Rev. Proc. 2011-54 [United States Internal Revenue Bulletin]

26 CFR 601.201: Rulings and determination letters. (Also Part I, Sections 832, 846; 1.832-4, 1.846-1.)

SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2011 accident year. These factors must be used to compute discounted estimated salvage recoverable under § 832 of the Internal Revenue Code.

SECTION 2. BACKGROUND

Section 832(b)(5)(A) requires that all estimated salvage recoverable (including that which cannot be treated as an asset for state accounting purposes) be taken into account in computing the deduction for losses incurred. Under § 832(b)(5)(A), paid losses are to be reduced by salvage and reinsurance recovered during the taxable year. This amount is adjusted to reflect changes in discounted unpaid losses on nonlife insurance contracts and in unpaid losses on life insurance contracts. An adjustment is then made to reflect any changes in discounted estimated salvage recoverable and in reinsurance recoverable.

Pursuant to § 832(b), the amount of estimated salvage is determined on a discounted basis in accordance with procedures established by the Secretary.

SECTION 3. SCOPE

This revenue procedure applies to any taxpayer that is required to discount estimated salvage recoverable under § 832.

SECTION 4. APPLICATION

.01 The following tables present separately for each line of business the discount factors under § 832 for the 2011 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2011, which is 3.46 percent, and by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev. Proc. 2008-11, 2008-1 CB. 301, for background regarding the tables.

.02 These tables must be used by taxpayers irrespective of whether they elected to discount unpaid losses using their own historical experience under § 846.

.03 Section V of Notice 88-100, 1988-2 CB. 439, provides a composite discount factor to be used in determining the discounted unpaid losses for accident years that are not separately reported on the annual statement approved by the National Association of Insurance Commissioners. The tables separately provide discount factors for taxpayers who elect to use the composite method. Rev. Proc. 2002-74, 2002-2 CB. 980, clarifies that for certain insurance companies subject to tax under § 83 1 the composite method for discounting unpaid losses set forth in Notice 88-100, section V, is permitted but not required. This revenue procedure further provides alternative methods for computing discounted unpaid losses that are permitted for insurance companies not using the composite method, and sets forth a procedure for insurance companies to obtain automatic consent of the Commissioner to change to one of the methods described in Rev. Proc. 2002-74.

.04 Tables.

Tables of Factors to be Used to Discount Salvage Recoverable With Respect to Losses Incurred in Accident Year 2011

(Interest rate: 3.46 percent)

Lines of Business

Accident and Health (Other Than Disability Income or Credit Disability Insurance)

Taxpayers that do not use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2011 accident year as of the end of the 2011 and later taxable years.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount all salvage recoverable in this line of business as of the end of the 2011 taxable year.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this Une of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 20 1 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this Une of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in mis line of business in the 20 1 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Medical Malpractice - Claims-Made

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in mis line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 20 1 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 20 1 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in mis line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in mis line of business in the 20 1 1 accident year.

Private Passenger Auto Liability/Medical

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 96.1358 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 20 1 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 93.2014 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.</p>

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 201 1 accident year.

Taxpayers that use the composite method of Notice 88-100 should use 98.3136 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in mis line of business in the 20 1 1 accident year.

Workers' Compensation

Taxpayers that use the composite method of Notice 88-100 should use 96.0008 percent to discount salvage recoverable as of the end of the 2021 taxable year with respect to losses incurred in this line of business in 2011 and prior years.

DRAFTING INFORMATION

The principal author of this revenue procedure is Sarah E. Swan of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Ms. Swan at (202) 622-8443 (not a toll free call).