Tax Court declines to decide insurance company’s tax reserve issue when IRS concedes no deficiency 

The Tax Court today issued a memorandum opinion concluding that it would not exercise its discretion to opine on a life insurance company’s tax reserve computation issue, involving application of NAIC Actuarial Guideline (AG) 34, when the IRS had conceded there was no deficiency. Cigna Corp. v. Commissioner, T.C. Memo 2012-226 (September 13, 2012)

Text of the opinion: Cigna [PDF 20 KB]

Summary

The IRS determined a $10.7 million deficiency in the taxpayer / life insurance company’s federal income tax for 2004.


The IRS originally determined that the taxpayer had improperly computed its tax reserves for certain reinsurance treaties. Subsequently, the IRS conceded that there was no deficiency, and accepted the taxpayer’s tax reserve computations.


However, an issue remained in dispute. At issue was whether the taxpayer could—as a matter of law—compute its tax reserves under section 807 by using a reserve method adopted after treaties to reinsure were executed.


The taxpayer requested that the Tax Court decide this tax reserve issue; however, the IRS countered that a Tax Court opinion addressing this issue would be advisory in light of the stipulation agreement and thus not within the court’s jurisdiction.


Today, the Tax Court agreed with the IRS and, because the IRS conceded there was no deficiency, declined to exercise its discretion to resolve the tax reserve issue involving the taxpayer’s application of AG 34.



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©2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

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