Form 8816 Form 8816 Special Loss Discount Account and Special Estimated Tax

8816

Form
(Rev. January 2010)

Special Loss Discount Account and Special
Estimated Tax Payments for Insurance Companies

Department of the Treasury
Internal Revenue Service

OMB No. 1545-1130

© Attach to tax return.

Name

Employer Identification Number

Part I

Special Loss Discount Amount
Accident year

1

Undiscounted unpaid losses

2
3

Discounted unpaid losses
Special loss discount limitation.
Subtract line 2 from line 1

Part II

Special Loss Discount Account (See instructions.)

4

Balance at the beginning of the year

5

Additions—section 847(4)

6

Subtractions—section 847(5)

7

Balance at the end of the year.
Add lines 4 and 5 and subtract line
6 from the result

Part III
8

Special Estimated Tax Payments (See instructions.)

Balance at the beginning of the year

9
10

Payments made for year
Prior section 847 payments
transferred to current year

11

Payments applied for year

12

Balance at the end of the year.
Add lines 8 through 10 and
subtract line 11 from the result

General Instructions
Section references are to the Internal
Revenue Code.
Purpose of form. Form 8816 must be
filed by insurance companies that elect
to take an additional deduction under
section 847.
Consolidated return. Each member of a
consolidated group claiming a section
847 deduction must file a separate Form
8816. Do not combine several taxpayers
on one Form 8816. If a consolidated
return is filed on Form 1120 and one or

more members of the group is claiming
a section 847 deduction, enter “Form
8816” and the amount in the margin
near line 32b on Form 1120. This will
assist the IRS in properly accounting for
your Special Estimated Tax Payments.
When to file. Attach Form 8816 to the
Form 1120-PC, Form 1120-L, or Form
1120 filed for the tax year of the
additional deduction and for each
subsequent tax year that has a
remaining amount of unpaid losses
resulting from the deduction.

For Paperwork Reduction Act Notice, see page 2.

Cat. No. 41382N

Specific Instructions
Note: Line references are to the 2009
Form 1120-L, 2009 Form 1120-PC, and
2009 Form 1120.

Part I. Special Loss Discount
Amount
Accident year. Enter the four digit
accident year in the space provided at
the top of each column. For example,
enter accident year 2008 as 2008.

Form

8816

(Rev. 1-2010)

Form 8816 (Rev. 1-2010)

Line 1. Enter the undiscounted unpaid
losses (as defined in section 846(b)) for
each accident year, measured as of the
end of the tax year, related to losses
incurred in tax years beginning after
December 31, 1986.
Line 2. Enter the related discounted
unpaid losses determined under
section 846.

Part II. Special Loss
Discount Account (SLDA)
Keep a separate SLDA for each accident
year for which an additional deduction
under section 847 is claimed. Do not net
amounts from one year against amounts
from another year.
Line 4. Enter the balance in the SLDA at
the beginning of the year for which this
return is filed.
Line 5. The amount entered on line 5
may not exceed the amount on line 3.
The total of the amount(s) reported on
line 5 must be the same amount as on
Form 1120-PC, Schedule A, line 27, or
Form 1120-L, page 1, line 17. For
purposes of Form 1120, this amount is
included in line 26, page 1, Form 1120.
Generally, additions are only made in the
initial year of a specific loss year’s
account.
Line 6. Enter on this line and on Form
1120-PC, Schedule A, line 12, Form
1120-L, page 1, line 6, or Form 1120,
page 1, line 10 amounts that are
required to be removed from the SLDA
and included in income. See section
847(5) for details.
Note: Section 847(5) requires that, to
the extent that any amount added to the
SLDA is not subtracted from the SLDA
before the 15th year after the year for
which the amount was added, the
amount must be subtracted from the
SLDA for the 15th year and included in
gross income for the 15th year.
Line 7. The amount entered on this line
may not exceed the amount on line 3.

Part III. Special Estimated
Tax Payments (SETPs)
Use Part III to reconcile the corporation’s
SETPs for each tax year it has made a
section 847 election.
Section 847(8) (tax benefit
determination) requires that if a taxpayer
carries back net operating losses or
capital losses that arise in years after a
year in which a section 847 deduction
was claimed, the taxpayer must
recompute the tax benefit attributable to
the previously claimed section 847
deduction taking into account the loss

Page

carrybacks. Tax benefits also include
those derived from filing a consolidated
return with another insurance company
(without regard to section 1503(c)).
Therefore, if this recomputation
changes the amount of the section 847
tax benefit, the taxpayer must provide a
computation schedule and attach it to
Form 8816.
Line 8. The amount entered on this line
should be the same as the ending
balance for this account for the year
immediately preceding this year. If the
amounts are different, attach an
explanation.
Line 9. Enter the total payments made
for this accident year. The amount
entered on this line for the current
accident year must agree with the
figures shown on Form 1120-PC,
page 1, line 14d, or Form 1120-L,
page 1, line 29d. For purposes of
Form 1120, this amount is included in
line 32b, page 1, Form 1120.
Generally, payments are only made in
the initial year an account is established.
If amounts are added in subsequent
years, attach an explanation.
Line 10. Enter the amount of SETPs
made in a prior year that are treated as
having been made for the current year
(which allows a current deduction under
section 847). In effect, the amount on
line 10 will be treated as having been
transferred from one accident year to
another accident year. This line is
intended to assure the proper
accounting of SETPs and to avoid the
unnecessary exchange of monies
between taxpayers and the IRS.
Example: Assume for calendar year
2009, a taxpayer has $1 million in
taxable income without regard to section
847 and has made estimated tax
payments sufficient to satisfy its liability.
For prior accident year X, the taxpayer
took a section 847 deduction and paid a
SETP.
● In year 2009, a portion of that prior
accident year’s discount reverses
($50,000), and $50,000 is includible in
income (Part II, line 6) and results in an
increased tax liability of $17,000. Also in
year 2009, the taxpayer takes a section
847 deduction of $50,000 for accident
year 2009 requiring a SETP of $17,000.
● Instead of actually making a SETP of
$17,000 for year 2009, the taxpayer can
enter $17,000 on line 10 for accident
year 2009 and transfer that amount from
the balance of SETP for accident year X
to accident year 2009. The taxpayer
must also include $17,000 on Part III,
line 11, for accident year X.

2

Line 11. Enter the total payments applied
to pay additional tax due as a result of
including in income amounts required by
section 847(5). The total of the amount(s)
on line 11 must agree with the amount on
Form 1120-PC, page 1, line 14b, or Form
1120-L, page 1, line 29b. For purposes of
Form 1120, this amount is included in line
32b, page 1, Form 1120.
Line 12. To the extent that a SETP is not
used to offset additional tax due for any
of the first 15 tax years beginning after
the year for which the payment was
made (i.e., to the extent there is a
balance on line 12 at the end of the 15th
tax year beginning after the year for
which the payment was made), that SETP
shall be treated as an estimated tax
payment made under section 6655 for
the 16th year after the year for which the
payment was made. Enter these amounts
on Form 1120-PC, page 1, line 14c, or
Form 1120-L, page 1, line 29c. For
purposes of Form 1120, this amount is
included in line 32b, page 1, Form 1120.
Paperwork Reduction Act Notice. We
ask for the information on this form to
carry out the Internal Revenue laws of
the United States. You are required to
give us the information. We need it to
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administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and file
this form varies depending on individual
circumstances. The estimated average
time is:
Recordkeeping
4 hr., 18 min.
Learning about the
law or the form
1 hr.
Preparing, copying,
assembling, and
sending the form to
the IRS
1 hr., 6 min.
If you have any comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear from
you. See the instructions for Form
1120-PC, Form 1120-L, or Form 1120.