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necessary to establish the reasonableness of the
deduction for “losses incurred.” [Sec. 1.832-4(a)(5)
and (b), Income Tax Regs.]
Petitioner does not dispute the validity of the applicable
regulations but argues that they must be construed so as to
accord deference to the unpaid loss estimates reflected on the
taxpayer’s annual statement, provided the taxpayer has used “good
faith business judgment” in preparing those estimates.
Petitioner’s contention is at bottom a rehashing of long-rejected
arguments that the Code reflects a congressional expectation that
the estimates of unpaid losses used for tax purposes should
conform to the precise figures shown on the annual statement. In
rejecting such arguments and upholding the validity of the
applicable regulations, the Court of Appeals for the First
Circuit stated:
Congress’s requirement that the N.A.I.C. [annual
statement] form be followed as the only acceptable
method for computing an insurance company’s gross
income * * * [provides] no support * * * for the
contention that the mere inclusion of certain figures
on the congressionally-approved annual statement can
prevent the Commissioner’s adjustment for the purpose
of identifying tax deficiencies. * * * [Hanover Ins.
Co. v. Commissioner, 598 F.2d 1211, 1217 (1st Cir.
1979), affg. 69 T.C. 260, 272 (1977).]
The Court of Appeals for the First Circuit noted that accepting
such a contention would be “tantamount to a sanctification of the
estimated figures as well as the form itself, no matter how
unfair or unreasonable.” Id. (quoting Hanover Ins. Co. v.
Commissioner, 65 T.C. 715, 719 (1976)); see also Pac. Employers
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