[IRS Annotation]
The Revenue Service will follow the Union Mutual Insurance Company of Providence decision which holds that payments made by a mutual insurance company to the holders of its guaranty fund certificates are deductible as interest expense under section 822(c)(5) of the Code.

Rev. Rul. 68-515
The Internal Revenue Service will follow the decision of the United States Court of Appeals for the First Circuit in the case of Commissioner v. Union Mutual Insurance Company of Providence, 386 F.2d 974 (1967). In that case the court examined the unique problem of financing that a mutual insurance company has in order to raise sufficient capital to qualify to do business in various states and to write policies without contingent liabilities or contingent premiums making its policyholders liable to assessment.

In a field so influenced by the necessary requirements of the mutual insurance business, the court concluded that the Guaranty Fund Certificates issued by Union Mutual should be considered in the nature of a debt instrument and that the payments made by them to the holders of its certificates were deductible as interest expense under section 822(c)(5) of the Internal Revenue Code of 1954.

This position is not applicable to non-mutual insurance companies since a non-mutual company does not face the unique problem of financing that a mutual insurance company does in order to commence its operations.