At the request of the former Chairman of the Senate Committee on Finance, GAO studied the federal income taxation of the U.S. property/casualty insurance industry. GAO concludes that the Congress should consider reexamining three areas of the Internal Revenue Code: First is the deduction currently allowed for loss reserves. The current method of calculating this deduction ignores the value of money over time. Second is the practice of currently deducting expenses associated with the sale and renewal of insurance policies rather than requiring allocation of these expenses to match the premium revenues associated with them. Third is the protection against loss account which defers a portion of a mutual company's income to provide a cushion for catastrophic losses. This tax deferral may be based on questionable economic assumptions. While Treasury generally agreed with GAO's overall conclusions and recommendations, commentators from the insurance industry disagreed. The report addresses the industry's reservations and presents GAO's responses.
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