REVENUE RULING 74-437
1974-2 C.B. 274, declared obsolete in Rev. Rul. 84-126

[IRS Annotation]
Casualty insurance company; eligibility for subchapter S election. A stock casualty insurance company taxable under section 831(a) of the Code that otherwise meets the requirements under subchapter S to qualify as a small business corporation as defined by section 1371(a) may make a valid election under section 1372.

Rev. Rul. 74-437
Advice has been requested whether a stock casualty insurance company taxable under section 831(a) of the Internal Revenue Code of 1954 may make a valid election under section 1372.

The taxpayer was incorporated on July 1, 1972, as a stock casualty insurance company to write insurance to cover auto liability, auto physical damage and surety risks. It has issued only one class of stock and has ten or less individual shareholders and otherwise meets the requirements under subchapter S of the Code, and the Income Tax Regulations thereunder, to qualify as a small business corporation as defined in section 1371(a). On July 15, 1972, the taxpayer filed with the Internal Revenue Service its corporate election and shareholders' consents not to be subject to the taxes imposed under chapter 1 of the Code pursuant to section 1372. This election covers its first taxable period as a stock casualty insurance company, namely, July 1, 1972, through December 31, 1972, and subsequent taxable years.

Section 831(a) of the Code provides, in pertinent part, that taxes computed as provided in section 11 of chapter 1 of subtitle A of the Code (relating to taxes imposed on corporations, in general) shall be imposed for each taxable year on the taxable income of every insurance company (other than a life or mutual insurance company).

Section 1372(a) of the Code allows, with a certain exception not pertinent to this case, any small business corporation, as defined by section 1371(a), to elect not to be subject to the taxes imposed by chapter 1 of subtitle A of the Code. Its income is thus taxed directly to its shareholders by the rules provided in sections 1373 through 1375.

Accordingly, in the instant case, the taxpayer may make a valid election under section 1372 of the Code. Compare with Rev. Rul. 74-344, [1974-2 C.B. 273], which holds that a stock life insurance company as defined in section 801 may not make a valid election under section 1372.