MassMutual Wins Appeal, Can Deduct Policyholder Dividends

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April 9 — The government has lost its appeal at the U.S. Court of Appeals for the Federal Circuit challenging Massachusetts Mutual Life Insurance Co.'s victory at the U.S. Court of Federal Claims regarding its deduction of policyholder dividends that totaled more than $200 million (Mass. Mut. Life Ins. Co. v. United States, Fed. Cir., No. 14-05019, 4/9/15).

Judge Kathleen M. O'Malley agreed with the lower court's decision, saying that because “we find that MassMutual's and ConnMutual's policyholder dividends were fixed in the year the dividends were announced, that the dividends in question are premium adjustments, and that premium adjustments are rebates, thereby satisfying the recurring item exception, we affirm” (26 DTR K-2, 2/9/12).

Both parties agreed that the dividend payments could be deducted at some point, but the government argued that because the dividends hadn't been paid yet, the obligations couldn't be deducted until the following year since a “a liability must be fixed before it can be deducted.”