Part 24 (Odomirok 26) Flashcards

Income Taxes

1
Q

What does the IRS not want about Statutory accoutning

A

Statutory accounting defers the recognition of premium, which can lead to companies getting tax refunded.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does Tax accounting do

A

Tries to better match EP and Expense Recognition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the revenue offset adjustment to and amount

A

to UEPR and is 20% of premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Tax Basis EP

two formulas

A

NWP - 80% * change in UEPR
or
SAP NEP + 20% * change in UEPR

SAP NEP = Stat net earned prem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

SAP EP calculation

A

WP - change in UEPR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

SAP incurred losses are based on what, and why is this a problem for tax
So what does the IRS do instead?

A

based on undiscounted losses

  • There may be an underwriting loss initially

IRS uses discounted losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Tax basis incurred losses formula 2x

A

Paid Losses + Change in discounted reserves
or
SAP Incurred losses - change in Reserve discount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Tax free investment income like on Municipal bond interest is treated differently. How so, and from what?

A

It is tax exempt for companies in most industries

Proration Provision makes it not completely tax exempt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Proration Provision calculation

A

25% * Taxable Income

then add this amount to the regular taxable income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Regular Taxable Liability

A

21% * Taxable income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the tax rate

A

21%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is BEAT

A

Base Erosion and Anti-Abuse Tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When does BEAT apply

A
  • Insurer is part of US group that has avg premium in the past 3 years > $500M
  • Payments being made to companies overseas (base erosion payments) > 3% of total deductions taken by teh US group in its current tax return
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Calculate BEAT

A
  1. Determine if subject to BEAT
  2. Determine taxable income and regular tax
  3. Calculate Modified Taxable income
  4. Appy BEAT tax rate of 10% to the modified taxable income
  5. Insurer is responsible for max(taxable liability, BEAT)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Modified Taxable income formula

A

Regular Taxable income + base erosion payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the BEAT tax rate

A

10%

17
Q

Discounted reserves are determined from 3 components

A
  • Undiscounted loss reserves
  • Discount Rate
  • Loss payment pattern by line
18
Q

Where are undiscounted loss reserves taken from,
why is this important

A

Schedule P, Part 1

Net of tabular discount and gross of non-tabular discount

necessary to gross up the reserves for the tabular discount before the application of the IRS discounting procedure

19
Q

How does the discount rate vary and based on what

A

By AY, based on the corporate bond yield curve

20
Q

What will the rate for an AY be for discounting in reserves (attribute)

How is it treated in future CYs

A

Fixed, and will apply to the AY in all future CYs

21
Q

Loss payment pattern is calculated by the IRS when, and what is it based on

A

every 5 years

on paid loss development from the industry aggregate Schedule P, Part 1 data

22
Q
A