Special Industries
Tax rules recognize that some types of businesses do not earn income in the traditional manner and thus require special provisions. For example, Insurance companies must ultimately pay claims to some policy holders from the amounts received as premiums. These claims may happen years after the premium payment. Computing the future amount of claims requires actuarial estimates until claims are actually paid. Thus, recognizing premium income as received and claims expenses as paid would seriously distort an insurance company's income.
Special rules apply to some or all items in the following industries:
- Insurance companies (rules related to recognition of income and expense; different rules apply to life insurance and to property and casualty insurance)
- Shipping (rules related to the revenue recognition cycle)
- Extractive industries (rules related to expenses for exploration and development and for recovery of capitalized costs)
In addition, mutual funds (regulated investment companies) are subject to special rules allowing them to be taxed only at the owner level. The company must report to each owner his/her share of ordinary income, capital gains, and creditable foreign taxes. The owners then include these items in their own tax calculation. The fund itself is not taxed, and distributions are treated as a return of capital to the owners. Similar rules apply to real estate investment trusts and real estate mortgage investment conduits.
Read more about this topic: Income Tax In The United States
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