Best Life Assurance Company of California - Page 2




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                                        MEMORANDUM OPINION                                             
                  SWIFT, Judge:  For 1991 and 1992, respondent determined                              
            deficiencies in petitioner's Federal income taxes of $369,255 and                          
            $242,132, respectively.                                                                    
                  Unless otherwise indicated, all section references are to                            
            the Internal Revenue Code in effect for the years in issue, and                            
            all Rule references are to the Tax Court Rules of Practice and                             
            Procedure.                                                                                 
                  After settlement of some issues, the issue for decision is                           
            whether petitioner (Best Life), in computing under section 816(a)                          
            the qualifying fraction for life insurance company tax treatment,                          
            should treat accrued unpaid losses on cancelable accident and                              
            health (CA&H) insurance policies as part of its total reserves.                            

                                             Background                                                
                  This case was submitted fully stipulated under Rule 122, and                         
            the facts are not in dispute.                                                              
                  During the years in issue, Best Life operated as an                                  
            insurance company with its principal place of business located in                          
            Irvine, California.  Best Life insured the following types of                              
            insurance risks:  Individual ordinary life, cancelable group-term                          
            life, and CA&H.                                                                            
                  Insurance companies are required by insurance regulators to                          
            maintain certain reserves to assure payment of future claims.                              
            All 50 States have adopted model regulations and utilize annual                            





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Last modified: May 25, 2011