IRS written determination 201428006

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201428006
Release Date: 7/11/2014
Index Number: 831.00-00, 832.00-00
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[Third Party Communication:
Date of Communication: Month DD, YYYY]
Person To Contact:
--------------------, ID No. ------------
Telephone Number:
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Refer Reply To:
CC:FIP:B04
PLR-151424-13
Date:
April 10, 2014
Legend
Taxpayer = ------------------------------------
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Obligor = --------------------------------------------------
Insurer = -----------------------------------------------------------------
Owners = -----------------------------------------------------------------
Country = ------------------------------
State = --------
Retailer = ------------------------
Products = -----------
$X = -----
Reinsurance Contract = ------------------------------------------------------------------------------------
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Dear --------------:
This responds to a December 23, 2013 letter from your authorized representative
requesting rulings that, for federal income tax purposes, Taxpayer qualifies as an

PLR-151424-13
2
insurance company taxed under § 831 of the Code. The representative submitted
additional information in letters dated January 31, 2014 and March 3, 2014.
The rulings contained in this letter are based upon facts and representations submitted
by Taxpayer accompanied by a penalties of perjury statement executed by an
appropriate party. This office has not verified any of the material submitted in support of
the request for rulings. Verification of the information, representations, and other data
may be required as part of the audit process.
FACTS
Retailer sells Products to customers. Retailer offers customers the option to also
purchase a Product Service Contract (PSC). The PSC is issued by Obligor and
provides coverage for the risk of loss due to certain mechanical failures. The PSC
applies only after the manufacturer’s warranty expires. Obligor insures its performance
under the PSCs with Insurer, regulated by State as an insurance company.
In the proposed transaction, Taxpayer will be formed in Country and will enter into an
arrangement with Insurer whereby Taxpayer will assume all of Insurer’s obligations with
respect to the PSCs sold by a specific Retailer. One of the equityholders of Taxpayer
owns this Retailer. This arrangement will be Taxpayer’s only business activity. For the
current year, this Retailer will have many individual customers who purchase a PSC.
As consideration, Insurer will pay Taxpayer a predetermined portion of the amount
Obligor paid to Insurer, net of a fixed amount per PSC as a commission (i.e., ‘ceding
commission’).
Taxpayer represents that the PSCs constitute insurance for Federal income tax
purposes. Upon information andbelief, Insurer is an insurance company taxable under
§ 831. Further, Taxpayer’s arrangement with Insurer will be more than half of the
business done by Taxpayer during this taxable year.
LAW AND ANALYSIS
Section 831(a) of the Internal Revenue Codeprovides that taxes, as computed in §11,
are imposed for each taxable year on the taxable income of each insurance company
other than a life insurance company. Section 831(c) prescribes that the term “insurance
company” is defined by §816(a). Section 816(a) defines the term “insurance company”
to mean any company more than half of the business of which during the taxable year is
the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by
insurance companies.
Neither the Code nor the regulations define the terms “insurance” or "insurance
contract.” Helvering v. Le Gierse,312 U.S. 531 (1941)is the seminal case defining

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3
“insurance” for federal income tax purposes. The Supreme Court stated that
“[h]istorically and commonly insurance involves risk-shifting and risk-distributing.”
In Situation 1 of Rev. Rul. 2009-26, 2009-2 C.B. 366, the Service considered a ninety
percent quota share arrangement between IC Y, with 10,000 policyholders and Z, which
conducted no other business. It concluded that Z qualified as an insurance company
because Z was reinsuring risks underwritten by an insurance company, which was more
than half of the business of Z for the year.
Taxpayer’s transaction is similar to the one described in Situation 1 of Rev. Rul. 2009-
26. The PSCs shift the customers’ risks of loss due to mechanical failure to Obligor.
Obligor transfers this risk to Insurer, which will transfer these risks to Taxpayer.
Taxpayer represents that the PSC constitutes insurance. Accordingly, Taxpayer
qualifies as an insurance company.
RULING
We rule that, for federal income tax purposes, Taxpayer qualifies as an insurance
company taxed under §831 provided the contract accounts for more than half of
Taxpayer’s business done duringthe taxable year.
CAVEATS
Except as expressly provided herein, no opinion is expressed concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter.
The rulings contained in this letter are based upon information and representations
submitted by Taxpayer. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.
This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Codeprovides that it may not be used or cited as precedent. Pursuant to the power of
attorney on file with this office, a copy of this letter is being sent to your authorized
representative.
Sincerely,
John E. Glover
Senior Counsel
(Financial Institutions and Products)
cc: