rr-01-33.pdf

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# Part I

Section 809. -- Reduction in Certain Deductions of Mutual Life
Insurance Companies

26 CFR 1.809-9: Computation of the differential earnings rate
and the recomputed differential earnings rate.

Rev. Rul. 2001-33

This revenue ruling contains the differential earnings rate
for 2000 and the recomputed differential earnings rate for 1999.
Under 809 of the Internal Revenue Code, mutual life insurance
companies use these rates in computing their Federal income tax
liability for taxable years beginning in 2000. This revenue
ruling also contains the figures on which the determinations of
these rates are based. Notice 2001-24, 2001-12 I.R.B. 912,
contained tentative determinations of these rates.

Section 809 (a) provides that, in the case of any mutual life
insurance company, the amount of the deduction allowable under

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808 for policyholder dividends is reduced (but not below zero)
by the "differential earnings amount." Any excess of the
differential earnings amount over the amount of the deduction
allowable under 808 is taken into account as a reduction in the
closing balance of reserves under subsections (a) and (b) of
807. The "differential earnings amount" for any taxable year
is the amount equal to the product of (a) the life insurance
company's average equity base for the taxable year multiplied by
(b) the "differential earnings rate" for that taxable year. The
"differential earnings rate" for the taxable year is the excess
of (a) the "imputed earnings rate" for the taxable year over (b)
the "average mutual earnings rate" for the second calendar year
preceding the calendar year in which the taxable year begins.
The "imputed earnings rate" for any taxable year is the amount
that bears the same ratio to 16.5 percent as the "current stock
earnings rate" for the taxable year bears to the "base period
stock earnings rate."

Section 809 (f) provides that, in the case of any mutual life
insurance company, if the "recomputed differential earnings
amount" for any taxable year exceeds the differential earnings
amount for that taxable year, the excess is included in life
insurance gross income for the succeeding taxable year. If the
differential earnings amount for any taxable year exceeds the
recomputed differential earnings amount for that taxable year,
the excess is allowed as a life insurance deduction for the

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succeeding taxable year. The "recomputed differential earnings
amount" for any taxable year is an amount calculated in the same
manner as the differential earnings amount for that taxable year,
except that the average mutual earnings rate for the calendar
year in which the taxable year begins is substituted for the
average mutual earnings rate for the second calendar year
preceding the calendar year in which the taxable year begins.

The stock earnings rates and mutual earnings rates taken
into account under 809 generally are determined by dividing
statement gain from operations by the average equity base. For
this purpose, the term "statement gain from operations" means
"the net gain or loss from operations required to be set forth in
the annual statement, determined without regard to Federal income
taxes, and ... properly adjusted for realized capital gains and
losses .... " See 809 (g) (1). The term "equity base" is defined
as an amount determined in the manner prescribed by regulations

equal to surplus and capital increased by the amount of
nonadmitted financial assets, the excess of the amount of
statutory reserves over the amount of tax reserves, the sum of
certain other reserves, and 50 percent of any policyholder
dividends (or other similar liability) payable in the following
taxable year. See 809(b) (2), (3), (4), (5) and (6). Section
1\. 809-10 of the Income Tax Regulations provides that the equity
base includes both the asset valuation reserve and the interest

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maintenance reserve for taxable years ending after December 31,
1991.

Section 1.809-9 (a) of the regulations provides that neither
the differential earnings rate under 809 (c) nor the recomputed
differential earnings rate that is used in computing the
recomputed differential earnings amount under 809 (f) (3) may be
less than zero.

Rev. Rul. 99-3, 1999-1 C.B. 313, provides that a life
insurance subsidiary of a mutual holding company is not a mutual
life insurance company for which the deduction for policyholder
dividends is reduced pursuant to 808 (c) (2) and 809.

For purposes of 809, the differential earnings rate for
2000 and the rate used to calculate the recomputed differential
earnings amount for 1999 (the recomputed differential earnings
rate for 1999), and the figures on which these two rates are
based are set forth in Table 1.

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Rev. Rul.
2001-33
Table 1

Determination of Rates To Be Used For Taxable Years

Beginning in 2000

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Differential earnings rate for 2000
0

│

Recomputed differential earnings rate for 1999
0

15.815

│
│

Imputed earnings rate for 2000

15.358

Base period stock earnings rate
18.221
│
│
│
│

Current stock earnings rate for 2000
16.960

│
│

Stock earnings rate for 1997
19.321

│
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Stock earnings rate for 1998
15.836

Stock earnings rate for 1999
15.724
Average mutual earnings rate for 1998
16.011
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│

Average mutual earnings rate for 1999

16.164

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│

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Imputed earnings rate for 1999

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The principal author of this revenue ruling is Katherine A.
Hossofsky of the Office of the Associate Chief Counsel (Financial
Institutions and Products) . For further information regarding
this revenue ruling contact Ms. Hossofsky on (202) 622-3477 (not
a toll-free number) .