§845 — Certain reinsurance agreements
6 cases·1 followed·2 criticized·3 cited—17% support
Statute Text — 26 U.S.C. §845
In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may—
allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement,
recharacterize any such items, or
make any other adjustment,
if he determines that such allocation, recharacterization, or adjustment is necessary to reflect the proper amount, source, or character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person.
If the Secretary determines that any reinsurance contract has a significant tax avoidance effect on any party to such contract, the Secretary may make proper adjustments with respect to such party to eliminate such tax avoidance effect (including treating such contract with respect to such party as terminated on December 31 of each year and reinstated on January 1 of the next year).
6 Citing Cases
We disagree with petitioner's claim that section 845(b), without regulations, is unconstitutionally vague.
Pursuant to Internal Revenue Code section 845 an adjustment is made to reserves to eliminate the avoidance effect by treating the reinsurance agreement as terminated on December 31, 1989 and reinstating the agreement on January 1, 1990.
urance agreements between Hibiscus Life Insurance Company and Lone Star Life Insurance Company have significant tax avoidance effect. This effect is eliminated by disallowing Hibiscus's reserves associated with the reinsurance agreements pursuant to I.R.C. sec. 845. As a result of the disallowance Hibiscus has no reserves and fails to qualify as an insurance company under I.R.C. sec. 816. Accordingly, Lone Star Life Insurance Company and Hibiscus Life Insurance Company may not file consolidated