surance Commissioner of Pennsylvania may require such reserves under a practice of his office established for many years and relied upon as an administrative interpretation of the law of that state.

RELEASED RESERVES.

Where there has been a decrease

in reserve funds the amount of the decrease is commonly called released reserve, and is to be treated as income for the year in which the reserve is released. Released reserves though not mentioned in express terms in the law have been held to be income and taxable for the year in which released.5

ASSESSMENT INSURANCE COMPANIES. In the case of assessment insurance companies, whether domestic or foreign, the actual deposits of sums with state or territorial officers, pursuant to law, as additions to guaranty or reserve funds shall be treated as being payments required by law to reserve funds.

Payments on Policies. All insurance companies may deduct the sums, other than dividends, paid within the year on policy and annuity contracts. Under this item on the return of annual net income may be included all death, disability or other policy claims, including fire, accident and liability losses, matured endowments, payments on instalment policies, surrender values and all claims actually paid under the terms of policy contracts. In the case of life insurance companies amounts paid as

4 McCoach v. Insurance Company of North America, 228 U. S.

295.

5 Maryland Casualty Company v. U. S., Court of Claims, T. D. 2451.

6 Act of September 8, 1916, § 12, Subdiv. (c).

consideration for supplementary contracts, and applied surrender values, should be separately reported."

Mutual Fire Insurance Companies. Companies of this character are required to report under a special provision of the 1916 Law which provides that such companies requiring their members to make premium deposits to provide for losses and expenses shall not return as income any portion of the premium deposits returned to the policyholders, but shall return as taxable income all income received by them from all other sources plus such portions of the premium deposits as are retained by the companies for purposes other than the payment of losses and expenses and reinsurance reserves. Under this provision the Treasury Department has prescribed a special form for such companies.8

The capital em

CAPITAL EMPLOYED IN BUSINESS. ployed in business by such companies is held to be the capital invested in real estate and other assets.

INDEBTEDNESS. The interest-bearing indebtedness of such companies is required to be reported. The amount should include all such indebtedness for the payment of which the company or its property is bound, but not indebtedness wholly secured by collateral the subject of sale or hypothecation in the ordinary business of the company.

PREMIUMS. The amount to be reported as premiums includes the net amount received from the policyholders after deducting therefrom the premiums returned and

7 Instructions on Form 1030.

8 Form 1030A.

such portion of the premiums as is retained for the payment of losses, expenses and reinsurance reserves. Only that part of the premiums retained for any other purpose is taxable income and should be returned as such.

PROFIT ON SALE OR MATURITY OF LEDGER ASSETS. The profit or income to be returned in the event of sale or maturity of capital assets should be determined in the same manner as in the case of other corporations. The profit or income may, for the purpose of the tax, be reduced by the amount of any loss resulting from the same source and ascertained in the same manner. In no event can a loss resulting from the sale or maturity of capital assets exceed the profit within the year from like transactions.

RENTALS. Rentals to be reported as income include the net amount of all payments received in cash or its equivalent, as rent on buildings or other property owned or controlled by the company making the return, after deducting rents paid by the company and also such amounts of repairs and expenses, including taxes, as have been expended on the property from which the rental income reported was derived.

INTEREST ON BONDS. The interest received on bonds to be reported as income does not include interest exempt from tax under the 1916 Law.

COMMISSIONS ON REINSURANCE. Commissions received for reinsurance to be reported as income should be the net amount after deducting the amount of reinsurance commissions actually paid within the year.

DEDUCTIONS. No deductions are permitted to be made from the amount of income reported by mutual fire insurance companies. The amount of premiums, assessments, fees, etc., reported as income is such an amount as is retained for purposes other than the payment of losses, expenses and reinsurance reserves hence the expenses of doing business of the company are deducted from the amount of such premiums before the sum is reported in the return. Similarly the amount received as rent on buildings owned by such companies is the net amount after deducting rentals paid by the company on buildings which it may occupy as a tenant, taxes paid by the company on buildings which it owns, and repairs and expenses incident to the operation of buildings which it owns. Thus it will be seen that the report for mutual insurance companies is a report of net income in the true sense of the word, the gross income not being reported except so far as is required for purposes of information in the supplementary statement on the back of the return.

Mutual Employers' Liability Insurance Companies. The 1916 Law included companies of this class in the same class as mutual fire insurance companies and the statement in the preceding paragraphs regarding such companies applies equally to this class of companies.

Mutual Workmen's Compensation Companies. The 1916 Law included companies of this class in the same class as mutual fire insurance companies and the statement in the preceding paragraphs regarding such companies applies equally to this class of companies.

Mutual Casualty Insurance Companies. The 1916 Law included companies of this class in the same class

as mutual fire insurance companies and the statement in the preceding paragraphs regarding such companies applies equally to this class of companies.

Mutual Marine Insurance Companies. Mutual marine insurance companies are required to include in their return of gross income gross premiums collected and received by them less amounts paid for reinsurance, but are entitled to include in the deductions from gross income amounts repaid to policyholders on account of premiums previously paid by them, together with interest upon such amounts between the ascertainment thereof and the payment thereof. In other respects the companies of this class proceed in the same manner as insurance companies generally.

Life Insurance Companies. Life insurance companies, including stock and mutual companies, do not include as income in any year such portion of any actual premium received from any individual policyholder as shall have been paid back or credited to such individual policyholder or treated as an abatement of premium within the year.10 In so far as "deferred dividends" payable at a stated period represent "a portion of any actual premium received," they may be omitted from gross income for the year in which they were actually paid back, except that so much of any deferred dividends

9 Act of September 8, 1916, § 12; Reg. 33, Art. 99.

10 Under the 1909 Law there was much litigation as to whether so-called dividends paid by insurance companies to policyholders as a return of a part of the premium were properly deductible. The courts held that the so-called dividends awarded annually to policyholders did not constitute income (Herold v. Mutual Benefit Life Insurance Company, 201 Fed. 918) and at the time of the enactment of the 1913 Law the point was expressly covered by the same language as in the present law.