REVENUE RULING 65-33
1965-1 C.B. 263, amplified in Rev. Rul. 67-129

[IRS Annotation]
For purposes of computing gain or loss from operations of a life insurance company as defined in section 809 of the Internal Revenue Code of 1954, unpaid losses are taken into account in the computation of the deduction allowed for death benefits, etc. under section 809(d)(1) of the Code and should not be taken into account in the computation of the adjustment for increase or decrease in reserves under section 810 of the Code.

[264]

[Rev. Rul. 65-33]
Advice has been requested whether a life insurance company, for purposes of determining gain or loss from operations, should take into account unpaid losses in the computation of the deduction for death benefits, etc. under section 809(d)(1) of the Internal Revenue Code of 1954, or in the computation for increases and decreases in reserves, required by section 810 to be taken into account under the provisions of sections 809(d)(2) and 809(c)(2) of the Code.

The taxpayer is a life insurance company as defined in section 801 of the Code and is subject to the tax imposed under section 802 of the Code. In computing the gain or loss from operations under section 809 of the Code, the taxpayer had unpaid losses which were treated as death benefits, etc. deductible under section 809(d)(1) of the Code.

Section 818(f) of the Code and sections 1.809-5(b) and 1.818-7 of the Income Tax Regulations specifically prohibit the same item from being deducted more than once in determining gain or loss from operations of life insurance companies.

Section 818(a) of the Code provides the general rule that all computations entering into the determination of taxes imposed by part I, subchapter L, chapter 1 of the Code, shall be made under an accrual method of accounting, with certain exceptions.

Section 1.809-5(a) of the regulations provides that all "losses incurred (whether or not ascertained)" shall be allowed as deductions under death benefits, etc., for the purpose of determining gain or loss from operations. "Losses incurred (whether or not ascertained)" include a reasonable estimate of the amount of the losses incurred but not reported at the end of the taxable year as well as losses reported but unascertained at the end of the taxable year.

Accordingly, it is held that for the purposes of computing gain or loss from operations as defined in section 809(b) of the Code, unpaid losses of the life insurance company shall be taken into account in the computation of the deduction allowed for death benefits, etc., under section 809(d)(1) of the Code and should not be taken into account in the computation of the adjustment for increase or decrease in reserves under section 810 of the Code.