And Learn About Insurance, If You’re Interested

An alumnus of DePaulUniversity, its law school, and Georgetown University School of Law, Judge Nega joins the Tax Court bench today. Welcome, Judge.

And it’s a good day to join, as Judge Vasquez has presented us with ninety-eight (count ‘em, 98) pages of insurance company loss reserve actuarial analysis, in Acuity, a Mutual Insurance Company, and Subsidiaries, 2013 T. C. Memo. 209, filed 9/4/13.

Don’t worry, I’m not going through the whole nine yards here. In the first place, the case is well outside the range of matters encountered by the in-the-trenches tax preparer for whom I’m writing this blog.

In the second place, it’s a lot more about penguins than anyone but a fellow-penguin would want to know, and maybe not even them. But Judge Vasquez gives a good introduction to insurance accounting and taxation in relatively simple language. So you might want to read from around page 8 to page 17 for background, and beyond if it grabs you.

The numbers are huge, so that a win by IRS would result in a bushelbasketful of tax and a real hit to Acuity, a mutual insurance company out of Wisconsin.

For starters, the year-one deficiency is $1.1 million, but year-two rises to $31 million, and that got me a phonecall from Mr Patrick Temple-West at Reuters, thinking there’s a big story here.

Well, there really isn’t, as this is a case of dueling actuaries and a review of some obscure Code Sections. In short, insurance company deductions for reserves for losses is a “fair and reasonable” test. Acuity’s actuarial hotshots got the numbers close enough for National Association of Insurance Commissioners standards, and also the actuarial sciences people. IRS’ guys couldn’t show otherwise, despite a lapse in language by one of Acuity’s vice-presidents in a letter to A. M. Best, the insurance raters.

No startling legal theories, so nothing really exciting here. Unless you’re an actuary, that is.

And I have to compliment Acuity’s counsel; they really woodshedded their experts. See my blogposts “Woodshedding Your Experts – Stobie Creek Part Deux”, 1/10/11, and “Woodshedding Your Expert – Redivivus”, 8/6/13.