Description: This paper describes the Federal Income Tax FIT treatment of reserves historically. Then it describes Principles-Based Reserves PBR. Finally, it discusses issues in the treatment of PBR under FIT.

Description: This paper will provide demonstrations of the following three statements: That the calculation of principles-based reserves should ignore federal income taxes That the currently required statutory deferred tax calculation would need to be changed to permit an appropriate deferred tax asset to accompany such reserve so that the result can be correctly principles-based on a post-tax basis That the Tax DAC, pursuant to Section 848 of the Internal Revenue Code, is effectively a negative tax reserve.