State Farm Mutual Automobile Insurance Company & Subsidiaries, (2010)
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State Farm Mutual Automobile Insurance Company & Subsidiaries, (2010)
135 T.C. No. 26
UNITED STATES TAX COURT STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY & SUBSIDIARIES, Petitioner v.COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 5426-05. Filed November 8, 2010.P provided automobile liability insurance. P was found by the Supreme Court of Utah to be liable for punitive damages related to its claims processing on this liability coverage. P reflected the amount of the punitive damage award as a 'loss incurred' within the meaning of sec. 832(b)(5), I.R.C., entitling it to increase its insurance loss reserve, as shown on its annual statement for insurance regulatory purposes. R challenges this treatment for several reasons including that the punitive damage award was extracontractual to the insurance coverage P provided.Held: P may not include the punitive damage award in losses incurred under sec. 832(b)(5), I.R.C.Jerome B. Libin, James V. Heffernan, Mary E. Monahan, and Troy L. Olsen, for petitioner.Alan M. Jacobson, Jan E. Lamartine, and William F. Barry IV, for respondent.OPINION GOEKE, Judge: Respondent determined deficiencies in petitioner's income tax for the taxable years 1996 through 1999. Petitioner raised seven issues in its petition, six of which have been resolved. This Opinion addresses solely whether punitive damages and related costs of $202 million are includable in losses incurred under section 832(b)(5)1 for taxable years 2001 and 2002. For the reasons stated herein, we find that the $202 million is not properly included in losses incurred for Federal income tax purposes.Background Some of the ...See the full content of this document
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