Legal Document

523 U.S. 382118 S.Ct. 1413140 L.Ed.2d 542 ATLANTIC MUTUAL INSURANCE COMPANY, Petitioner,v.COMMISSIONER OF INTERNAL REVENUE. No. 97-147. Supreme Court of the United States Argued March 2, 1998. Decided April 21, Syllabus * Before enactment Tax Reform Act 1986, Internal Revenue Code gave property and casualty (PC) insurers a full deduction for "loss reserves'': estimated amounts losses reported but not yet paid, incurred reported, administrative costs resolving claims. In each taxable year, only amount loss reserves, reduced by reserves claimed prior were treated as business expense. Section 1023 1986 required PC insurers, beginning with 1987 to discount unpaid present value when claiming them deduction. Requiring subtract undiscounted year-end from discounted in computing would produce artificially low deductions, so included transitional rule requiring well. This changed "method accounting'' income. To avoid recognize income difference between afforded "fresh start,'' to-wit, an exclusion reserves. §1023(e)(3)(A). It foreclosed possibility that they inflate manipulate start'' excepting "reserve strengthening'' exclusion. §1023(e)(3)(B). Treasury Regulation §1.846-3(c)(3)(ii) defines include any net additions Respondent Commissioner determined petitioner, Atlantic Mutual Insurance Co., its subsidiary, insurer, made reducing entitlement resulting tax deficiency. The disagreed, holding refers those increases result changes computation methods or assumptions. reversing, Third Circuit concluded regulation's definition is based on permissible statutory construction. Held: regulation represents reasonable interpretation term strengthening.'' Neither legislation nor industry use establishes plain meaning ascribes term: reserve attributable Since ambiguous, question whether best statute, it one. See Cottage Savings Assn. v. Commissioner, 499 554, 560-561, 111 1503, 1507-1508, 113 589. As purely linguistic matter, phrase broad enough embrace all reserve's amount, whatever reason source. provision at issue limitation upon extraordinary accorded insurers. There was no need be microscopically fair, adopted seems accommodation competing interests fairness, administrability, avoidance abuse. Given hundreds (or more likely thousands) claims involved, resolved less than will tend offset settle Any discrepancy approach unrealistic proportions Atlantic. Pp. ____-____. F.3d 1056, affirmed. SCALIA, J., delivered opinion unanimous Court. George R. Abramowitz, Washington, DC, Petitioner. Kent L. Jones, Respondent. Justice SCALIA 1 Property insurance companies maintain accounting "unpaid losses.'' Under constitute do qualify certain one-time benefit. We must decide reasonably encompasses increase assumptions used compute them. 2 Co. common parent affiliated group corporations, including Centennial insurer. From 1985 1993, two corporations (Atlantic) maintained what call reserves.'' Loss are estimates have pay been 3 Pub.L. 99-514, 100 Stat. 2085, "losses incurred.'' 26 U.S.C. §832(b)(5) (c)(4) (1982 ed.). designation enabled insurer take, effect, current future payments without adjusting "time money''-the fact ""[a] dollar today worth tomorrow,''' D. Herwitz & M. Barrett, Accounting Lawyers 221 (2d ed.1997). amended require years after December 31, 2399, 2404, §§832(b)(5)(A), 846 ed., Supp. V). Absent rule, left purposes year 1987-producing deductions. softened this consequence computation, note following §846. 4 Because requirement income, absent another §481(a) (1988 consequence, §1023(e)(3)(A) Of course greater 1023(e)(3)(B) exclusion: 5 " (B) Reserve strengthening 1985.- Subparagraph (A) [the fresh-start provision] shall apply such occurring taxpayer's 1st 1986.'' 6 Regulations promulgated Department set forth rules determining strengthening'': 7 (1) general. (weakening) under paragraph (c)(2) (3) added (subtracted from) 1986. For section Act, separately applying (c). determination regard reasonableness discretion, lack thereof, establishing reserve. . 8 ..... 9 Accident before -(i) accident which end exceeds (is than)- 10 immediately preceding year; 11 Claims paid adjustment expenses ("loss payments'') respect .'' Treas.Reg. 1.846-3(c), CFR §1.846-3(c) (1997). 12 short, (with exceptions here issue, §1.846-3(c)(3)(ii)) regulation. 13 reserves-"reserve strengthening''-during resulted deficiency $519,987. had strengthened "Reserve strengthening,'' held, (Atlantic's increases, there dispute, did change.) Appeals reversed Court, concluding construction statute. 1056 (It expressly disagreed Eighth Circuit's conclusion Western National 65 90 (1995), invalid.) granted certiorari. 522 ----, 118 334, 139 259 II 14 does define contends has statute: If plainly means, prevail, "for court, well agency, give effect unambiguously expressed intent Congress.'' Chevron U.S.A. Inc. Natural Resources Defense Council, Inc., 467 837, 842-843, 104 2778, 2781, 81 694 (1984). 15 can discerned, first, industry. presented trial expert reports which, "constructing working term'' requires "a material change methodology and/or assumptions,'' App. 68, 74, purport demonstrate "did strengthen reserves,'' id., 99. Our task, course, determine ought mean, mean. Atlantic's first expert, "constructing'' definition, acknowledged "not well-defined actuarial art found actuarial, accounting, regulatory literature.'' Id., 60. On point she agreement Commissioner's experts: "In property-casualty strengthening' various meanings, rather single universal meaning,'' 124. establish anything, established 16 next discerned life-insurance legislation. According Atlantic, roots Life Company Income 1959, provided consequences "basis'' life 73 125, §810(d) (1958 I). But define, matter even use, Though implemented uses caption, §1.810-3(a), §1.810-3(a) (1997), text mention term, one Examples speaks basis occurred 1959,'' §1.810-3(b), Ex. 2. If, argues, "assumptions methodologies'' interchangeable terms, Brief Petitioner 17, n. 8, necessary redundant say much sunburn sun 1959.'' assumptions, natural formulation simply Thus, 1959 implementing suggest, if sufficient, necessary, condition 17 further draws 1984 Div. A., 98 758, §801 (1984 Act). That provision, like said strengthening, specifically, "to Federal September 27, 1983, ending January 1, 1984.'' 759. Unlike however, excluded "employs practice most recent annual statement filed 1983 Ibid. contends, practices (viz., assumptions), saving clause superfluous. extent context relevant (which questionable, see F.3d, 1061-1062), regulations tends contradict, support, petitioner's interpretation. conclude neither III 18 task confronts us decide, 589 (1991). does. 19 certainly (all "strengthening of'') reserve, unreasonable because, theory, produces absurd results, example supposedly illustrates: Assume four case $500 (total $2,000). cases settled $750 ($1,500 total), remaining $1,000. regulation, according find (1986 ($1,000) (first ($2,000) second ($1,500))), though increase. denies contending stipulation "reduced zero'' offsetting payment made, adjustments IBNR (reserve "incurred reported'') may excess amounts, other 36-39. 20 resolve because we agree horrific event unrealistic. very long, benefit adjustment-or he would, his talents could put better Las Vegas. whole spread insured risk over large number cases, where experience law probabilities relied upon. And Notice Proposed Rulemaking Discounted Unpaid Losses, FI-139-86, 1991-2 Cum. Bull. 946, 947 ("For potential inaccuracies aggregate''). may, sure, some direction other, relative 21 should borne mind accommodation-and statute intended-of 22 *** 23 affirm judgment Appeals. 24 ordered. syllabus constitutes part prepared Reporter Decisions convenience reader. Detroit Timber Lumber 200 321, 337, 282, 287, 50 L.Ed. 499.

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