Tax Accounting in US

Question 1

Statutory EP

Answer 1

WP - change in UEPR

Question 2

Tax basis EP

Answer 2

1. WP - 0.8*(change in UEPR)

2. Stat EP + 0.2*(change in UEPR)

Question 3

Tax basis incurred losses

Answer 3

1. Paid losses + change in discounted reserves

2. SAP incurred - change in discount

Question 4

Municipal bond interest rate

Answer 4

0% – tax exempt

“Effective tax rate” = .15(.35) = 5.25%

Question 5

Proration provision of 1986 Tax Reform

Answer 5

Tax-exempt income is not completely tax exempt for insurers: 15% of tax-exempt income added to regular taxable income

Question 6

Triple taxation

Answer 6

Corporate stockholder earns income, passes income to investor

Question 7

Dividends received deduction

Answer 7

Partially exempts dividends from taxes in order to reduce double taxation; size of DRD depends on amount of company owned by taxpayer

Question 8

DRD, Unaffiliated

Answer 8

If taxpayer owns less than 20% of firm, 30% of dividend income subject to tax

Question 9

DRD, Affiliated

Answer 9

If taxpayer owns 20-80%, 20% is subject to tax

Question 10

DRD, Controlled

Answer 10

If taxpayer owns more than 80%, 100% tax exempt

Question 11

Proration rule exception

Answer 11

If insurer owns more than 80% of a firm, none of the dividends will be taxed

Question 12

Regular taxable income components

Answer 12

UW taxable income + taxable investment income

Question 13

Alternate Minimum Income Tax

Answer 13

Prevents firms from paying low taxes

AMTI * 0.2

Question 14

Alternative Minimum Taxable Income

Answer 14

AMTI = RTI + 75% * income that escapes taxation
RTI = Regular taxable income

Question 15

Minimum tax credit

Answer 15

If firm pays AMIT, credit for excess paid over RIT; can be carried over to the following year(s) to reduce RIT

Question 16

Adjustments to statutory income to determine taxable income

Answer 16

20% revenue offset
Remove tax-exempt income
Add proration on tax-exempt income
Adjust for change in discount
DRD