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GGD-93-11R 1 (1993-02-08)

handle is hein.gao/gaobackfr0001 and id is 1 raw text is: () United States General Accounting OMce Washington, D.C. 20548 General Government Division B-252146 February 8, 1993 Mr. Michael P. Dolan 148488 Acting Commissioner Internal Revenue Service Dear Mr. Dolan: During the summer of 1992 we initiated a review of tax- exempt insurance companies. We became aware that certain companies covered by Section 501 (c) 15 of the Internal Revenue Code could be escaping taxation for significant amounts of investment income. This section allows tax exemptions for small property and casualty insurance companies. There is potential for companies with small amounts of premium income and large amounts of investment income to obtain tax exempt status and not pay taxes on their investment income. Congress originally intended to provide tax relief to small, local insurance companies that provide insurance to rural and farm communities. We wanted to determine if the intent of this provision is still being met. Prior to tax year 1986 a property or casualty company could qualify for tax exempt status if it was a mutual company and had gross receipts less than $150,000. The Tax Reform Act of 1986 expanded this provision, providing tax exempt status to both mutual and stock companies which have no more than $350,000 in net or direct written premium income. This change made it possible for a company with sizable investment income to be tax exempt if it has a small premium base. We requested the Return of Organization Exempt From Income Tax (IRS Form 990) forms for 298 insurance companies which were ruled tax exempt under 501 (c) (15) since 1986. We received and examined 196 returns for 1989, 199 for 1990 and 190 for 1991. We also met with members of your staff, representatives of an insurance organization and a state insurance agency. We found, for the most part, that the insurance companies qualifying for the tax exemption since 1986 are generally small companies that seem to be the types of organizations Congress intended to assist under section GGD-93-11R Small Tax Exempt Insurance Companies

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