[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.826-1]

[Page 726-727]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.826-1  Election by reciprocal underwriters and interinsurers.

    (a) In general. Except as otherwise provided in section 826(c), any 
mutual insurance company which is an interinsurer or reciprocal 
underwriter taxable under section 821(a) may elect under section 826(a) 
to limit its deductions for amounts paid or incurred to its attorney-in-
fact to the deductions of its attorney-in-fact which are allocable to 
income received by the attorney-in-fact from the reciprocal during the 
taxable year. See Sec. 1.826-4 for rules relating to allocation of 
expenses. In no case may such an election increase the amount deductible 
by the reciprocal for amounts paid or due its attorney-in-fact for the 
taxable year. The election allowed by section 826(a) and this section in 
effect increases the income of the reciprocal by the net income of the 
attorney-in-fact attributable to its business with the reciprocal. A 
reciprocal making the election is allowed a credit for the amount of tax 
paid by the attorney-in-fact for the taxable year which is attributable 
to income received by the attorney-in-fact from the reciprocal. See 
section 826(e) and Sec. 1.826-5.
    (b) Companies eligible to elect under section 826(a). Any mutual 
insurance company which is a reciprocal underwriter or interinsurer 
subject to the tax imposed by section 821(a) may elect (in the manner 
prescribed by paragraph (c) of this section) to be subject to the 
limitation provided by section 826(b) and paragraph (a) of this section 
provided the attorney-in-fact of the electing reciprocal:
    (1) Is subject to the taxes imposed by section 11 (b) and (c) and 
the regulations thereunder;
    (2) Consents (in the manner provided by paragraph (a) of Sec. 
1.826-3) to provide the information required under paragraph (b) of 
Sec. 1.826-3 during the period in which the election made under section 
826(a) and this section is in effect;
    (3) Reports the income received from the reciprocal and the 
deductions allocable thereto under the same method of accounting used by 
the reciprocal in reporting its deductions for amounts paid or due its 
attorney-in-fact; and
    (4) Files its income tax return on a calendar year basis.
    (c) Manner of making election. The election provided by section 
826(a) and this section shall be made in a statement attached to the 
taxpayer's income tax return for the first taxable year for which such 
election is to apply. The statement shall include the name and address 
of the taxpayer, shall be signed by the taxpayer (or its duly authorized 
representative), and shall be filed not later than the time prescribed 
by law for filing the income tax return (including extensions thereof) 
for the first taxable year for which such election is to apply. For 
information required of an electing reciprocal, see paragraph (e) of 
this section.
    (d) Scope of election. The election allowed by section 826(a) is 
binding for the taxable year for which made and all succeeding taxable 
years unless the Commissioner consents to a revocation of such election. 
Whether revocation will be permitted will depend upon the facts and 
circumstances of each particular case.
    (e) Information required of an electing company. Every reciprocal 
underwriter or interinsurer making the election provided by section 
826(a) and this section shall, in the manner provided by paragraph (f) 
of this section, furnish the following information for each taxable year 
during which such election is in effect:
    (1) The name and address of the attorney-in-fact with respect to 
which the election allowed by section 826(a) and this section is in 
effect; the district in which such attorney-in-fact filed its return for 
the taxable year; and a copy of the consent required by section 826 and 
Sec. 1.826-3 and the date and district in which such consent was filed;
    (2) The deductible amount paid or due to such attorney-in-fact from 
the reciprocal computed without regard to the limitation provided by 
section 826(b);
    (3) The total amount claimed as a deduction by the reciprocal for 
amounts paid to its attorney-in-fact after giving effect to the 
limitation provided by section 826(b);
    (4) The amount of the increase (if any) in underwriting gain (as 
defined in section 824(a)) attributable to the election allowed by 
section 826(a);

[[Page 727]]

    (5) The amount of the increase (if any) in the deduction allowed by 
section 824(a) (relating to deduction to provide protection against 
losses) attributable to the election allowed by section 826(a);
    (6) The amount of any increase or decrease in the statutory 
underwriting income or loss for the taxable year (as computed under 
section 823) attributable to the election allowed by section 826(a);
    (7) The amount of any increase or decrease in the mutual insurance 
company taxable income or unused loss for the taxable year attributable 
to the election allowed by section 826(a);
    (8) The amount of the increase (if any) in the tax liability of the 
reciprocal for the taxable year attributable to the election allowed by 
section 826(a) before taking into account the credit provided by section 
826(e);
    (9) The amount of tax attributable to income received by the 
attorney-in-fact from the reciprocal during the taxable year (as 
determined under Sec. 1.826-5) claimed (under section 826(e) and 
paragraph (a) of this section) by the reciprocal as a credit for the 
taxable year; and
    (10) The information which the attorney-in-fact is required to 
submit to the reciprocal under paragraphs (b) and (c) of Sec. 1.826-3.
    (f) Manner in which information is to be provided. The information 
required by paragraph (e) of this section shall be set forth in a 
statement attached to the taxpayer's income tax return for each taxable 
year for which such information is required. Such statement shall 
include the name and address of the taxpayer; and shall be filed not 
later than the date prescribed by law (including extensions thereof) for 
filing the income tax return for the taxable year with respect to which 
such information is being provided.

[T.D. 6681, 28 FR 11124, Oct. 17, 1963]