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60 days late is the smaller of the tax due

There are some instances when the

or credit on the return must be kept for 3

or $135. The penalty will not be imposed

corporation can obtain automatic consent

years from the date the return is due or

if the corporation can show that the failure

from the IRS to change to certain

filed, whichever is later. Keep records that

to file on time was due to reasonable

accounting methods. See Rev. Proc.

verify the corporation’s basis in property

cause. See Caution on page 3.

2011-14, 2011-4 I.R.B. 330, as modified,

for as long as they are needed to figure

or its successor. Also, see the

the basis of the original or replacement

Late payment of tax. A corporation that

Instructions for Form 3115.

property.

does not pay the tax when due generally

Safe harbor method of accounting for

may be penalized

of 1% of the unpaid

The corporation should keep copies of

premium acquisition expenses.

tax for each month or part of a month the

all filed returns. They help in preparing

Insurance companies subject to tax under

tax is not paid, up to a maximum of 25%

future and amended returns and in the

section 831 are provided with a safe

of the unpaid tax. See Caution on page 3.

calculation of earnings and profits.

harbor method of accounting for premium

Trust fund recovery penalty. This

Other Forms and

acquisition expenses. Form 3115 must be

penalty may apply if certain excise,

filed in order to change to the safe harbor

Statements That May Be

income, social security, and Medicare

method. For more information, see the

taxes that must be collected or withheld

Instructions for Form 3115 and item 67 in

Required

are not collected or withheld, or these

the List of Automatic Accounting Method

taxes are not paid. These taxes are

Changes.

Reportable transaction disclosure

generally reported on:

statement. Disclose information for each

Certain changes in method of

•

Form 720, Quarterly Federal Excise

reportable transaction in which the

accounting for organizations to which

Tax Return;

corporation participated. Form 8886,

section 833 applies. Blue Cross or

•

Form 941, Employer’s QUARTERLY

Reportable Transaction Disclosure

Blue Shield organizations under section

Federal Tax Return;

Statement, must be filed for each tax year

833(c)(2), or organizations described in

•

Form 944, Employer’s ANNUAL

that the federal income tax liability of the

section 833(c)(3), can obtain automatic

Federal Tax Return; or

corporation is affected by its participation

consent to change the method of

•

Form 945, Annual Return of Withheld

in the transaction. The following are

accounting for unearned premiums

Federal Income Tax.

reportable transactions.

resulting from either a failure to meet the

The trust fund recovery penalty may

MLR requirements of section 833(c)(5), or

1. Any listed transaction, which is a

be imposed on all persons who are

meeting the MLR requirements after

transaction that is the same as or

determined by the IRS to be responsible

failing to do so in a prior year.

substantially similar to one of the types of

for collecting, accounting for, and paying

transactions that the IRS has determined

See Rev. Proc. 2011-14, 2011-4 I.R.B.

over these taxes, and who acted willfully

to be a tax avoidance transaction and

330. Also, see section 3.08 of Notice

in not doing so. The penalty is equal to

identified by notice, regulation, or other

2010-79, 2010-49 I.R.B 809, Notice

the full amount of the unpaid trust fund

published guidance as a listed

2011-4, 2011-2 I.R.B. 282, and Notice

tax. See the Instructions for Form 720 or

transaction.

2011-51, 2011-27 I.R.B. 36.

Pub. 15 (Circular E), Employer’s Tax

2. Any transaction offered under

Guide, for details, including the definition

conditions of confidentiality for which the

Accounting Period

of responsible persons.

corporation (or a related party) paid an

An insurance company must figure its

advisor a fee of at least $250,000.

Other penalties. Other penalties can be

taxable income on the basis of a tax year.

3. Certain transactions for which the

imposed for negligence, substantial

A tax year is the annual accounting period

corporation (or a related party) has

understatement of tax, reportable

an insurance company uses to keep its

contractual protection against

transaction understatements, and fraud.

records and report its income and

disallowance of the tax benefits.

See sections 6662, 6662A, and 6663.

expenses.

4. Certain transactions resulting in a

loss of at least $10 million in any single

Accounting Methods

As a general rule under section 843,

year or $20 million in any combination of

the tax year for every insurance company

Figure taxable income using the method

years.

is the calendar year. However, if an

of accounting regularly used in keeping

5. Any transaction identified by the

insurance company joins in the filing of a

the corporation’s books and records. In all

IRS by notice, regulation or other

consolidated return, it may adopt the tax

cases, the method used must clearly

published guidance as a “transaction of

year of the common parent corporation

show taxable income. Permissible

interest.”

even if that year is not a calendar year.

methods include cash, accrual, or any

other method authorized by the Internal

Rounding Off to Whole

For more information, see Regulations

Revenue Code.

section 1.6011-4. Also see the

Dollars

Instructions for Form 8886.

The gross amounts of underwriting

The corporation can round off cents to

and investment income should be

Penalties. The corporation may have

whole dollars on its return and schedules.

computed on the basis of the Statement

to pay a penalty if it is required to disclose

If the corporation does round to whole

of Income of the NAIC annual statement

a reportable transaction under section

dollars, it must round all amounts. To

to the extent not inconsistent with the

6011 and fails to properly complete and

round, drop amounts under 50 cents and

Internal Revenue Code and its

file Form 8886. Penalties may also apply

increase amounts from 50 to 99 cents to

Regulations. In all cases, the method

under section 6707A if the corporation

the next dollar. For example, $1.39

used must clearly show taxable income.

fails to file Form 8886 with its corporate

becomes $1 and $2.50 becomes $3.

return, fails to provide a copy of Form

Change in accounting method.

8886 to the Office of Tax Shelter Analysis

If two or more amounts must be added

Generally, the corporation must get IRS

(OTSA), or files a form that fails to include

to figure the amount to enter on a line,

consent to change the method of

all the information required (or includes

include cents when adding the amounts

accounting used to report taxable income

incorrect information). Other penalties,

and round off only the total.

(for income as a whole or for the

such as an accuracy-related penalty

treatment of any material item). To do so,

Recordkeeping

under section 6662A, may also apply. For

the corporation generally must file Form

details on these and other penalties, see

3115, Application for Change in

Keep the corporation’s records for as long

the Instructions for Form 8886.

Accounting Method. For more

as they may be needed for the

information, see the Instructions for Form

administration of any provision of the

Reportable transactions by material

3115, and Pub. 538, Accounting Periods

Internal Revenue Code. Usually, records

advisors. Material advisors to any

and Methods.

that support an item of income, deduction,

reportable transaction must disclose

-4-

Instructions for Form 1120-PC (2011)

Instructions For Form 1120-Pc - U.s. Property And Casualty Insurance Company Income Tax Return Page 4

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