What IRS Form 1120-PC (2016) Is For

Property and casualty insurance companies use IRS Form 1120-PC (2016) to file their 2016 corporate income tax returns. It reports taxable income, deductions, and credits, including investment income and insurance premiums. Both domestic and foreign corporations engaged in the insurance business must file if they have gross income or meet reporting thresholds during their corporation’s tax year.

When You’d Use IRS Form 1120-PC (2016)

You’d use this form when your insurance company must calculate its income tax liability and report federal income tax owed. Nonlife insurance companies should include taxable investment, capital gain, net income, and unearned premiums. Corporations filing late or amending a prior return should report adjustments to tax paid, foreign tax credit, or interest income. Foreign corporations in U.S. insurance must also file, even for a fiscal tax year.

Key Rules or Details for 2016

• The corporate income tax return must include balance sheets, Schedule C, and Schedule D, showing total assets, gross receipts, and gross rents for the preceding tax year.
  
  
• Insurance companies must report taxable income from underwriting and investment income, including wages paid and dividends received that are exempt from tax.
  
  
• Casualty insurance companies meeting abnormal insurance losses or paying premiums for flood insurance may claim deductions for these expenses under applicable tax law.
  
  
• A domestic or foreign corporation in an insurance business must report other taxable income, such as capital assets sold or special income categories.
  
  
• The tax computation must account for alternative minimum tax, prior year minimum tax, estimated tax penalty, and general business credit if applicable.
  
  
• Any personal holding company or controlled group must provide its employer identification number and the related corporation’s records to support tax return filings.
  
  
• The corporation’s net income calculation for the insurance company’s tax year must include investment income, taxable interest, and unearned premiums.
  
  
• Corporations must accurately complete deduction accounts, annual statement details, and subscriber accounts related to health insurance or commercial-type insurance operations.
  
  
• Bond credits, tax-exempt interest, and applicable box entries should be verified before filing to prevent receiving a penalty notice or rejection.
  
  

Step-by-Step (High Level)

Step 1: Gather Financial Data

Collect all financial data for the corporation’s tax year, including total assets, gross income, gross receipts, unearned premiums, and investment income. Ensure all the corporation’s records align with your annual statement.

Step 2: Calculate Taxable Income

Determine taxable income by totaling premiums, wages paid, and investment returns. Deduct abnormal insurance losses, casualty expenses, and dividends received to compute the correct tax base.

Step 3: Report Credits and Adjustments

Include eligible foreign tax credits, general business credit, and adjustments for the prior year's minimum tax. Enter all capital assets sold and taxable investment income accurately under Schedule C or Schedule D.

Step 4: Compute and Pay Federal Income Tax

Use the tax computation section to determine corporate income tax owed. Include the alternative minimum tax and promptly pay all unpaid tax to avoid an estimated tax penalty.

Step 5: Complete Required Schedules

Attach schedules for capital assets, bond credits, deduction accounts, and retained earnings. Verify that the life and nonlife consolidated return or schedule PH details are complete and match your fiscal tax year.

Step 6: Review and Submit

Confirm that all the corporation’s records are accurate. Check for missing information, such as attorney-in-fact or following address errors. File by the legal holiday deadline for your tax year and retain copies for your insurance company’s files.

Common Mistakes and How to Avoid Them

• Many filers omit taxable interest or interest-exempt amounts, leading to incorrect net income. Review all investment and interest records before finalizing taxable income.
  
  
• Some corporations filing late fail to include prior-year minimum tax adjustments. Always reconcile prior-year records before computing your current year’s tax computation.
  
  
• Casualty insurance companies often overlook deductions for flood insurance premiums or abnormal insurance losses. Carefully verify allowable deductions for all insurance-related expenses.
  
  
• Errors occur when corporations misreport total assets or gross receipts on their corporate income tax return. Compare all figures with balance sheets and Schedule C or D totals.
  
  
• Missing foreign corporation details or an employer identification number can trigger a penalty notice. Verify all identifying information and supporting documents before filing.
  
  
• Insurance companies sometimes fail to include unearned premiums, investment income, or capital assets sold. Reconcile the financial statements and confirm that all categories appear in the return.
  
  

What Happens After You File

After filing Form 1120-PC, the Internal Revenue Service reviews the corporation’s records, schedules, and deduction accounts. Any errors or unpaid tax may result in a penalty notice. Corporations should monitor balance sheets and retained earnings for future filings. Refunds or credits, including foreign tax credit adjustments, are processed after verification. Maintain all tax return documentation for your corporation’s fiscal tax year for audit or amended filing purposes.

FAQs

How does a property and casualty insurance company determine its income tax liability?

The insurance company calculates income tax liability using net income, taxable income, and investment income from premiums, capital assets sold, and gross receipts during the corporation’s tax year.

Are foreign corporations required to file IRS Form 1120-PC (2016)?

A foreign corporation engaged in U.S. insurance must file Form 1120-PC, report all U.S.-sourced gross income, and disclose applicable foreign tax credit claims.

What is included in taxable investment income for casualty insurance companies?

Taxable investment income includes interest income, dividends, bond credits, and gains from capital assets. It must be included in the corporate tax return to ensure accuracy.

How does the alternative minimum tax apply to an insurance company?

The alternative minimum tax applies when excessive credits reduce an insurance company’s regular tax liability. It ensures a minimum tax is paid based on adjusted taxable income.

What happens if an insurance company receives a penalty notice?

A penalty notice may result from unpaid tax, late filing, or errors in taxable income reporting. The corporation should correct discrepancies, pay penalties, and amend the tax return if required.

Can corporations filing consolidated returns include both life and non-life insurance businesses?

A life-nonlife consolidated return may be filed if the entities meet Internal Revenue Code requirements and maintain separate balance sheets and deduction accounts.

What must a domestic corporation report under Form 1120-PC (2016)?

A domestic corporation must report gross receipts, total assets, capital gains, wages paid, unearned premiums, and any deductions under applicable sections for its fiscal tax year.