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after December 31, 1986. [H. Conf. Rept. 99-841 (Vol.
I), at I-338 (1986), 1986-3 C.B. (Vol. 1) 1, 321.]
The conference committee report accompanying the final bill,
however, did provide a definition of "reserve strengthening" and,
in fact, provided a more expansive definition of the term than
that contained in the Finance Committee report. The conference
committee report stated:
Reserve strengthening is considered to include all
additions to reserves attributable to an increase in an
estimate of a reserve established for a prior accident
year (taking into account claims paid with respect to
that accident year), and all additions to reserves
resulting from a change in the assumptions (other than
changes in assumed interest rates applicable to
reserves for the 1986 accident year) used in estimating
losses for the 1986 accident year, as well as all
unspecified or unallocated additions to loss reserves.
This provision is intended to prevent taxpayers from
artificially increasing the amount of income that is
forgiven under the fresh start provision. [H. Conf.
Rept. 99-841 (Vol. II), supra at II-367, 1986-3 C.B.
(Vol. 4) at 367.]
In 1992, the U.S. Treasury Department issued regulations
under section 846 that are based upon the definition of "reserve
strengthening" contained in the conference committee report.
Section 1.846-3(c), Income Tax Regs., provides in relevant part:
(c) Rules for determining the amount of reserve
strengthening (weakening).--(1) In general. The amount
of reserve strengthening (weakening) is the amount that
is determined under paragraph (c)(2) or (3) to have
been added to (subtracted from) an unpaid loss reserve
in a taxable year beginning in 1986. For purposes of
* * * [the fresh start], the amount of reserve
strengthening (weakening) must be determined separately
for each unpaid loss reserve by applying the rules of
this paragraph (c). This determination is made without
regard to the reasonableness of the amount of the
unpaid loss reserve and without regard to the
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