SECTION 26. DISCOUNTED UNPAID

LOSSES (§ 846)

.01 Composite method for discounting unpaid losses .

(1) Description of change . Section 846 defines “discounted unpaid losses” for purposes of computing the insurance company taxable income of certain insurance companies. Notice 88–100, 1988–2 C.B. 439, section V, sets forth a composite method for computing unpaid losses with respect to accident years not separately

(iii) The following example illustrates the principles of section 24.01(4)(b) of this APPENDIX.

Example . X, a calendar year taxpayer, is a bank as defined in § 581 and is not a large bank as defined in § 585(c)(2). For taxable years before 2010, X accounted for its bad debts under the § 585 reserve method. By March 15, 2010, X properly filed a Form 2553 electing to be an S corporation effective January 1, 2010. Pursuant to section 24.01(4)(a) of this APPENDIX, the filing of the Form 2553 constituted an agreement by X to change from the § 585 reserve method to the § 166 specific charge-off method in 2010 in accordance with all of the applicable provisions of this revenue procedure. Thus, for example, X must file a Form 3115 for this 2010 change in duplicate, in accordance with section 6.02(3) of this revenue procedure, by attaching the original Form 3115 to X ’s timely filed (including extensions) original federal income tax return for 2010 and filing a copy of the Form 3115 with the national office. The amount of X ’s § 481(a) adjustment for the change is the amount of X ’s bad debt reserve as of the close of December 31, 2009. X wishes to elect under § 1361(g) to include the § 481(a) adjustment in income in the taxable year ending December 31, 2009, the taxable year immediately preceding the year of change. To make this election, X must (1) file an original and copy of Form 3115 for the 2010 change under section 6.02(3) of this revenue procedure, (2) file an additional copy of that Form 3115 with its original (or amended) federal income tax return for 2009 filed no later than the date the original Form 3115 is properly filed under section 6.02(3) of this revenue procedure, and (3) include the amount of its § 481(a) adjustment in gross income in its return for 2009. X must attach a statement to the original and both copies of Form 3115 stating that X elects under § 1361(g) to take the § 481(a) adjustment into account in determining taxable income for 2009, the taxable year immediately preceding the year of change. (5) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under section 24.01 of this APPENDIX is “66.” See section 6.02(4) of this revenue procedure. (6) Contact information . For further information regarding a change under this section, contact David B. Silber at 202–622–3930 or Laura Fields at 202–622–3050 (not a toll-free call).

.02 Reserved .