n-03-35.pdf

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Part III – Administrative, Procedural, and Miscellaneous

Organizations exempt under § 501(c)(15)

Notice 2003-35
The purpose of this notice is to remind taxpayers that an entity must be an
insurance company for federal income tax purposes in order to qualify as exempt
from federal income tax as an organization described in § 501(c)(15) of the
Internal Revenue Code.
Section 501(a) provides that an organization described in § 501(c) shall be
exempt from federal income tax. Section 501(c)(15) provides that an insurance
company (other than a life insurance company) is tax-exempt if its net written
premiums (or, if greater, direct written premiums) for the taxable year do not
exceed $350,000. For purposes of this annual test, the company is treated as
receiving during the taxable year premiums received during the same year by all
other companies within the same controlled group, as defined in §
831(b)(2)(B)(ii).
For an entity to qualify as an insurance company, it must issue insurance
contracts or reinsure risks underwritten by insurance companies as its primary
and predominant business activity during the taxable year. For a discussion of
the analysis applicable to evaluating whether an entity qualifies as an insurance

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company, see Notice 2003-34, 2003-23 I.R.B. ___ (June 9, 2003) and Notice
2002-70, 2002-44 I.R.B. 765 (November 4, 2002).
The Service is scrutinizing the tax-exempt status of entities claiming to be
described in § 501(c)(15) and will challenge the exemption of any entity that does
not qualify as an insurance company. The Service will challenge the exemption
of the entity, regardless of whether the exemption is claimed pursuant to an
existing determination letter or on a return filed with the Service.
Taxpayers claiming exemption pursuant to § 501(c)(15) should also
consider whether they are engaged in arrangements described in Notice 2002-70
or substantially similar thereto.
DRAFTING INFORMATION
The principal author of this notice is Lee T. Phaup. TE/GE Division,
Exempt Organizations. For further information concerning this notice contact Ms.
Phaup at (202) 283-8935 (not a toll-free call).