The Internal Revenue Service said yesterday that, as part of its priorities for the next year, it will clarify the definition of the term "gross receipts" for small property and casualty insurers for determining tax exemption status.
The original intent of the exemption was to protect "farm mutuals"–small companies established among groups of farmers to provide coverage for their properties–but some investment companies exploited the exemption by writing a minimal amount of insurance while keeping disproportionately high capital and surplus and investment income.
The issues involving tax exemption for small property and casualty insurers were initially addressed by the Pension Funding Equity Act of 2004, which changed the standard for qualification in Section 501(C)(15) of the tax code from net written premiums to a "gross receipts" threshold. The effort to make that change was largely driven by the National Association of Mutual Insurance Companies.
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