The IRS recently issued two revenue procedures dealing with loss reserve discounting. Revenue Procedure 2019-31 provides revised loss reserve and salvage and subrogation discount factors for certain tax years. This guidance affects the loss reserve reset under the Tax Cuts & Jobs Act, as well as the 2018 and 2019 discounted loss reserves and salvage and subrogation.
Rev. Proc. 2019-30 provides accounting method change guidance. In particular, it provides an automatic change procedure (no Form 3115 necessary) for companies that have already filed their 2018 federal income tax returns or would prefer not to change tax reserves this late in the return preparation process, with loss reserves discounted by proposed factors published in Rev. Proc. 2019-06. In lieu of amending their 2018 tax returns, companies following this procedure will calculate an additional reset adjustment that can be amortized over a seven-year period beginning in 2019. Some companies, however, may decide to amend their 2018 tax returns and calculate a new eight-year spread using the revised factors.
You can read copies of Rev. Proc. 2019-06, Rev. Proc. 2019-30 and Rev. Proc. 2019-31 for full details. BKD will issue subsequent thought leadership once we have had a chance to fully analyze this important guidance.
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