SECTION 4. APPLICATION — Internal Revenue Bulletin 2003-6

.01 The following tables present separately for each line of business the discount factors under § 832 for 2002. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2002, which is 5.71 percent, and by assuming all estimated salvage is recovered in the middle of the calendar year

.02 Section V of Notice 88–100, 1988–2 C.B. 439, sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. Rev. Proc. 2002–74, section 3.03, 2002–51 I.R.B. 980, provides that an insurance company that elects to use the composite method of Notice 88–100 must use the same method to compute discounted estimated salvage recoverable. Accordingly, the tables separately provide discount factors for taxpayers who elect to use the composite method of section V of Notice 88–100.

.03 These tables must be used by taxpayers irrespective of whether they elected to discount unpaid losses using their own experience under § 846(e).

.04 Tables.

Accident and Health (Other Than Disability Income or Credit Disability Insurance)

Taxpayers that do not use the composite method of Notice 88–100 should use 97.2617 percent to discount estimated salvage recoverable as of the end of 2002 and later taxable years with respect to losses incurred in this line of business in 2002.

Accident and Health (Other Than Disability Income or Credit Disability Insurance)

Taxpayers that use the composite method of Notice 88–100 should use 97.2617 percent to discount estimated salvage recoverable as of the end of 2002 with respect to losses incurred in this line of business in 2002.

Commercial Auto/Truck Liability/Medical

Taxpayers that do not use the composite method of Notice 88–100 should use the following factor to discount estimated salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in 2002.

Auto Physical Damage

Tax Year

97.2617

Discount

Factors

2012 and later years

(%)

2002 95.9613 2003 94.6349

Taxpayers that use the composite method of Notice 88–100 should use 97.2211 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Composite

Tax Year

(%)

Discount

Factors

2004 and later years

97.2617

Taxpayers that use the composite method of Notice 88–100 should use 97.2617 percent to discount estimated salvage recoverable as of the end of 2004 with respect to losses incurred in this line of business in 2002.

2002 89.0851 2003 87.5364 2004 86.9084 2005 86.1903 2006 84.7791 2007 84.8602 2008 84.5391 2009 84.4628 2010 84.5889 2011 86.8329

Taxpayers that do not use the composite method of Notice 88–100 should use the following factors to discount estimated salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in 2002.

2012 89.1538 2013 91.5493 2014 94.0070 2015 96.4596 2016 and later 97.2617 years

Commercial Auto/Truck Liability/Medical

Discount

Tax Year

Factors

(%)

2002 89.1648 2003 88.8184 2004 88.5411 2005 89.1228 2006 89.7404 2007 89.0554 2008 90.5327 2009 91.8164 2010 92.1496 2011 94.6715

February 10, 2003 440 2003–6 I.R.B.

Composite

Taxpayers that use the composite method of Notice 88–100 should use 92.5879 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Financial Guaranty/Mortgage Guaranty

Fidelity/Surety

Tax Year

Discount

Factors

International (Composite)

Discount

(%)

Tax Year

Factors

(%)

2002 92.0133 2003 94.6349

Medical Malpractice — Claims-Made

2003 77.4565 2004 83.3469 2005 80.3314 2006 81.5320 2007 74.4259 2008 86.8875 2009 90.5735 2010 95.0023 2011 97.2617

2012 and later years

97.2617

2004 and later years

97.2617

Taxpayers that use the composite method of Notice 88–100 should use 97.2617 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Tax Year

Medical Malpractice — Occurrence

Discount

Factors

(%)

Financial Guaranty/Mortgage Guaranty

Discount

Tax Year

Factors

(%)

2002 93.7635 2003 94.6349

2002 89.0851 2003 87.5364 2004 86.9084 2005 86.1903 2006 84.7791 2007 84.8602 2008 84.5391 2009 84.4628 2010 84.5889 2011 86.8329

2012 89.1538 2013 91.5493 2014 94.0070 2015 96.4596 2016 and later 97.2617 years

Medical Malpractice — Claims-Made

2002 78.2595 2003 79.6832 2004 84.2125 2005 86.0904 2006 70.2129 2007 82.8072 2008 89.2934 2009 93.1674 2010 95.3914 2011 97.2617

Discount

Factors

(%)

2004 and later years

97.2617

Tax Year

2002 83.3446

2003–6 I.R.B. 441 February 10, 2003

Other (Including Credit)

Medical Malpractice — Occurrence

2012 and later years

97.2617

Taxpayers that use the composite method of Notice 88–100 should use 97.1286 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Other Liability — Claims-Made

Discount

Factors

(%)

Miscellaneous Casualty

Tax Year

Discount

Factors

(%)

2002 95.3528 2003 94.6349

Multiple Peril Lines (Homeowners/ Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))

2008 89.7645 2009 89.9881 2010 91.9392 2011 94.4458

2012 97.0065 2013 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 97.0065 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

2004 and later years

97.2617

Other (Including Credit)

Discount

Tax Year

Factors

(%)

2002 88.5534 2003 77.0799 2004 59.8423 2005 85.1827 2006 80.6863 2007 79.6704 2008 87.4045 2009 91.7825 2010 87.7798 2011 90.1269

2012 92.5413 2013 94.9916 2014 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 92.5413 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

2002 95.5983 2003 94.6349

Discount

Tax Year

Factors

(%)

97.2617

Other Liability — Occurrence

Discount

2002 90.2539 2003 88.1069 2004 89.0426 2005 88.6765 2006 88.1493 2007 89.7100

2004 and later years

2002 82.1003 2003 83.8238 2004 85.1543

Tax Year

Factors

(%)

February 10, 2003 442 2003–6 I.R.B.

Products Liability — Occurrence

Other Liability — Occurrence

2005 81.0240 2006 85.2626 2007 88.2873 2008 88.7248 2009 91.2567 2010 92.8723 2011 95.2829

Private Passenger Auto Liability/Medical

2012 95.8417 2013 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 96.2722 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Tax Year

Discount

Tax Year

Factors

(%)

Products Liability — Claims-Made

Discount

Factors

(%)

2012 and later years

97.2617

2002 77.1249 2003 80.2580 2004 80.9969 2005 84.1881 2006 81.0130 2007 85.2160 2008 88.9333 2009 89.8343 2010 83.2562 2011 85.4521

2012 87.7240 2013 90.0713 2014 92.4880 2015 94.9465 2016 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 89.9396 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Private Passenger Auto Liability/Medical

Tax Year

(%)

Discount

Factors

2002 92.6794 2003 92.4436 2004 92.1118 2005 91.1168 2006 90.8537 2007 89.5944 2008 89.5168 2009 89.5750 2010 91.0294 2011 93.4478

2002 83.8918 2003 83.9617 2004 85.9812 2005 80.9402 2006 75.8992 2007 83.6008 2008 89.1426 2009 94.2722 2010 12.7896 2011 94.7448

2012 and later years

97.2617

Reinsurance A (Nonproportional Assumed Property)

2002 83.0276 2003 79.4487 2004 84.3983 2005 88.9304 2006 89.6909 2007 91.8095 2008 93.9748 2009 95.5166

Discount

Tax Year

Factors

(%)

2003–6 I.R.B. 443 February 10, 2003

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)

2002 92.5352 2003 94.6349

Reinsurance A (Nonproportional Assumed Property)

2010 96.2373 2011 97.2617

Reinsurance B (Nonproportional Assumed Liability)

2014 89.7871 2015 93.1686 2016 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 90.7865 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

Discount

Tax Year

Factors

(%)

2012 and later years

97.2617

Reinsurance C (Nonproportional Assumed Financial Lines)

Discount

2004 and later years

97.2617

Tax Year

Factors

(%)

Reinsurance B (Nonproportional Assumed Liability)

Discount

Workers’ Compensation

Tax Year

Factors

(%)

2002 82.5422 2003 79.7782 2004 83.6886 2005 81.1133 2006 72.7512 2007 76.9860 2008 76.1494 2009 78.8202 2010 72.6244 2011 81.6711

2012 84.1450 2013 86.8254

2002 82.1001 2003 82.9712 2004 87.1724 2005 84.0362 2006 87.9032 2007 79.5172 2008 83.3178 2009 91.6271 2010 93.2736 2011 95.6650

Discount

Tax Year

Factors

(%)

2012 and later years

97.2617

2002 83.1651 2003 84.7058 2004 85.2400 2005 85.1429 2006 84.3224 2007 85.3097 2008 85.0472 2009 85.2314 2010 86.2035 2011 88.4933

February 10, 2003 444 2003–6 I.R.B.

whichever is lower. Section 1.471–2(c) also provides that any goods in an inventory that are unsalable at normal prices or unusable in the normal way because of damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes, including second-hand goods taken in exchange, should be valued, if such goods consist of raw materials held for use or consumption, upon a reasonable basis taking into consideration the usability and condition of the goods, but in no case shall such value be less than the scrap value.

.03 Section 1.471–3(b) defines the cost of merchandise purchased since the beginning of the taxable year as the invoice price less trade or other discounts, except strictly cash discounts approximating a fair interest rate, which may be deducted, or not, at the option of the taxpayer, provided the taxpayer follows a consistent course. To this net invoice price should be added transportation or other necessary charges incurred in acquiring possession of the goods. In the case of merchandise produced by the taxpayer, § 1.471–3(c) defines cost as (1) the cost of raw materials and supplies entering into or consumed in connection with the product, (2) expenditures for direct labor, and (3) indirect production costs incident to, and necessary for, the production of the particular article, including in such indirect production costs an appropriate portion of management expenses, but not including any cost of selling or return on capital, whether by way of interest or profit. See §§ 1.263A–1 and 1.263A–2 for more specific rules regarding the treatment of production costs.

.04 Section 1.471–4(a) provides that, under ordinary circumstances and for normal goods in inventory, “market” means the aggregate of the current bid prices prevailing at the date of the inventory of the basic elements of cost reflected in inventories of goods purchased and on hand, goods in process of manufacture, and finished manufactured goods on hand. The basic elements of cost include direct materials, direct labor, and indirect costs required to be included in inventories by the taxpayer ( e.g ., under § 263A and its underlying regulations for taxpayers subject to that section). For taxpayers to which § 263A applies, for example, the basic elements of cost must reflect all direct costs and all indirect costs properly allocable to goods on hand at the inventory date at the current bid price of

Workers’ Compensation

2012 90.8522 2013 93.2636 2014 95.6550 2015 and later 97.2617 years

Taxpayers that use the composite method of Notice 88–100 should use 93.1315 percent to discount estimated salvage recoverable as of the end of 2012 with respect to losses incurred in this line of business in 2002.

DRAFTING INFORMATION

The principal author of this revenue procedure is Katherine A. Hossofsky of the Office of the Associate Chief Counsel (Financial Institutions and Products). For further information regarding this revenue procedure, contact Ms. Hossofsky at (202) 622–3477 (not a toll-free call).

26 CFR 601.204: Changes in accounting periods and in methods of accounting. (Also Part 1, §§ 263A, 446, 471, 472, 481, 7121; 1.263A–1, 1.446–1, 1.471–2, 1.471–4, 1.472–2, 1.481–1.)

Rev. Proc. 2003–20