SECTION 5. SAFE HARBOR

METHOD

.01 Taxpayers within the scope of this revenue procedure are permitted to account for premium acquisition expenses incurred for taxable years beginning after December 31, 1999, using the safe harbor method described in section 5.02 of this revenue procedure.

.02 Description of Safe Harbor Method . (i) Except as provided in section 5.02(ii) of this revenue procedure, an insurance company is permitted to treat as premium acquisition expenses incurred for the taxable year an amount equal to the sum of

(A) The amount of premium acquisition expenses paid during the taxable year;

(B) The difference between the unpaid premium acquisition expenses shown on the company’s annual statement for the taxable year and the unpaid premium acquisition expenses shown on the company’s annual statement for the preceding taxable year; and

(C) The difference between the amount of the insurance company’s pro forma premium acquisition expenses at the end of the taxable year and the company’s pro forma premium acquisition expenses at the end of the preceding taxable year.

(ii) Limitation on current deductibility of certain pro forma expenses . For purposes of calculating the premium acquisition expenses incurred for the taxable year under section 5.02(i) of this revenue procedure, the amount taken into account as a net increase in pro forma premium acquisition expenses during the year under section 5.02(i)(C) cannot exceed the insurance company’s unearned premium reserve offset amount for that year. If the amount taken into account as a net increase in pro forma premium acquisition expenses during the year under section 5.02(i)(C) is reduced as a result of this limitation, the reduction amount is carried forward and increases the company’s pro forma premium acquisition expenses at the end of the succeeding taxable year.