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B. Background
Insurance companies may deduct ordinary and necessary
expenses and losses incurred. Sec. 832(c)(1), (4).17 Losses
incurred are (1) losses paid during the taxable year, (2) reduced
by salvage and reinsurance recovered during that year, (3) plus
all unpaid losses (discounted for years after 1986) outstanding
at the end of the taxable year, (4) less all unpaid losses
outstanding at the end of the preceding taxable year, (5) plus
estimated salvage and reinsurance recoverable at the end of the
preceding taxable year, (6) less estimated salvage and
reinsurance recoverable at the end of the taxable year. Sec.
832(b)(5).18 Property and casualty insurance companies have
17 Sec. 832(c) provides in pertinent part as follows:
SEC. 832(c). DEDUCTIONS ALLOWED.--In computing
the taxable income of an insurance company subject to
the tax imposed by section 831, there shall be allowed
as deductions:
(1) all ordinary and necessary expenses incurred, as
provided in section 162 (relating to trade or business
expenses);
* * * * * * *
(4) losses incurred, as defined in subsection
(b)(5) of this section;
18 Sec. 832(b)(5)(A) provides as follows:
(5) Losses Incurred.--
(continued...)
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