Dividends Declared and Paid by the Company to Its Policyholders

February 9, 1959 BIR RULING NO. 072-59 3rd Indorsement Returned to the Regional Director, Manila, the herein papers bearing on the case of the American International Reinsurance Company. The question involved in this case is whether or not the dividends declared and paid by the Company to its policyholders and dividends not paid but left to accumulate interest are non-includible in the gross income of the Company. If such dividends are premiums returned as "dividends", representing return of premiums overpaid, the same are not includible in gross income pursuant to Section 32(d) of the Tax Code, as amplified by Section 124 of the Income Tax Regulations. If such dividends are not so returned as an excess premium but paid out of the general surplus of the Company in which the policyholders are permitted to participate, they are not excludible from gross income, regardless of how they are paid or applied. If a policyholder has no further premiums to pay as in the case of fully paid participating policy, such policy becomes at once a contract of insurance and of investment and the holder participates in the profits and income of the invested funds of the Company in the form of dividends declared, in which case, the dividends are not excludible. (Penn. Mutual Life Insurance Co. v. Lederer 252 U.S. 523, 64 L. ed 698, 40 S. Ct. 397) He is advised to be guided accordingly. aisadc (SGD.) JOSE ARAAS Commissioner of Internal Revenue