Part I. Rulings — Internal Revenue Bulletin 1998-32

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 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 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.

For purposes of § 809, the differential earnings rate for 1997 and the rate used to calculate the recomputed differential earnings amount for 1996 (the recomputed differential earnings rate for 1996), and the figures on which these two rates are based are set forth in Table 1.

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.

Mutual life insurance companies; differential earnings rate. The differential earnings rate for 1997 and the recomputed differential earnings rate for 1996 are set forth for use by mutual life insurance companies to compute their income tax liabilities for 1997.

Rev. Rul. 98–38

This revenue ruling contains the differential earnings rate for 1997 and the recomputed differential earnings rate for 1996. 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 1997. This revenue ruling also contains the figures on which the determinations of these rates are based. Notice 98–19, 1998–13 I.R.B. 24, 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 § 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 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

Rev. Rul. 98–38 Table 1 Determination of Rates To Be Used For Taxable Years

Beginning in 1997 Differential earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Recomputed differential earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Imputed earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.669 Imputed earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.813 Base period stock earnings rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.221 Current stock earnings rate for 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.254 Stock earnings rate for 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.437 Stock earnings rate for 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.087 Stock earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.238 Average mutual earnings rate for 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.477 Average mutual earnings rate for 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.112

August 10, 1998 4 1998–32 I.R.B.

DRAFTING INFORMATION

The principal author of this revenue ruling is Katherine A. Hossofsky of the Assistant 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).

Section 7805.—Rules and Regulations

26 CFR 301.7805–1: Rules and regulations.

Rulings; obsolete. A list is given of rulings under the jurisdiction of the Associate Chief Counsel (Domestic) that have been identified as no longer determinative.

Rev. Rul. 98–37

The Internal Revenue Service is continuing its program of reviewing rulings (including revenue rulings and revenue procedures) published in the Internal Revenue Bulletin to identify and publish lists of those rulings that, although not specifically revoked or superseded, are no longer considered determinative because: (1) the applicable statutory provisions or regulations have been changed or repealed; (2) the ruling position is specifically covered by a statute, regulation, or subsequent published position; or (3) the facts set forth no longer exist or are not sufficiently described to permit clear application of the current statute and regulations.

This revenue ruling publishes a list of

rulings under the jurisdiction of the Associate Chief Counsel (Domestic) that have been identified under the Service’s review program as no longer being determinative. The rulings are categorized by subject matter.

Accordingly, the rulings listed below are hereby declared obsolete.

ENTITY CLASSIFICATION

Rev. Rul. No. C.B. Citation

71–277 1971–1 C.B. 422 71–434 1971–2 C.B. 430 71–574 1971–2 C.B. 432 72–75 1972–1 C.B. 401 72–120 1972–1 C.B. 402 72–121 1972–1 C.B. 403 72–122 1972–1 C.B. 405 75–19 1975–1 C.B. 382 77–214 1977–1 C.B. 408 79–106 1979–1 C.B. 448 88–8 1988–1 C.B. 403 88–76 1988–2 C.B. 360 88–79 1988–2 C.B. 361 93-4 1993–1 C.B. 225 93–5 1993–1 C.B. 227 93–6 1993–1 C.B. 229 93–30 1993–1 C.B. 231 93–38 1993–1 C.B. 233 93–49 1993–2 C.B. 308 93–50 1993–2 C.B. 310 93–53 1993–2 C.B. 312 93–81 1993–2 C.B. 314 93–91 1993–2 C.B. 316 93–92 1993–2 C.B. 318 93–93 1993–2 C.B. 321 94–5 1994–1 C.B. 312 94–6 1994–1 C.B. 314 94–30 1994–1 C.B. 316 94–51 1994–2 C.B. 407

Rev. Rul. No. C.B. Citation

94–79 1994–2 C.B. 409 95–2 1995–1 C.B. 220 95–9 1995–1 C.B. 222

OTHER GUIDANCE

Rev. Rul. No. C.B. Citation

57–271 1957–1 C.B. 453 74–77 1974–1 C.B. 33 76–562 1976–2 C.B. 430 83–113 1983–2 C.B. 251 85-143 1985–2 C.B. 55

Rev. Proc. No. C.B. Citation

83–58 1983–2 C.B. 575

The Service will continue to review other rulings to identify those that, for the reasons stated above, are inapplicable to future transactions. Therefore, failure to include any particular ruling in the above list should not be construed as an indication that the ruling necessarily is determinative with respect to future transactions.

DRAFTING INFORMATION

The principal author of this revenue ruling is David A. Schneider of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding the rulings identified under OTHER GUIDANCE, contact Mr. Schneider on (202) 622-4890. For further information regarding the rulings identified under ENTITY CLASSIFICATION, contact Mark D. Harris of the Office of Assistant Chief Counsel (Passthroughs and Special Industries) on (202) 6223050. These are not toll-free calls.

1998–32 I.R.B. 5 August 10, 1998