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, under a combination of an accrual method of accounting with any other method permitted by this chapter (other than the cash receipts and disbursements method). To the extent not inconsistent with the preceding sentence or any other provision of this part, 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.

# (b) Amortization of premium and accrual of discount

(1) In general The appropriate items of income, deductions, and adjustments under this part shall be adjusted to reflect the appropriate amortization of premium and the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a life insurance company. Such amortization and accrual shall be determined— (A) in accordance with the method regularly employed by such company, if such method is reasonable, and (B) in all other cases, in accordance with regulations prescribed by the Secretary.

(2) Special rules (A) Amortization of bond premium In the case of any bond (as defined in section 171(d)), the amount of bond premium, and the amortizable bond premium for the taxable year, shall be determined under section 171(b) as if the election set forth in section 171(c) had been made. (B) Convertible evidence of indebtedness In no case shall the amount of premium on a convertible evidence of indebtedness include any amount attributable to the conversion features of the evidence of indebtedness.

(3) Exception No accrual of discount shall be required under paragraph (1) on any bond (as defined in section 171(d)), except in the case of discount which is— (A) interest to which section 103 applies, or (B) original issue discount (as defined in section 1273).

# (c) No double counting

Nothing in this part shall permit— (1) a reserve to be established for any item unless the gross amount of premiums and other consideration attributable to such item are required to be included in life insurance gross income, (2) the same item to be counted more than once for reserve purposes, or (3) any item to be deducted (either directly or as an increase in reserves) more than once.

# (d) Method of computing reserves on contract where interest is guaranteed beyond end of taxable year

For purposes of this part (other than section 816), amounts in the nature of interest to be paid or credited under any contract for any period which is computed at a rate which— (1) exceeds the interest rate in effect under section 808(g) for the contract for such period, and (2) is guaranteed beyond the end of the taxable year on which the reserves are being computed, shall be taken into account in computing the reserves with respect to such contract as if such interest were guaranteed only up to the end of the taxable year.

# (e) Short taxable years

If any return of a corporation made under this part is for a period of less than the entire calendar year (referred to in this subsection as "short period"), then section 443 shall not apply in respect to such period, but life insurance company taxable income shall be determined, under regulations prescribed by the Secretary, on an annual basis by a ratable daily projection of the appropriate figures for the short period.