Annual Statement methodology should be followed in computing insurance company taxable income except when the tax law does not permit insurers to do so.

Question

Options

• Atrue
• BFalse

• A
  73% (32)
• B
  27% (12)

Explanation

A is correct because U.S. tax law explicitly adopts the Annual Statement (statutory accounting) as the default framework for computing insurance company taxable income under IRC §832 (property/casualty) and §807 (life insurance). Congress intentionally anchored insurance taxation to statutory accounting rather than GAAP, so Annual Statement methodology governs unless a specific tax code provision overrides it.

B is wrong because the statement is not false - this "conformity principle" is a foundational rule of insurance taxation. Rejecting it would mischaracterize how the IRS treats insurer accounting; statutory reserves, unearned premiums, and loss reserves are all computed using Annual Statement rules as the starting point.

Memory tip: Think of Annual Statement methodology as the "default setting" for insurance tax - it stays on unless Congress flips a specific switch (i.e., a tax law provision that deviates). The exceptions prove the rule, not replace it.

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