dissenting:
The issue in this case may be stated as follows: Must a life insurance company which changes from preliminary term to an approximation of net level premium in calculating its reserves for tax purposes also change from preliminary term to net level premium in calculating the extent to which unpaid premiums add to gross premium income and assets? The Government says yes, the taxpayer no. For the following reasons, I believe the Government’s position has greater merit.
Section 818(a) of the Internal Revenue Code (1954 Code) provides that, generally speaking, all computations entering into the determination of the taxes imposed upon an insurance company "shall be made in a manner consistent with the manner required for purposes of the annual statement approved by the National Association of Insurance Commissioners [NAIC].” The NAIC procedures require, inter alia, that if an insurance company employs preliminary term for calculating reserves, it must also do so for calculating gross premium income and assets. Correspondingly, if the insurance company uses net level premium when calculating reserves, it must adhere to this method when calculating premium income and assets. In this case, the insurance company has elected under § 818(c) to revalue its reserves for tax purposes using the net level premium method, albeit an approximation thereof. It follows logically from the foregoing propositions that the insurance company must also revalue its premium income and assets according to the same method.
In the following, I elaborate upon the successive points of my argument.
I. Section 818(a) provides as follows:
§ 818. Accounting provisions
(a) Method of accounting. — All computations entering into the determination of the taxes imposed by this part shall be made—
(1) under an accrual method of accounting, or
(2) to the extent permitted under regulations prescribed by the Secretary or his delegate, under a combination of an accrual method of accounting with *188any other method permitted by this chapter (other than the cash receipts and disbursements method).
Except as provided in the preceding sentence, all such computations shall be made in a manner consistent with the manner required for purposes of the annual statement approved by the National Association of Insurance Commissioners.
(Emphasis supplied.) In other words, under § 818(a) an insurance company generally must follow the accounting procedures approved by the NAIC1 for purposes of the annual statement in performing the computations necessary for preparation of its federal tax return. Because § 818(a) is general on its face, it is subject to override whenever inconsistent with other, mor^ specific provisions of the 1954 Code. See S. Rep. No. 291, 86th Cong., 1st Sess., reprinted in [1959] U.S. Code Cong. & Ad. News 1649. In this case, however, no other provision of the Code directly touches upon the problem before us.
Comm’r v. Standard Life & Accident Insurance Co., 433 U.S. 148 (1977) — the case which generated the tax accounting problem before us — completely bears out my interpretation of § 818(a). The issue in that case was the extent to which unpaid premiums are includable in "reserves”, "assets”, and "gross premium income” as those concepts are used in the insurance company part of the 1954 Code. The Court held that, "Since this is essentially an accounting problem, our inquiry is governed by § 818.” Id. at 158. In other words, "unpaid premiums must be reflected in the computation of respondent’s tax liabilities 'in a manner consistent with the manner required for purposes of the annual statement approved by the NAIC.’” Id. at 163. Under the NAIC approach, the net valuation portion of the unpaid premium is included in reserves, assets, and gross premium income, while the loading portion is entirely excluded. Id. at 162.
The Standard Life Court noted in the course of its opinion:
*189Evidence of congressional respect for NAIC accounting methods is not limited to the portion of the Code concerning life insurance companies. In defining "gross income” and "expenses incurred” for purposes of taxing certain other insurance companies, Congress expressly requires computations to follow "the annual statement approved by the National Convention of Insurance Commissioners.” 26 U.S.C. §§ 832(b)(1)(A), (b)(6).
Id. at 161 n.24.
II. The NAIC procedures require, inter alia, that if an insurance company determines reserves by the preliminary term method, it must adhere to the same method in determining the extent to which unpaid premiums add to assets and gross premium income. In other words, preliminary term must be adhered to in computing the breakdown between net valuation premium and loading, with only the former being taken into assets and gross premium income. The NAIC procedures similarly require that if the company employs net level premium to determine reserves, it must use the same method in determining assets and gross premium income. In other words, the NAIC mandates consistent accounting procedures in computing the breakdown between net valuation premium and loading, irrespective of the ultimate purpose for which the breakdown is used. These are merely findings of fact of the trial judge in this case.
III. Under § 818(c) of the 1954 Code, insurance companies which have been valuing reserves under the preliminary term method are permitted for tax purposes to revalue according to the net level premium method or an approximation thereof.2
*190The approximation method is not derived from the NAIC. Nonetheless — as is apparent from its name — it serves as a simplified means of obtaining approximately the same level of reserves as would be obtained under the exact net level premium method. While involving somewhat different mechanics, see § 818(c)(2), the approximation method, therefore, cannot meaningfully be distinguished from the exact method either in purpose or consequence. See supra 20 n.2.
IV. The ground is now set for addressing the specific problem before us.
Reserve Life has elected to revalue its reserves according to the, approximation method provided by § 818(c)(2). The question is whether it may continue to employ preliminary term in computing the extent to which unpaid premiums add to gross premium income and assets, or must change to net level premium. The principle of consistency mandated by the NAIC procedures would appear to allow no other conclusion than that Reserve Life must also use net level premium when determining premium income and assets. Irrespective of the fact that Reserve Life is technically using the approximation method of § 818(c)(2) when determining reserves, it cannot plausibly be argued that preliminary term is more consistent with the approximation method than is net level premium, the method approximated.
V. The majority ranges far afield of the matter at hand in seeking examples to refute my argument. The majority writes:
There are many inconsistencies between the NAIC and tax accounting rules, which produce different accounting treatment for the same items under the two systems. In none of those situations, however, is a further accounting adjustment made for tax purposes to reflect a Code provision that requires or permits an accounting treatment for federal tax purposes that is different from that which the NAIC system mandates.
*191See supra at 179-80. In other words, as a result of random congressional interventions, the body of insurance tax law apparently harbors many instances of inconsistent accounting method. We are presumably to draw from this an inference unfavorable to my own analysis. I note that the majority has failed to make reference to a single IRS release showing that the Sendee is aware of the inconsistencies and has consciously decided to tolerate or foster them. Nor has the majority cited any cases in which a court or agency tribunal has been called upon formally to test these inconsistencies. Instead, we have simply the naked fact that no official action has yet been taken with respect to certain problems that the majority has brought to light— a legal non-event, in effect. From this alone, it is not possible to' draw any inference concerning tax policy. The persistence of the inconsistencies may be attributable to any of a number of causes, not least that the inconsistencies may be more apparent than real.
The majority crowns its discussion of § 818(a) with the following interpretátion thereof:
We think that the most persuasive explanation of these inconsistencies is that Section 818(a) requires that the accounting treatment in the Annual Statement be followed for federal tax purposes unless the Code provides or permits a different treatment.
See supra at .181. I heartily endorse this general principle, but feel that it leads to my conclusion, not the majority’s. I will restate in the form of a question the two main components of the majority’s rule.
First, does the accounting treatment in the Annual Statement require consistent accounting methods in the computation of reserves, gross premium income, and assets? This, of course, is my focal contention. The trial judge found that this is indeed the case and the majority has apparently conceded the point. See supra at 179-80.
Second, does the 1954 Code provide or permit that inconsistent methods may be used, irrespective of the mandate contained in the NAIC procedures? This merely restates the basic issue we have been arguing throughout. Section 818(c) provides that an insurance company which *192has been valuing reserves under the preliminary term method may revalue according to the net level premium method or an approximation thereof. Apart from the general rule stated in § 818(a), however, the tax code is silent on the question whether additional corresponding adjustments have to be made — or do not have to be made— in the manner of accounting for gross premium income and assets. As the majority correctly points out, the legislative history is also silent on the question whether additional corresponding adjustments have to be made. See supra at 176-77. This being the case,the NAIC approach — i.e., consistency — governs. Or, as the Court stated in Standard Life: "Since general [accrual] accounting rules are not controlling, the statute requires use of the NAIC appróach to fill the gap.” 433 U.S. at 162.
My argument is premised upon the viewpoint that consistency in accounting methods is a virtue, not lightly to be disregarded. The Court took a similar position in Standard Life, as follows: "Although we do not accept the notion that there must be perfect symmetry in the tax laws, there should be a measure of consistency in the accounting treatment of an item affecting interrelated elements. . . .” 433 U.S. at 160.
I am highly troubled by the majority’s decision. It seriously undermines the authority of the NAIC procedures and does not supply a substitute yardstick. As a consequence, a threat is posed to the predictability and rationality of insurance tax accounting.
I respectfully dissent.
The NAIC is a national organization of state regulatory officials, which acts on behalf of the various state insurance departments, and performs audits on insurance companies which do business in several states.
The purpose and operation of § 818(c) are explained by the following extract from the relevant Senate Report:
Some life insurance companies compute their life insurance reserves on what is called a preliminary term basis. The effect of this is to take the full agents’ commissions (which are larger in the initial period of a life insurance contract) out of amounts which would otherwise be added to reserves during the first year of a contract and to add correspondingly larger amounts to reserves in later years. The effect of this is to work a hardship on insurance companies using preliminary term reserves as compared with those which use ordinary reserves, since the policy and other contract liability requirements which determine the policyholders’ and life insurance company’s shares of investment income depend on the size of the reserves. Moreover, premium additions to reserves, deductible under phase 2, also would in some cases be smaller. To avoid this result, life insurance companies which have computed their reserves on a preliminary term basis are permitted to recompute their reserves on a net level premium basis. This can be done either by an exact *190revaluation of the reserves to a net level premium basis or by approximating this result under a formula set forth in the bill.
S. Rep. No. 291,86th Cong., 1st Sess., reprinted in [1959] U.S. Code Cong. & Ad. News 1605-1606 (emphasis supplied).