§811 Accounting provisions

Summary

All tax calculations under this part must use the accrual method of accounting. The Treasury Secretary may allow a mix of accrual and other allowed methods, but not the cash receipts-and-payments method. When a life insurance company owns bonds, notes, or similar debt, the company must adjust income and deductions to show the right amortization of premiums and accrual of discounts for the tax year. If the company has a regular, reasonable way of doing that, it can use that method. Otherwise the Treasury Secretary will set the method by regulation. For bonds (see section 171(d)), premium rules follow section 171(b) as if the election in 171(c) were made. Premium on convertible debt must not include value for the conversion feature. Discount need not be accrued on bonds except when the discount is interest covered by section 103 or original issue discount as defined in section 1273. Reserves can only be set if the related premiums must be included in gross income, the same item cannot count more than once for reserves, and nothing can be deducted more than once. For purposes of this part (other than section 816), interest amounts that are calculated at a rate higher than the rate in section 808(g) for the contract period, and that are guaranteed past the end of the taxable year used to compute reserves, are governed by these rules. If a life insurance company files a return for less than a full calendar year, section 443 does not apply; instead taxable income must be worked out on an annual basis by projecting the short-period figures on a daily, pro rata basis under Treasury regulations.