§811 Accounting Provisions

Summary

Life insurance companies must figure their taxes using the accrual method of accounting, or by using accrual plus other allowed methods (but not the cash method). Where possible, the tax calculations should match how the company reports amounts on the annual statement approved by the National Association of Insurance Commissioners. Companies must also adjust income and deductions to show bond premium being amortized and discount being accrued for the tax year. They may use their usual reasonable method for that, or follow rules set by the Secretary. Special rules: bond premium is figured under section 171(b) as if the election in section 171(c) were made; premiums on convertible debt must not include the conversion value; and discount need not be accrued on bonds except when it is interest covered by section 103 or original issue discount as defined in section 1273. A company may not create a reserve for an item unless the related premiums are included in life insurance gross income, count the same item more than once for reserves, or deduct the same item more than once. If a contract guarantees an interest rate higher than the rate in section 808(g) and that guarantee goes past year‑end, only treat the interest as guaranteed through the end of the taxable year when computing reserves (except for section 816). For short tax years (less than a full calendar year), section 443 does not apply; taxable income must be figured on an annual basis by a daily, pro rata projection under rules the Secretary issues.