§811 Accounting Provisions

Summary

Life insurance companies must use the accrual method of accounting for their federal tax calculations. They may mix accrual with other allowed methods only if the Treasury Secretary’s rules allow it, but they cannot use the cash receipts and disbursements method. Taxable income must be adjusted for bond premiums and discounts on debt the company holds. Companies should use their normal, reasonable way to amortize premium and accrue discount unless the Treasury Secretary’s rules say otherwise. For bonds covered by section 171, premium is figured under section 171(b) as if the election in 171(c) were made. Premium on convertible debt does not include value for the conversion feature. Discount need not be accrued except when it is interest covered by section 103 or original issue discount under section 1273. A reserve can only be set if the related premiums are in gross income, the same item can’t be counted more than once for reserves, and nothing can be deducted more than once. For this part (except section 816), interest-like amounts that both exceed the rate in section 808(g) for the period and are guaranteed past the taxable year are treated specially. If a company files for a short period (less than a full calendar year), section 443 does not apply and taxable income must be annualized by a daily pro rata projection under Treasury rules.