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Enhanced Tax Accounting Basis (October, 2009)

Article Summary:

The Taxes section in the Asset and Reinvestment cells have been expanded and renamed to the Tax Accounting Basis section in AXIS version This new feature provides the user additional flexibility for calculating the taxes at the Asset and Reinvestment cell levels by calculating the Tax Accounting Basis in a separate projection.


In AXIS, tax on assets is only calculated at the fund and office levels. At the Asset and Reinvestment cell levels, AXIS calculates the Taxable Investment Income Adjustments (explained below) and passes them up to the higher levels. These adjustments, when combined with the investment income at the higher levels, will give the appropriate taxable investment income.

Projection of Tax Accounting Basis

In versions of AXIS prior to, the Taxable investment income adjustment is calculated through a series of adjustments to the book values calculated in the First Accounting Basis (Book Value) section. These adjustments are done based on the projection of the First Accounting Basis. Hence, the amortized cost basis used in the tax calculations is the one specified in the First Accounting Basis section.

In version, taxes can now be calculated through a separate projection of the Tax Accounting Basis. Essentially, this Tax Accounting Basis can be thought of as an additional Accounting Basis because all the switches and options are almost identical to the other accounting bases. The Tax Accounting Basis does offer fewer choices for the accounting of unrealized and realized gains compared to the other bases since the excluded options are not applicable for tax purposes. The Tax Accounting Basis includes several scalars to specify the Tax exempt portion of disposition gains, earned income, and coupon income.

Taxable Investment Income Adjustment

The total taxable income for the Tax Accounting Basis is defined as the Net investment income less the tax exempt portions of income. In the First, Second, Third and Fourth Accounting Bases, the total taxable income is equivalent to the Net investment income.

The taxable investment income adjustment line for the other bases is calculated as the difference between the taxable income in the Tax basis and the taxable income in the other bases. Since the taxable income in the other First, Second, Third and Fourth bases equal the net investment income (the remaining bases do not have tax-exempt portions of income), this implies that:

Taxable Investment Income Adjustments for the Nth Accounting Basis

= Net investment income for the Tax Accounting Basis
Tax exempt portion of income (calculated in the Tax Accounting Basis)
Net investment income for the Nth Accounting Basis

Screen Changes

In the Inforce Volumes section, the new "Tax amortized cost basis" scalar has been added.

Many new switches and settings that specify the calculation of the amortized cost basis have also been added to the Tax Accounting Basis section. The new switches are as follows:

• "Amort cost basis method"
• "Depreciation method"
• "IRR method"
• "IRR recalculation"
• "IRR validation"
• "IRR"
• "M" (IRR recalculation period)
• "N" (IRR recalculation interval)
• "Default”
• "Tolerance"
• "Depreciation rate"
• "Amortization method"

The "Tax exempt portion of income" scalar field has been replaced by the "Tax exempt portion of earned income" and "Tax exempt portion of coupon income" scalar fields. These switches can be used to specify the tax-exempt portions of income.




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