Central Reserve Life Corporation and Subsidiaries - Page 21




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          on a “false premise”:  “unaccrued unpaid losses are generally not           
          included in 'life insurance reserves' because they are not                  
          'computed or estimated on the basis of recognized mortality or              
          morbidity tables. * * *'  Sec. 801(b).  * * *  Thus, the                    
          provisions for 'unpaid losses' need not be superfluous, even if             
          they include only unaccrued unpaid losses.”  Harco Holdings, Inc.           
          v. United States, supra at 1036; fn. ref. omitted.  The Court of            
          Appeals for the Seventh Circuit also noted that the Court of                
          Appeals for the Ninth Circuit’s reasoning had a “logical flaw”:             
          “If ‘unpaid losses’ means all unpaid losses, and ‘life insurance            
          reserves’ includes unaccrued unpaid losses, then the statute                
          counts unaccrued unpaid losses twice.  Thus the court avoided               
          making the provisions for ‘unpaid losses’ superfluous by making             
          them redundant.”  Id. at 1036 n.14.  The Court of Appeals for the           
          Seventh Circuit concluded:                                                  
                    Although we are not persuaded by the Ninth                        
               Circuit’s reasoning, * * * we need not reject                          
               Occidental Life * * * out of hand.  Instead, we note                   
               that identical language in sections 806 and 801 need                   
               not have the same meaning.  Section 806 governs a tax                  
               deduction, while section 801 is a definitional                         
               provision.  Deductions are a matter of legislative                     
               grace, to be construed strictly against taxpayers.                     
               Definitional provisions, like section 801, get a                       
               somewhat more liberal reading.  United States v.                       
               Consumer Life Ins. Co., 430 U.S. 725, 752-53 n.38, 97                  
               S.Ct. 1440, 1454 n. 38, 52 L.Ed.2d 4 (1977)                            
               (restrictive interpretation given to tax deductions                    
               should not be applied to section 801); Swift, 151 F.2d                 
               at 628-29 (rejecting argument that the predecessor                     
               statutes to sections 801 and 806 should be construed                   






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Last modified: May 25, 2011