statutory accounting principles also required a nonlife insurance

company to record an estimated liability for payment of return premiums

under retrospectively rated insurance policies (retro credits) as part

of the unearned premium liability. Estimates of additional premiums due

from insureds under these policies (retro debits) historically were not

taken into account except as an offset to the company's estimated

liability for payment of retro credits. Thus, retro debits were not

permitted to be shown as assets on the annual statement, and generally

were not included in written premiums prior to the year in which the

company billed the policyholder for these additional premiums.

Beginning in 1988, however, the NAIC permitted retro debits to be shown

in an insurance company's admitted assets, subject to certain

limitations. The NAIC currently has under consideration a proposal that

would require retro credits to be recorded as a write-in liability on

the annual statement, rather than as part of unearned premiums. This

proposal would also permit retro credits and retro debits to be taken

into account either as adjustments to written premiums or as

adjustments to earned premiums for purposes of determining underwriting

income on the annual statement.

A nonlife insurance company ordinarily reports the full amount of

premiums provided in a casualty insurance policy (including any

deferred premium installments) in written premiums and unearned

premiums for the year in which the policy is issued. However, for

workers' compensation policies and certain other casualty policies

where the covered risk varies over the policy term, some but not all

state insurance regulators permit written premiums to be recorded based

on installment billings to the policyholder. If the insurance company

issues these policies throughout the year, and the premiums for the

policies are billed monthly, the portion of the total written premiums

that would be shown as unearned premiums is substantially smaller than

would be the case if the written premiums and unearned premiums were

determined based on the entire policy term. The NAIC currently has

under consideration proposed guidance that would require the full

amount of the premiums provided in all casualty insurance policies to

be reported in written premiums and unearned premiums on the effective

date of the related coverage.

Section 832(b)(1)(A) provides that a nonlife insurance company's

income is computed on the basis of the underwriting and investment

exhibit of the annual statement approved by the NAIC. Some companies

assert that section 832(b)(1)(A) limits application of the 20 percent

haircut to the amount of unearned premiums reported on the annual

statement. Under this approach, a company that elects for annual

statement purposes to report advance premiums as a write-in liability,

to offset unearned premiums by retro debits, or to include deferred

premiums on policies covering fluctuating risks in written premiums

only when billed to the insured, reduces the amount of unearned

premiums subject to the 20 percent haircut.

The existing regulations under Sec. 1.832-4(a)(2) state that

``[t]he underwriting and investment exhibit[,] * * * insofar as it is

not inconsistent with the provisions of the Code will be recognized and

used as a basis for [computing the net income of a nonlife insurance

company].'' However, the regulations recognize that not all items of

the exhibit ``reflect * * * income as defined in the Code.'' Where

statutory accounting principles permit a company to elect among

alternative accounting practices, one or more of which do not clearly

reflect income as defined by the Code, the company is required for

Federal tax purposes to use a method that clearly reflects income.

Section 446(b) and Sec. 1.446-1(a)(2). Furthermore, an accounting

practice used on the annual statement, although specifically mandated

by statutory accounting principles, is not used for purposes of

computing taxable income if that practice is inconsistent with the

Code.

Overview of Proposed Regulations

The proposed regulations define gross premiums written, return

premiums, and unearned premiums for tax purposes. The proposed

regulations also provide rules for determining when gross premiums

written, return premiums, and unearned premiums are taken into account

for tax purposes. In this manner, the proposed regulations ensure that

items such as advance premiums and retrospective premium adjustments

are treated consistently for purposes of the 20 percent haircut on

unearned premiums.

Explanation of Provisions

The starting point for determining a nonlife insurance company's

premiums earned for tax purposes is the ``gross premiums written on

insurance contracts during the taxable year.'' Proposed Sec. 1.832-

4(a)(4)(i) defines ``gross premiums written on insurance contracts'' as

the total amounts charged by the insurance company for insurance

coverage under insurance or reinsurance contracts issued or renewed

during the taxable year. Thus, ``gross premiums written'' includes

collected and uncollected premiums.

Proposed Sec. 1.832-4(a)(4)(ii) addresses the treatment of retro

debits, which reflect estimates of additional premiums to be received

from the insured or the reinsured based on the insurance company's loss

experience during expired coverage periods. Thus, retro debits

represent additional gross premiums written rather than offsets to the

unearned premium liability for unexpired coverage periods. Treating

retro debits as offsets to unearned premiums would reduce the

acceleration of income under the 20 percent haircut, and would allow

some companies with retro debits exceeding their unearned premiums to

report a lesser amount of earned premiums for Federal income tax

purposes than for annual statement reporting purposes. This result is

contrary to the Congressional intent to accelerate the rate at which

premiums are earned for tax purposes in order to correct the

mismatching of income and expenses on the annual statement.

Accordingly, proposed Sec. 1.832-4(a)(4)(ii) requires retro debits to

be included in gross premiums written regardless of the manner in which

the retro debits are reported on the underwriting exhibit of the annual

statement.

Under section 832(b)(4)(A), an insurance company reduces the amount

of gross premiums written on insurance contracts during the taxable

year by return premiums and premiums paid for reinsurance. Proposed

Sec. 1.832-4(a)(5)(i) defines return premiums as amounts paid or

credited to the policyholder in accordance with the terms of an

insurance contract, other than policyholder dividends or claims and

benefit payments. Thus, return premiums include amounts paid or

credited to the policyholder with respect to endorsements and

modifications of the terms of coverage of an insurance contract. Return

premiums also include amounts returned or credited to the policyholder

on cancellation of an insurance contract, including the unearned

portion of any deferred or uncollected premiums previously included by

the company in gross premiums written and unearned premiums. Finally,

return premiums

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include amounts contractually required to be returned to the ceding

company under a reinsurance contract.

The proposed regulations modify the treatment of retro credits

under existing law for purposes of determining earned premiums. Since

1943, Sec. 1.832-4(a)(3)(ii) has provided that the liability for return

premiums under a retrospectively rated policy is included in a nonlife

company's unearned premiums for tax purposes. Although retro credits

were included in unearned premiums in 1986, these amounts are based on

an insured's loss experience during expired coverage periods, for which

the company has already earned the premium. For this reason, proposed

Sec. 1.832-4(a)(5)(ii) provides that a nonlife company's provision for

payment of a retro credit generally is included in return premiums that

reduce gross premiums written. However, proposed Sec. 1.832-4(a)(6)(iv)

gives a company the option to include retro credits in unearned

premiums to which the 20 percent haircut applies.

The proposed regulations provide timing rules with respect to when

a company reports gross premiums written and unearned premiums for tax

purposes. Proposed Sec. 1.832-4(a)(7) requires a company to report

gross premiums written with respect to an insurance or reinsurance

contract for the earlier of the taxable year which includes the

effective date of the contract or the taxable year in which all or a

part of the gross premium for the contract is received. Thus, the

company must report gross premiums written with respect to an insurance

contract for the year in which it collects an advance premium. By

requiring advance premiums to be included in gross premiums written and

unearned premiums, regardless of the manner in which the advance

premiums are recorded on the annual statement, the proposed regulations

ensure that the treatment of a nonlife insurance company's advance

premiums conforms with the treatment of advance premiums of a life

insurance company under section 807(e)(7).

The NAIC is considering proposed guidance that would require the

premium for the entire term of a property and casualty insurance

contract to be recorded as written premium on the effective date of the

contract. The proposed NAIC guidance rejects the previous NAIC position

that permitted written premiums for workers' compensation policies and

certain other casualty policies where the covered risk varies over the

policy term to be recorded when billed. For this reason, the method of

reporting gross premiums written for workers' compensation policies and

certain other casualty insurance policies covering fluctuating risks is

reserved in the proposed regulations.

Proposed Effective Date

The proposed regulations are proposed to apply to the determination

of premiums earned for insurance contracts issued or renewed in taxable

years beginning after the date on which final regulations are published

in the Federal Register.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in Executive Order

12866. Therefore, a regulatory assessment is not required. It also has

been determined that section 553(b) of the Administrative Procedure Act

(5 U.S.C. chapter 5) does not apply to these regulations, and because

the regulations do not impose a collection of information on small

entitles, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Pursuant to section 7805(f) of the Internal Revenue Code, this

notice of proposed rulemaking will be submitted to the Chief Counsel

for Advocacy of the Small Business Administration for comment on its

impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and 8 copies) that are submitted timely to the IRS. All comments will

be available for public inspection and copying.

A public hearing has been scheduled for Wednesday, April 30, 1997

in the Auditorium, Internal Revenue Service Building, 1111 Constitution

Avenue NW, Washington DC. Because of access restrictions, visitors will

not be admitted beyond the Internal Revenue Building lobby more than 15

minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by April 2, 1997 and submit an outline of the

topics to be discussed and the time to be devoted to each topic (a

signed original and 8 copies) by April 2, 1997.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information

The principal author of this regulation is Gary Geisler, Office of

Assistant Chief Counsel (Financial Institutions and Products). However,

other personnel from the IRS and Treasury Department participated in

their development.

List of Subjects in 26 CFR Part 1

Income taxes.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.832-4 is amended as follows:

1. Paragraph (a)(3) is revised.

2. Paragraphs (a)(4) and (a)(5) are redesignated as (a)(9) and

(a)(10).

3. New paragraphs (a)(4) through (a)(8) are added.

The additions and revisions read as follows:

Sec. 1.832-4 Gross income.

(a) * * *

(3) Premiums earned. The determination of premiums earned on

insurance contracts during the taxable year begins with the insurance

company's gross premiums written on insurance contracts during the

taxable year, reduced by return premiums and ceded reinsurance

premiums. Subject to the exceptions in sections 832(b)(7), 832(b)(8),

and 833(a)(3), this amount is increased by 80 percent of the unearned

premiums at the end of the preceding taxable year, and is decreased by

80 percent of the unearned premiums at the end of the taxable year.

(4) Gross premiums written--(i) In general. An insurance company's

``gross premiums written on insurance contracts during the taxable

year'' are the total amounts charged by the insurance company for

insurance coverage under insurance or reinsurance contracts issued or

renewed by the company during the taxable year.

(ii) Debits on retrospectively rated insurance policies. Gross

premiums written include an insurance company's estimate of the gross

additional premiums to be received from the insured or the reinsured

with respect to the expired portion of a retrospectively rated

insurance or reinsurance contract

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(retro debits). The retro debits are reported for the taxable year in

which the amounts can be reasonably estimated based on information used

to compute the insurance company's loss reserves. An insurance company

adjusts gross premiums written to reflect payments from the insured or

the reinsured with respect to retro debits, as well as changes in the

estimate of retro debits.

(5) Return premiums--(i) In general. Return premiums are amounts

paid or credited to the policyholder in accordance with the terms of an

insurance contract, other than policyholder dividends or claims and

benefit payments. For example, return premiums include amounts returned

or credited to the policyholder based on modifications of the terms of

an insurance contract. Return premiums also include amounts

contractually required to be returned to the ceding company pursuant to

a reinsurance contract.

(ii) Credits on retrospectively rated insurance policies. Except as

provided in paragraph (a)(6)(iv) of this section, return premiums

include an insurance company's estimate of the gross liability for

return premiums to be paid or credited to the insured or the reinsured

with respect to the expired portion of a retrospectively rated

insurance or reinsurance contract (retro credits). The retro credits

are included in return premiums for the taxable year in which the

insurance company's liability to pay or credit these amounts can be

reasonably estimated based on information used to compute the company's

loss reserves. An insurance company adjusts return premiums to reflect

payments made or amounts credited to the insured or the reinsured with

respect to retro credits, as well as changes in the estimate of retro

credits.

(iii) Unpaid premiums on cancelled policies. If an insurance

contract is cancelled, an insurance company includes in return premiums

the unearned portion of any deferred or uncollected premiums previously

included in gross premiums written and unearned premiums.

(6) Unearned premiums--(i) In general. The unearned premium for an

insurance or reinsurance contract is the portion of the gross premiums

written which is attributable to future insurance coverage to be

provided under the contract. An insurance company makes an appropriate

adjustment to its unearned premiums for an insurance or reinsurance

contract if the contract is reinsured with, or retroceded to, another

insurance company.

(ii) Special rules. In computing ``premiums earned on insurance

contracts during the taxable year,'' the amount of unearned premiums

includes--

(A) Life insurance reserves (as defined in section 816(b), but

computed in accordance with section 807(d));

(B) In the case of a mutual flood or fire insurance company

described in section 832(b)(1)(D) (with respect to contracts described

in that section) the amount of unabsorbed premium deposits which the

company would be obligated to return to its policyholders at the close

of the taxable year if all its policies were terminated at that time;

(C) In the case of an interinsurer or reciprocal underwriter which

reports unearned premiums on its annual statement net of premium

acquisition expenses, the unearned premiums on the company's annual

statement increased by the portion of premium acquisition expenses

allocable to those unearned premiums;

(D) In the case of a title insurance company, its discounted

unearned premiums (computed in accordance with section 832(b)(8)); and

(E) Amounts treated as unearned premiums pursuant to the optional

treatment provided in paragraph (a)(6)(iv) of this section.

(iii) Method of determining unearned premiums. If the risk of loss

under an insurance or reinsurance contract arises uniformly over the

contract period, the unearned premium attributable to the portion of

the insurance coverage which has not expired is computed on a pro rata

basis. If the risk of loss does not arise uniformly over the contract

period, the insurance company may consider the pattern or incidence of

the risk in determining the portion of the gross premium written which

is attributable to the portion of the insurance coverage which has not

yet expired.

(iv) Option to include retro credits in unearned premiums. An

insurance company may include retro credits in unearned premiums under

section 832(b)(4) for its first taxable year beginning after the date

on which final regulations are published in the Federal Register. Any

company exercising this option must apply it consistently to all retro

credits with respect to retrospectively rated insurance or reinsurance

contracts issued or renewed during the taxable year and all subsequent

years.

(7) Method of reporting gross premiums written--(i) In general. An

insurance company reports gross premiums written with respect to an

insurance or reinsurance contract for the earlier of the taxable year

which includes the effective date of the contract or the taxable year

in which all or a part of the gross premium for the contract is

received.

(ii) Method of reporting gross premiums written on policies

covering fluctuating risks. [Reserved]

(iii) Examples. The provisions of this paragraph (a)(7) are

illustrated by the following examples:

Example 1. (i) IC is a nonlife insurance company which, pursuant

to section 843, files its returns on a calendar year basis. On July

1, 1998, IC issues a fire insurance policy to A, an individual. The

policy provides coverage for a one-year term beginning on July 1,

1998 and ending on June 30, 1999. The premium provided in the policy

is $500, which may be paid either in full on the policy effective

date or in quarterly installments of $125. A selects the installment

payment option. As of December 31, 1998, the policy issued to A

remains in force, and IC has collected a total of $250 of

installment premiums from A. Assume IC has issued no other policies.

(ii) For the taxable year ending December 31, 1998, IC reports

the $500 premium provided in A's policy in gross premiums written

under section 832(b)(4)(A). IC also claims a reduction under section

832(b)(4)(B) for 80% of the $250 of unearned premiums ($200)

associated with the policy at the end of the taxable year.

Example 2. (i) The facts are the same as Example 1, except that

the term of coverage for the fire insurance policy issued to A

begins on January 1, 1999 and ends on December 31, 1999. On December

15, 1998, IC receives $125 from A and agrees to apply this amount as

the first premium installment due on the policy.

(ii) Under paragraph (a)(7)(i) of this section, IC reports gross

premiums written for the policy issued to A for the taxable year in

which the advance premium is received. Thus, for the taxable year

ending December 31, 1998, IC includes $500 in its gross premiums

written under section 832(b)(4)(A). IC also claims a reduction under

section 832(b)(4)(B) for 80% of the $500 of unearned premiums ($400)

associated with the policy at the end of the taxable year.

(8) Effective date. Paragraphs (a)(3) through (a)(7) of this

section are applicable with respect to the determination of premiums

earned for insurance contracts issued or renewed during taxable years

beginning after the date on which final regulations are published in

the Federal Register.

Michael P. Dolan,

Acting Commissioner of Internal Revenue.

[FR Doc. 96-32520 Filed 12-31-96; 8:45 am]

BILLING CODE 4830-01-U