• Bringing Certainty to an Uncertain Tax Position: IRS LB&I Directive Addresses Partial Worthlessness Deductions Claimed by Insurance Companies
  • August 13, 2012
  • Law Firm: Sutherland Asbill Brennan LLP - Washington Office
  • On July 30, 2012, the IRS Large Business & International (LB&I) Division issued guidelines intended to reduce the controversy associated with partial worthlessness deductions claimed by insurance companies. In brief, the guidelines, which were released as an industry director directive (the Directive), instruct IRS examiners not to challenge partial worthlessness deductions claimed by an insurance company under § 166(a)(2)* if (i) they are limited to the credit-related portion of the impairment charge-off (not the full fair market value) and (ii) they comport with the National Association of Insurance Commissioners (NAIC) Statement of Statutory Accounting Principle (SSAP) 43R accounting rules. Importantly, although the Directive does not discuss whether the conclusive presumption of worthlessness standard of Treas. Reg. § 1.166-2(d) applies to insurance companies, the Directive, in effect, applies that standard to the credit-related impairment portion of the charge-offs.