[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.832-7T]

[Page 748-749]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.832-7T  Treatment of salvage and reinsurance in computing ``losses 
incurred'' deduction, taxable years beginning before January 1, 1990 (temporary).

    (a) In computing ``losses incurred'' the determination of unpaid 
losses at the close of each year must represent actual unpaid losses as 
nearly as it is possible to ascertain them.
    (b) Every insurance company to which this section applies must be 
prepared to establish to the satisfaction of the district director that 
the part of the deduction for ``losses incurred'' which represents 
unpaid losses at the close of the taxable year comprises only actual 
unpaid losses stated in amounts which, based upon the facts in each case 
and the company's experience with similar cases, can be said to 
represent a fair and reasonable estimate of the amount the company will 
be required to pay. Amounts included in, or added to, the estimates of 
such losses which in the opinion of the district director are in excess 
of the actual liability determined as provided in the preceding sentence 
will be disallowed as a deduction. The district director may require any 
such insurance company to submit such detailed information with respect 
to its actual experience as is deemed necessary to establish the 
reasonableness of the deduction for ``losses incurred''.
    (c) That part of the deduction for ``losses incurred'' which 
represents an adjustment to losses paid for salvage and reinsurance 
recoverable shall, except as hereinafter provided, include all salvage 
in course of liquidation, and all reinsurance in process of collection

[[Page 749]]

not otherwise taken into account as a reduction of losses paid, 
outstanding at the end of the taxable year. Salvage in course of 
liquidation includes all property (other than cash), real or personal, 
tangible or intangible, except that which may not be included by reason 
of express statutory provisions (or rules and regulations of an 
insurance department) of any State or Territory or the District of 
Columbia in which the company transacts business. Such salvage in course 
of liquidation shall be taken into account to the extent of the value 
thereof at the end of the taxable year as determined from a fair and 
reasonable estimate based upon either the facts in each case or the 
company's experience with similar cases. Cash received during the 
taxable year with respect to items of salvage or reinsurance shall be 
taken into account in computing losses paid during such taxable year.
    (d) This section is effective for taxable years beginning before 
January 1, 1990.

[T.D. 8266, 54 FR 38970, Sept. 22, 1989; T.D. 8293, 55 FR 9425, Mar. 14, 
1990]