Rev. Rul. 57-48

The Internal Revenue Service has been asked to reconsider the conclusions stated in I. T. 3798, C. B. 1946-1, 127, and Revenue Ruling 151, C. B. 1953-2, 222, relative to the application of section 832(b)(4) of the Internal Revenue Code of 1954 (section 204(b)(5) of the Internal Revenue Code of 1939) to portions of the original premiums established and segregated as a reinsurance reserve by a title insurance company from June 1, 1938, to May 31, 1945, under section 434 l. a. of the New York State Insurance Law, as enacted by chapter 882 of the laws of the State of New York for 1939.

I. T. 3798, supra, holds that (1) the portions of original premiums established and segregated as a reinsurance reserve by a title insurance company on and after June 1, 1945, under section 434 l. b. of the New York State Insurance Law, as amended, may be treated as unearned premiums under section 204(b)(5) of the Internal Revenue Code of 1939; and (2) the portions of original premiums established and segregated as a reinsurance reserve by a title insurance company from June 1, 1938, to May 31, 1945, under section 434 l. a. of the New York State Insurance Law, may not be treated as unearned premiums under section 204(b)(5) of the 1939 Code. Revenue Ruling 151, supra, affirmed the position expressed in I. T. 3798 with respect to issue (2) above.

After careful consideration of the matter, it has been concluded that the treatment for Federal income tax purposes, of the portions of the original premiums established and segregated as a reinsurance reserve by a title insurance company from June 1, 1938, to May 31, 1945, under section 434 l. a. of the New York State Insurance Law (prior to the 1945 amendment), should not differ from that accorded the portions of the original premiums established and segregated as a reinsurance reserve by such a company on and after June 1, 1945, under section 434 l. b. of that law, as amended by the laws of the State of New York for 1945. See Early v. Lawyers Title Insurance Corporation, 132 Fed. (2d) 42; Title and Trust Company v. Commissioner, 192 Fed. (2d) 93; Pacific Abstract Title Company v. United States, 192 Fed. (2d) 934; Washington Title Insurance Company v. United States, 135 F. Supp. 426; and Home Title Guaranty Company v. Commissioner, 15 T. C. 637, nonacquiescence C. B. 1953-2, 8, and City Title Insurance Company, T. C. Memo 1955- 33.

Accordingly, it is held that a title insurance company, filing its corporation income tax returns in accordance with the provisions of sections 831 and 832 of the Internal Revenue Code of 1954 (section 204 of the 1939 Code) may treat as unearned premiums under section 832(b)(4) of the 1954 Code (section 204(b)(5) of the 1939 Code) the portions of original premiums established and segregated as a reinsurance reserve from June 1, 1938, to May 31, 1945, in accordance with the provisions of Section 434 l. a. of the New York State Insurance Law enacted by chapter 882 of the laws of the State of New York for 1939 (the period preceding enactment of section 434 l. b. of such laws, as amended, for 1945). Restorations to income from such reserves will constitute taxable income in the year of such restoration.

In view of the above, Revenue Ruling 151, C. B. 1953-2, 222, is revoked; and I. T. 3798, C. B. 1946-1, 127, is modified to the extent that it holds that the portions of original premiums established and segregated as a reinsurance reserve by a title insurance company from June 1, 1938, to May 31, 1945, under section 434 l. a. of the New York State Insurance Law, may not be treated as unearned premiums under section 204(b)(5) of the Code. In addition, the prior nonacquiescence in the case of Home Title Guaranty Company v. Commissioner, supra, has been withdrawn and acquiescence substituted therefor. See page 4 of this Bulletin.