The Internal Revenue Service has set the 2004 differential earnings tax rate for mutual life insurers at 0% and come up with a recomputed rate of 0% for 2003.[@@[

The IRS has published the differential earnings rate information and related information in Revenue Ruling 2005-58.

The IRS has published the ruling because Section 809 of the Internal Revenue Code requires mutual life insurers to use the differential earnings rate to calculate their federal tax liability.

Congress enacted a law imposing the differential rate years ago, when policyholder-owned mutual life insurers dominated the market and some feared that mutuals enjoyed unfair advantages.

In 2002, mutual life insurers persuaded Congress to set the differential earnings rate at 0% for 2001, 2002 and 2003, and in 2004 they persuaded Congress to repeal Section 805 altogether for taxable years beginning after Dec. 31, 2004.

Because 2004 falls in a void between the 2002 law and the 2004 law, “the Internal Revenue Service is required to determine a differential earnings rate for 2004,” Katherine Hossofsky, an IRS official, writes in the new revenue ruling.

Although the differential earnings rate for 2004 is 0%, the imputed earnings rate is 4.449% and the base period stock earnings rate is 18.221%.

The current stock earnings rate for 2004 is 4.913%.

The text of the revenue ruling is on the Web at http://www.irs.gov/pub/irs-drop/rr-05-58.pdf