A state-sponsored workers' compensation reinsurance organization
should apply by letter for recognition of exemption from federal
income tax under section 501(c)(27).
To qualify for exemption, any membership organization must meet all
the following requirements.
- It was established by a state before June 1, 1996,
exclusively to reimburse its members for losses under workers'
compensation acts.
- The state requires that the membership consist of all
persons who issue insurance covering workers' compensation losses in
the state and all persons and government entities who self-insure
against those losses.
- It operates as a nonprofit organization by returning surplus
income to its members or workers' compensation policyholders on a
periodic basis and by reducing initial premiums in anticipation of
investment income.
Any organization (including a mutual insurance company) can qualify
for exemption if it meets all of the following requirements.
- It is created by state law and is organized and operated
under state law exclusively to:
- Provide workmen's compensation insurance which is required
by state law or state law must provide significant disincentives if
employers fail to purchase such insurance, and
- Provide related coverage which is incidental to workmen's
compensation insurance.
- It provides workmen's compensation insurance to any employer
in the state (for employees in the state or temporarily assigned
out-of-state) which seeks such insurance and meets other reasonable
requirements relating to the insurance.
- The state makes a financial commitment to such organization
either by extending its full faith and credit to the initial debt of
the organization or by providing the initial operating capital of the
organization.
- The assets of the organization revert to the state upon
dissolution or the organization is not permitted to dissolve under
state law.
- The majority of the board of directors or oversight body of
such organization are appointed by the chief executive officer or
other executive branch official of the state, by the state
legislature, or by both.
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