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mainly of underwriting income, investment income, and capital
gains. Life insurance companies, however, continued to be
allowed to deduct the net addition required by law to be made
within the year to reserve funds. Life insurance companies also
could deduct that portion of their net investment income that was
credited to policyholders' reserves as required by law.
Actuarial concepts governed the application of the reserve
deduction provision of the revenue acts up until 1921. See,
e.g., Income Tax Act of 1913, ch. 16, sec. II(G)(b), 38 Stat.
114, 173; Revenue Act of 1916, ch. 463, sec. 12(a) Second, 39
Stat. 756, 768; Revenue Act of 1918, ch. 18, sec. 234(a)(10), 40
Stat. 1057, 1079; see also Commissioner v. Standard Life and
Accident Ins. Co., supra at 152; Union Cen. Life Ins. Co. v.
Commissioner, 77 T.C. 845, 849-850 (1981), vacated and remanded
on another issue 720 F.2d 420 (6th Cir. 1983).
By 1921, Congress recognized that the rules which applied to
life insurance companies were inequitable. Adequate revenues
were not being raised from the insurance industry, and life
insurance companies were constantly litigating issues concerning
their taxability; e.g., as to whether premiums constituted
taxable income. See S. Rept. 275, 67th Cong., 1st Sess. 14
(1921), 1939-1 C.B. (Part 2) 181, 195; H. Rept. 350, 67th Cong.,
1st Sess. 14 (1921), 1939-1 C.B. (Part 2) 168, 178; see also
Union Cen. Life Ins. Co. v. Commissioner, supra at 849-850. The
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