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Tax Reform Act of 1986 (TRA '86), Pub. L. 99-514, sec. 1023, 100
Stat. 2085, 2404, any increases in the loss reserves maintained
by property and casualty insurance companies that constitute
"reserve strengthening" do not qualify for a one-time tax
benefit. In this case, respondent contends that the term
"reserve strengthening" refers to all increases in loss reserves,
while petitioners maintain that the term refers to only those
increases in loss reserves that are attributable to changes in
computation methods or assumptions. Respondent's interpretation
of the term "reserve strengthening" is set forth in section
1.846-3(c), Income Tax Regs. The deficiency in this case is
based on that regulation. In light of this Court's decision in
Western Natl. Mut. Ins. Co. v. Commissioner, 102 T.C. 338 (1994),
affd. 65 F.3d 90 (8th Cir. 1995), we hold for petitioners.
Background
The facts have been fully stipulated under Rule 122 of the
Tax Court Rules of Practice and Procedure and are so found.
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the year in issue.
Atlantic Mutual Insurance Co. (Atlantic) is the common
parent of an affiliated group of corporations within the meaning
of section 1504(a). Atlantic filed consolidated income tax
returns on behalf of the group for all relevant years. At the
time the petition in this case was filed, Atlantic's principal
place of business was in Madison, New Jersey.
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