Best Life Assurance Company of California v. Commissioner of Internal Revenue

The Commissioner of Internal Revenue challenges the Tax Court’s determination that, because the term “unpaid losses” in Internal Revenue Code (“I.R.C.” or “Code”) § 816(c)(2) includes only unac-crued unpaid losses, taxpayer Best Life Assurance Company of California (“Best”) qualifies as a life insurance company under § 816(a). A qualified life insurance company is entitled to special tax treatment under the Code. We have jurisdiction under I.R.C. § 7482(a)(1), and we affirm.

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Best is a California company that writes life insurance contracts and cancellable accident and health insurance contracts. States require insurance companies such as Best to maintain defined levels of solvency to assure the payment of future claims. In addition to their annual tax returns, in California these companies are required to file reports of their anticipated liabilities and reserves with the Insurance Department on Annual Statement Forms promulgated by the National Association of Insurance Commissioners (“NAIC”). In its present form, the Annual Statement characterizes reserves as claims for which the insurer will become liable in the future, i.e., unaccrued claims, and it characterizes…