REVENUE RULING 69-405
1969-2 C.B. 240 

[IRS Annotation]
Number and types of income tax returns to be filed by life insurance companies where, during the calendar year, one company disposes of its insurance business, reserves, and assets, and the other disposes of its business and reserves but retains some assets.

Rev. Rul. 69-405
The Internal Revenue Service has been asked (1) whether, in the situations described below, insurance companies are required to file one or two income tax returns and (2) to specify the type of return to be filed.

Situation 1.—On June 30, a life insurance company disposed of its entire life insurance business and life insurance reserves under a reinsurance agreement with another company, but continued its corporate existence under state law throughout the calendar year for the purpose of winding up and liquidating its affairs. The company neither retained nor acquired assets during the remainder of the calendar year.

Situation 2.—The facts are the same as in Situation 1 except the company retained some assets during the remainder of the calendar year after disposition of its life insurance business and life insurance reserves.

Section 1.818-5(b) of the Income Tax Regulations provides the rules for life insurance companies in making returns [241] for periods of less than the entire calendar year. It provides that a return for a short period, that is, for a taxable year consisting of a period of less than the entire calendar year, shall be made if the company is not in existence for the entire taxable year. For example, a life insurance company organized on August 1, is required to file a return for the short period from August 1 to December 31, and returns for each calendar year thereafter. Similarly, if a company that qualifies as a life insurance company completely dissolves during the taxable year it is required to file a return for the short period from January 1 to the date it goes out of existence.

Section 1.6012-2(a)(2) of the regulations, relating to the requirements for filing income tax returns by corporations, states that after a corporation ceases business and dissolves it may be in existence or not depending upon whether it has any retained assets.

In Situation 1, the insurance company disposed of all its life insurance business and life insurance reserves on June 30, but continued its corporate existence under state law for the purpose of winding up and liquidating its affairs. Since the company neither retained assets nor acquired assets after it ceased its insurance business and transferred its activities to another company, a de facto dissolution of the corporation had occurred even though the corporation had not been formally dissolved. Therefore, the corporation was not in existence within the meaning of section 1.6012-2(a)(2) of the regulations and is required to file a short period return on Form 1120L pursuant to section 1.818-5 of the regulations. That would be its one and only return for the year.

In Situation 2, on the other hand, since the insurance company retained assets during the remainder of the calendar year after it disposed of its life insurance business and life insurance reserves under the reinsurance agreement, it was in existence at the end of the calendar year, but not as a life insurance company. In that event, it would not have a short taxable year and would not file a short period return. The company would have only one taxable year and would file only one return, Form 1120, for the calendar year. However, for that portion of the calendar year during which it was a life insurance company, it would compute its income under the provisions of subchapter L of the Code. Form 1120L may be used for this purpose as a schedule attached to the company's Form 1120.