In Uncategorized on 03/02/2023 at 16:22

Commonwealth Underwriting & Annuity Services, Inc., T.C. Memo. 2023-27, filed 3/2/23 (Happy Palindrome Day!) is sure it’s an insurance company exempt per Section 501(c)(15), but IRS is sure it isn’t.

CSTJ Lewis (“To Spell It Is To Love It”) Carluzzo likewise finds it hard to reconcile Commonwealth’s argument that the $82 million it got in Year One, and the $2 million it got in Year Two, are “arguably” premiums, but not “premium income,” for Section 501(c)(15)(A)’s cutoff of $600K of premium income per year, with Commonwealth’s other assertion that the annual “maintenance fees” it got were somehow premium income and below the $600K.

Supposedly the $82 million and the $2 million went straight into trust funds operated and controlled by an unrelated and insubordinate entity.

“Insurance premiums are includable in an insurance company’s gross income. See Avrahami v. Commissioner, 149 T.C. 144, 174–75 (2017). Petitioner acknowledges that the purchase payments ‘constituted the funds used to make annuity payments.’ This appears to fit squarely within the definition of a premium. See NationalAssociation of Insurance Commissioners, Statement of Statutory Accounting No. 51—Life Contracts, para. 5 (explaining that a premium ‘shall be recognized as income on the gross basis (amount charged to the policyholder) when due from policyholders’). Petitioner’s contention that the purchase payments were not ‘retained, controlled or utilized by’ petitioner is contradicted by its own annuity contracts, which provide that the assets held in the segregated trust accounts and subaccounts ‘remain the property of” petitioner. Moreover, petitioner has not provided any authority suggesting that the premiums were not premium income. Therefore, petitioner has not established that its gross receipts did not exceed $600,000 during either year in issue,  thereby failing to satisfy the financial test in section 501(c)(15)(A).” T. C. Memo. 2023-27, at p. 6.

For the backstory on Avrahami, see my blogpost “The Selfies – Eclipsed,” 8/21/17.

But even if Commonwealth somehow persuaded CSTJ Lew that $84 million that went to fund the annuities they sold were somehow not premiums, they have another problem.

“On the other hand, if the purchase payments are not properly treated as premiums, then petitioner would seem to have no premium income because petitioner has failed to establish that the maintenance fees it received should be considered ‘premiums.’ Viewed in that manner, petitioner fails the prong of the financial test that requires more than 50% of its gross receipts to consist of premiums. See § 501(c)(15)(A)(i)(II).” T. C. Memo. 2023-27, at p. 6.

CSTJ Lew must have had fun with this one.


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