IRS Prevails in Insurance Firms Dispute

WASHINGTON — The Internal Revenue Service won a multimillion-dollar victory Tuesday as the U.S. Supreme Court resolved a dispute about the federal taxes owed by the nation’s property and casualty insurance companies for 1987.

In a unanimous decision, the court upheld the tax agency’s method of calculating the insurance companies’ tax liability for that key year. Federal appeals courts had split on the issue.

Government lawyers had told the justices that their decision will carry “consequences for taxable income in excess of $1 billion.” Tax attorneys said taxable income of $1 billion would result in taxes of about $330 million.

In another business-related case Tuesday, the court barred some homeowners facing foreclosure from trying to cancel their mortgage loan on grounds the lender violated a federal truth-in-lending law.

Ruling unanimously in a Florida case, the court said no such defense can be raised to stave off foreclosures after a three-year deadline for rescinding the loan agreement has passed. The tax case involved changes Congress made in 1986 to the way property and casualty insurance companies calculate their federal tax liability. At issue was the interpretation of a one-time forgiveness the law provides because of changes in deductions.

Atlantic Mutual Insurance Co. paid its 1987 taxes based on one interpretation of the disputed statutory language. The IRS, with a differing interpretation, said the insurance company actually had another $1.3 million in income for the year and ordered it to pay an additional $519,987 in taxes.

New York-based Atlantic Mutual contested that order in U.S. Tax Court and won. But the U.S. 3rd Circuit Court of Appeals reversed the tax court and ruled that the IRS’ interpretation of the law’s ambiguous language had to be given considerable deference.

Writing for the nation’s highest court today, Justice Antonin Scalia said the 3rd Circuit Court was right.

“The interpretation adopted . . . seems to us a reasonable accommodation--and one that the statute very likely intended--of the competing interests of fairness, administrability and avoidance of abuse,” Scalia wrote.