[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: 26CFR1.846-2]

[Page 751-752]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.846-2  Election by taxpayer to use its own historical loss 
payment pattern.

    (a) In general. If a taxpayer has one or more eligible lines of 
business in a determination year, the taxpayer may elect on the 
taxpayer's timely filed Federal income tax return for the determination 
year to discount unpaid losses using its own historical loss payment 
pattern instead of the industry-wide pattern determined by the 
Secretary. A taxpayer making the election must use its own historical 
loss payment pattern in discounting unpaid losses for each line of 
business that is an eligible line of business in that determination 
year. The election applies to accident years ending with the 
determination year and to each of the four succeeding accident years. If 
a taxpayer makes the election for the 1987 determination year, the 
taxpayer must use its 1987 loss payment pattern (determined by reference 
to its 1985 annual statement) to discount unpaid losses attributable to 
all accident years prior to 1988.
    (b) Eligible line of business--(1) In general. A line of business is 
an eligible line of business in a determination year if, on the most 
recent annual statement filed by the taxpayer before the beginning of 
that determination year, the taxpayer reports losses and loss expenses 
incurred (in Schedule P, part 1, column 24 of the 1990 annual statement 
or comparable location in an earlier or subsequently revised blank) for 
at least the number of accident years for which losses and loss expenses 
incurred for that line of business are required to be separately 
reported on that annual statement. For example, for the 1987 
determination year, the 1985 annual statement is used. The annual 
statement to be used to determine eligibility in subsequent 
determination years is the annual statement for each fifth year after 
1985 (e.g., 1990, 1995, etc.).
    (2) Other published guidance. A line of business is also an eligible 
line of business for purposes of the election if the

[[Page 752]]

line is an eligible line under requirements published for this purpose 
in the Internal Revenue Bulletin.
    (3) Special rule for 1987 determination year. A line of business is 
an eligible line of business in the 1987 determination year if it is 
eligible under paragraph (b) (1) or (2) of this section, or if on the 
most recent annual statement filed by the taxpayer before the beginning 
of the 1987 determination year, the taxpayer reports written premiums 
for the line of business for at least the number of accident years that 
unpaid losses for that line of business are required to be separately 
reported on that annual statement.
    (c) Anti-abuse rule. To prevent avoidance of the requirement that 
the election to use historical loss payment patterns apply to all 
eligible lines of business of a taxpayer, the district director may--
    (1) Nullify a taxpayer's election to compute discounted unpaid 
losses based on its historical loss payment pattern;
    (2) Adjust a taxpayer's historical loss payment pattern; or
    (3) Make other proper adjustments.

[T.D. 8433, 57 FR 40845, Sept. 8, 1992]