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income the difference between (1) the undiscounted amount of loss
reserves, as of yearend 1986, included in the computation of the
losses incurred deduction for 1986 and (2) the discounted amount
of such loss reserves.
To avoid triggering section 481 adjustments, Congress
provided P&C insurers with a "fresh start" pursuant to section
1023(e)(3) of TRA '86. TRA '86 sec. 1023(e)(3)(A), 100 Stat.
2404. This section provides as follows:
(3) Fresh start.--
(A) In general.--Except as otherwise provided in
this paragraph, any difference between--
(i) the amount determined to be the unpaid
losses and expenses unpaid for the year preceding the
1st taxable year of an insurance company beginning
after December 31, 1986, determined without regard to
paragraph (2) [i.e., without discounting], and
(ii) such amount determined with regard to
paragraph (2) [i.e., with discounting],
shall not be taken into account for purposes of the Internal
Revenue Code of 1986.
In essence, the fresh start provision overrode section 481 by
excluding from taxable income the difference between the amount
of the yearend 1986 undiscounted loss reserves and the discounted
amount of such reserves. In its report, the Committee of
Conference (conference committee) described the effect of the
fresh start provision as a "forgiveness of income". H. Conf.
Rept. 99-841 (Vol. II), at II-367 (1986), 1986-3 C.B. (Vol. 4) 1,
367.
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