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“Losses incurred” means losses incurred during the taxable year
on insurance contracts and includes increases for the year in
“discounted unpaid losses (as defined in section 846)”. Sec.
832(b)(5)(A).11 As defined in section 846(b)(1), “unpaid losses”
generally means “unpaid losses shown in the annual statement
filed by the taxpayer for the year ending with or within the
taxable year of the taxpayer.” Unpaid losses include any unpaid
loss adjustment expenses. Sec. 832(b)(6).
Taxable income equals gross income, as described above, less
various deductions allowed pursuant to section 832(c). Sec.
11 Sec. 832(b)(5)(A) provides in relevant part:
In general.--The term “losses incurred” means losses
incurred during the taxable year on insurance contracts
computed as follows:
(i) To losses paid during the taxable year, deduct
salvage and reinsurance recovered during the taxable
year.
(ii) To the result so obtained, add all unpaid
losses on life insurance contracts plus all discounted
unpaid losses (as defined in section 846) outstanding
at the end of the taxable year and deduct all unpaid
losses on life insurance contracts plus all discounted
unpaid losses outstanding at the end of the preceding
taxable year.
(iii) To the results so obtained, add estimated
salvage and reinsurance recoverable as of the end of
the preceding taxable year and deduct estimated salvage
and reinsurance recoverable as of the end of the
taxable year.
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