§835 Election by Reciprocal

Summary

A mutual insurance company that is an interinsurer or reciprocal underwriter and is taxed under section 831(a) may choose to follow a special limit on how much it can deduct for payments to its attorney-in-fact. A "reciprocal" means that kind of mutual insurer. An "attorney-in-fact" is the agent or manager that handles the reciprocal’s business. The choice starts in the tax year it is made and stays in effect for later years unless the Secretary agrees to end it. If the reciprocal makes the choice, its deduction for amounts paid to the attorney-in-fact cannot be larger than the attorney-in-fact’s deductions that are tied to the income it got from that reciprocal, under rules the Secretary sets. The choice can only be made if the attorney-in-fact is taxed under section 11, agrees to give needed information, reports the same way the reciprocal does, and files on a calendar year basis. The reciprocal gets a credit for the part of the attorney-in-fact’s tax that comes from income paid by the reciprocal. Any extra taxable income the reciprocal has because of this limit is taxed at the highest rate in section 11(b). If the attorney-in-fact later gets a tax credit or refund for taxes that gave the reciprocal a credit, the reciprocal’s tax will be adjusted under rules the Secretary sets. This change does not alter the taxes the attorney-in-fact owes.