Description: This article describes the effect of different valuation interest rates and levels of surplus on income tax paid by life insurance companies via Phase 1 of the Federal Income Tax Act of 1959.

Description: This is a discussion about 1959 Act dealing with federal income tax on life insurance companies. Specific topics include: A. Impact the new tax law has had on: i the investment policies of individual companies, ii company accounting systems and procedures, iii actuarial bases for new contracts? B. What principles have been followed in allocating the federal income tax among the annual statement lines of business? How is the assessment to a line of business with a loss from operations established? Is the tax on the interest on surplus allocated on some general basis or with regard to the relative contributions of the different lines to the accumulated surplus? C. How is the tax taken into account in asset share tests and dividend scale determinations?

Description: The purpose of this paper is to set forth a mathematical technique which in the author's experience has proved useful in testing the tax implications of various management actions.