Gerber, Judge:
Respondent determined an $89,366 Federal income tax deficiency for petitioner’s 1987 taxable year. The issue remaining in controversy is whether petitioner engaged in reserve strengthening within the meaning of section 1023(e)(3)(B) of the Tax Reform Act of 1986 (tra 86), Pub. L. 99-514, 100 Stat. 2404. In that context, we consider whether section 1.846-3(c), Income Tax Regs., is valid and more specifically whether the definition of reserve strengthening contained in the regulation comports with the statute and congressional intent.
FINDINGS OF FACT
The facts stipulated by the parties are incorporated by this reference. Petitioner, a property and casualty (PC) insurance company, is a corporation organized under the laws of the State of Minnesota with its principal office in Minneapolis, Minnesota.
Initially (petitioner was organized in 1900), most of petitioner’s insurance coverage involved dairy properties in Minnesota, Wisconsin, and Iowa. Since then petitioner has expanded its risk coverage by offering fire, homeowners, worker’s compensation, and automobile liability insurance. In connection with the period under consideration, petitioner’s business predominantly consisted of automobile coverage, followed by worker’s compensation, with fire, allied lines, and homeowners policies comprising most of the remaining insur-anee coverage. While a majority of petitioner’s business is in Minnesota, it is licensed to do business in Wisconsin, Iowa, North Dakota, and South Dakota.
For each State in which it is licensed to do business, a PC company is required to file an annual statement with the State insurance commissioner in the format prescribed by the National Association of Insurance Commissioners (NAIC). The primary purpose of the annual statement is to provide State regulatory agencies the information necessary for monitoring the financial solvency of the insurance companies, regulating insurance businesses, and verifying compliance with State insurance laws and regulations. The NAIC annual statement includes a balance sheet, a statement of income, a capital and surplus account, a statement of cash-flow, an underwriting and investment exhibit, historical data, schedules, and responses to questions, as well as information on premiums, losses, and dividends to policyholders. Petitioner filed its NAIC annual statements with the State commissioner of insurance for each State in which it was licensed to do business for the years 1984 through 1991.
PC companies are required to maintain loss reserves to ensure the payment of claims that have occurred but have not been paid by or reported to the insurer as of the NAIC annual statement filing date, typically December 31 of each year.
Petitioner’s loss reserves generally include four components or categories: (1) Claims already reported to petitioner (case reserves); (2) amounts that will be paid on claims that can statistically be presumed incurred but are not yet reported to petitioner (IBNR reserves); (3) expected future changes in the case reserves (bulk reserves); and (4) loss adjustment expenses not included in (1) through (3) (LAE reserves).1 Bulk reserves were not held by petitioner as of 1986 yearend for pre-1986 accident years.
Petitioner’s loss reserves consisted predominantly of case reserves. Its claims department established the case reserves from data contained in loss reports and policy files. These reserves were established and maintained on a case-by-case basis and the amounts were dependent on the facts and circumstances of each claim or case. Petitioner’s 1985 and 1986 case reserves were established in the same manner and totaled $23.6 million and $30 million, respectively.
From 1963 through the period in controversy, George Klouda, petitioner’s president and general manager, was responsible for establishing the amount of the IBNR reserve. The IBNR reserve was determined for each line of business by means of a computer program model which included a 1-year historical development of IBNR, the level of premiums, and judgmental factors (such as an estimate for inflation). If, at yearend, based on emerging claims experience against previous IBNR reserves, it was Mr. Klouda’s judgment that IBNR reserves were not adequate and an increase in IBNR reserves was warranted, any such increase to the IBNR reserves was reflected as part of the current accident year claims and not as an adjustment to IBNR for prior accident years. This method for computing IBNR was used to report IBNR on the 1985 and 1986 naic annual statement. Using this method, petitioner held IBNR reserves of $3.3 million for year 1985 and $4.4 million for 1986.
Petitioner did not change its reserve assumptions or methodology from prior years in computing its 1986 loss reserve. By the end of 1991 it was evident that petitioner’s 1985 and 1986 loss reserves were both deficient, as opposed to overstated.
Mr. Klouda was also responsible for determining petitioner’s LAE reserves. These were also computed by means of a formula. Mr. Klouda combined all of petitioner’s lines of business and compared total losses paid in a preceding 3-year period to the LAE paid during the same 3-year period. Total LAE was computed by applying the average 3 years of the paid-to-paid ratios to IBNR and by applying one-half of the ratios to case reserves. The final value was then judgmentally adjusted. This method was employed for 1985 and 1986. Using this method, petitioner held yearend LAE reserves of $3 million for 1985 and $4.2 million for 1986.
Respondent, mechanically following the calculation set forth in section 1.846-3(c), Income Tax Regs., determined that petitioner had engaged in reserve strengthening in the amount of $1,383,383 in 1986 with respect to pre-1986 claims. Using the discounting principles set forth in section 846,2 respondent determined that petitioner’s 1987 taxable income was understated by $223,025. Respondent did not question the approach, method, or any specific changes which occurred in connection with petitioner’s reserves. Instead, respondent employed the regulation’s formula, which assumes that any net increase to reserves constitutes reserve strengthening.
The formula set forth in section 1.846 — 3(c)(3)(i), Income Tax Regs., was employed for each of petitioner’s lines of business. That formula concerns accident years before 1986. Under that formula the reserves for 1985 as of the end of the 1985 year are reduced by claims and LAE paid regarding those reserves in 1986. To the extent that reserves for 1985 existing at the end of 1986 exceed that amount, it is treated as a net increase to the reserve. To the extent the result is less, it is negative and treated as a net decrease to the reserve.
Respondent’s computations resulted in the following “increases” or “decreases” to reserves in petitioner’s lines of business:
Increase Line of insurance (decrease)
Auto liability . $554,503
Other liability. 238,533
Worker’s compensation. 1,729,542
Multiple peril . (135,345)
Fire . (300)
Allied lines. 500
Inland marine . (23,265)
Auto physical damage. (1,083,226)
Glass . (437)
Burglary and theft . -0-
Reinsurance . 102,878
Net totals . 1,383,383
OPINION
Background
Subchapter L, involving insurance companies, is a highly specialized portion of the Internal Revenue Code which is replete with the unique nomenclature of the insurance industry. We are asked here to construe the term “reserve strengthening”, a specialized insurance concept which was used by Congress in TRA 86 section 1023(e)(3). As part of TRA 86, Congress changed certain aspects for reporting income by property and casualty companies. Because some of these changes would have likely resulted in the reporting of more income, Congress permitted some relief from the initial change by exempting certain items. However, to avoid abuse, the portion of the increase in the taxpayers’ reserves which constituted reserve strengthening was not to be exempted. The parties maintain distinctly different definitions of the term “reserve strengthening”. To better understand the unique terms and nuances in the parties’ arguments, it is helpful to first consider some of the background concerning the taxation of PC insurance companies.
Prior to TRA 86, PC insurance companies recognized premium income when earned rather than when received, sec. 832(b)(3) and (4); sec. 1.832-4(a)(3), Income Tax Regs., and claims or losses of claimants were deducted when “incurred” without consideration of when such losses were paid. Sec. 832(b)(6). This was in contrast to the accrual method of tax accounting under which the liability must be fixed and determinable with reasonable accuracy. Prior to TRA 86, PC companies were generally entitled to deduct the full amount of their unpaid losses in calculating taxable income. Treatment for tax purposes generally followed the amount of unpaid losses accounted for in the NAIC annual statement. Because PC companies do not use the more traditional versions of the cash or accrual methods of accounting, the annual statement has been used as a guideline for determining the timing of taxable income. Sec. 832(b)(1). The NAIC annual statement accounting principles are incorporated, with qualifications, into certain provisions of the Internal Revenue Code applicable to PC companies.
Prior to TRA 86, the PC companies were entitled to a deduction for “losses incurred” computed as (1) losses paid during the taxable year (plus or minus the change in salvage and reinsurance recoverable for the year), plus (2) all unpaid losses outstanding at the end of the taxable year, minus (3) unpaid losses outstanding at the end of the preceding year. A deduction was also allowed for “expenses incurred”, including estimates of future costs of adjusting claims (loss adjustment expenses or LAE). In this way, PC insurance companies were permitted to deduct the full amount of the net increase in their unpaid losses in calculating taxable income. Accordingly, prior to 1987 PC companies could deduct more than the current cost of claimed losses. The longer the period between the accident or loss year and the year the claim was actually paid, the greater the benefit attributable to the insurer’s deduction. Having concluded that prior law did not accurately measure the income of PC’s, Congress, in tra 86, changed the tax treatment of unpaid loss deductions for such companies.
The change was accomplished by means of a discounting method. To implement the discounting of unpaid losses, section 832(b)(5) was amended to provide that the deduction for losses incurred is to be determined by reference to discounted unpaid losses. In other words, the deduction for these reserves is limited to the amount of discounted unpaid losses and LAE. Section 846 was added to define “discounted unpaid losses”. The discounted unpaid loss provisions are generally effective for tax years beginning after December 31, 1986, with the exception of certain transitional rules, discussed infra.
The amount of the discounted unpaid losses as of the end of any tax year is the sum of the discounted unpaid losses separately computed with respect to unpaid losses in each line of business attributable to each accident year. Sec. 846(a)(1). The term “unpaid losses” under section 846(f)(2) includes reported losses, incurréd but not reported losses, resisted claims, and loss adjustment expenses. The discounting methodology is applied by line of business for each accident year and is set forth in section 846(a)(2). Where the unpaid losses shown on the NAIC statement have already been discounted, and certain other criteria are met, a company may gross up its discounted unpaid losses to determine its undiscounted unpaid losses.
The availability of this grossup, however, provides taxpayers an opportunity to artificially inflate their undiscounted losses by overstating the amount by which their unpaid losses are discounted in the annual statement. To close this loophole by which taxpayers could effectively negate the application of the discounting requirements, tra 86 provides that the amount of the discounted unpaid losses cannot exceed the aggregate amount of unpaid losses with respect to any line of business for an accident year as reported on the annual statement. Sec. 846(a)(3).
Although the loss reserve discounting provisions generally apply to tax years beginning after December 31, 1986, it was necessary to select a starting point for the discounting of unpaid losses. TRA 86 section 1023(e)(2) provides a transitional rule with respect to unpaid losses on the effective date of the provision. Under the transitional rule, the unpaid losses as of the beginning of the first tax year beginning after December 31, 1986, are determined as if the loss reserve discounting provisions had applied. The discount for the pre-1987 unpaid losses (assuming a calendar year PC) is determined under the method set forth in section 846(a)(2) concerning the loss payment pattern applicable to accident years ending in 1987.
The transitional rules also provide for a “fresh start” with respect to unpaid losses applicable to the last tax year beginning before January 1, 1987. This is accomplished by determining the difference between the amount of the unpaid losses for the year preceding the first tax year beginning after December 31, 1986, and the amount determined under sec. 846(a)(2) for unpaid losses as of the beginning of the first tax year beginning after December 31, 1986. This difference is the fresh start and is not taken into account for purposes of determining taxable income after the effective date. Commentary in the legislative history describes the fresh-start adjustment as “a forgiveness of income — for the reduction in reserves resulting from discounting the opening reserves in the first post-effective date taxable year of the provision.” H. Conf. Rept. 99-841 (1986), 1986-3 C.B. (Vol. 4) 1, 367. Accordingly, the difference between the undiscounted and discounted unpaid loss is forgiven.3 The congressional commentary also contains an indication that the fresh start will not apply to any reserve strengthening in a tax year beginning in 1986, and such strengthening is treated as occurring in the taxpayer’s first tax year beginning after December 31, 1986. Reserve strengthening for tax years beginning after December 31, 1985, is not treated as a reserve amount for purposes of determining the fresh-start amount. Instead, reserve strengthening additions to loss reserves for tax years beginning in 1986 are treated as changes to reserves in tax years beginning in 1987, and are subject to discounting. TRA 86 sec. 1023(e)(3)(B); H. Conf. Rept. 99-841, supra, 1986-3 C.B. (Vol. 4) at 367; Staff of Joint Comm, on Taxation, General Explanation of the Tax Reform Act of 1986, at 618 (J. Comm. Print 1987) (hereinafter General Explanation).
Similar to concerns of artificial manipulation addressed by section 846(a)(3), the denial of the fresh-start provisions to 1986 reserve strengthening is explained in the conference report and General Explanation as follows:
This provision [denying fresh start for reserve strengthening] is intended to prevent taxpayers from artificially increasing the amount of income that is forgiven under the fresh start provision. [H. Conf. Rept. 99-841, supra, 1986-3 C.B. (Vol. 4) at 367.]
The Parties’ Positions
Respondent determined that petitioner understated its 1987 income by failing to include $223,025 in income. That amount is the discount (determined under the 1987 formula) attributable to petitioner’s total net additions of $1,383,383 to its unpaid losses and LAE reserves established for pre-1986 accident years.4 Respondent contends that any increase to reserves (the $1,383,383 addition in this case) constitutes reserve strengthening by petitioner.
Petitioner contends that the term “reserve strengthening” used by Congress in TRA 86 section 1023(e)(3) is an insurance industry term of art and should be interpreted in a manner consistent with its commonly understood usage. More specifically, petitioner contends that reserve strengthening, as used in the PC industry: (1) Is nonperiodic; (2) involves a material change in methodology and/or assumptions from one valuation date to the next; (3) results in a change in the reserve’s adequacy level from what it otherwise would have been; and (4) applies to the aggregate yearend reserves of an insurance company. Petitioner maintains that the increases to its 1986 reserves for pre-1986 accident years as determined by respondent do not constitute “reserve strengthening” as that term is used in the insurance industry. Further, petitioner maintains that industry usage and prior legislation support the position that reserve strengthening, as used in the statute, has an established meaning which would not include any of the additions made to petitioner’s reserves. Finally, petitioner maintains that even if respondent’s interpretation of the legislative history is correct and the separate application of a mechanical test to reserves for pre-1986 accident years is required, respondent’s regulations do not accurately implement the mechanical test. Petitioner asserts that erroneous results are reached because the regulations mistakenly apply the mechanical test to loss reserves on an accident year/line-of-business basis, rather than to each separate claim reserve.5
Respondent maintains that any increase to a reserve is reserve strengthening. Respondent relies upon the committee reports and the regulation for her position. Accordingly, respondent does not agree that strengthening is attributable only to a change in reserve-setting methodology or that it is necessary to consider whether there is an element of artificiality in the reserve setting action. Respondent acknowledges that reserve strengthening has an established definition in the life insurance industry, but contends that the term has no commonly accepted or recognized meaning within the PC industry.
It is important to note that respondent agrees that petitioner’s additions to its reserves were reasonable and that the reserves were determined in accord with petitioner’s prior practices and procedures.6 Because respondent argues that any addition to the reserve constitutes reserve strengthening and is therefore not entitled to the fresh start, respondent’s position renders the nature of or reason for the increase irrelevant. Respondent does not question whether petitioner’s reserve additions would represent reserve strengthening by reference to the definition advanced by petitioner. Due to respondent’s concession in this case, we do not have to address the question of whether petitioner attempted to “artificially” increase its reserve to take advantage of the fresh-start provisions.
The Statute, Regulations, and Legislative History
tra 86 section 1023(e)(3)(B), 100 Stat. 2404, provides as follows:
(B) Reserve strengthening in years after 1985. — * * * [The fresh start] shall not apply to any reserve strengthening in a taxable year beginning in 1986, and such strengthening shall be treated as occurring in the taxpayer’s 1st taxable year beginning after December 31, 1986.
The statute contains but does not define the term “reserve strengthening”. Section 1.846-3(c), Income Tax Regs.,7 on the other hand, provides rules for determining reserve strengthening, in pertinent part as follows:
(c) Rules for determining the amount of reserve strengthening (weakening). — (1) In general. The amount of reserve strengthening (weakening) is the amount that is determined under paragraph (c)(2) or (3) to have been added to (subtracted from) an unpaid loss reserve in a taxable year beginning in 1986. For purposes of section 1023(e)(3)(B) of the 1986 Act, the amount of reserve strengthening (weakening) must be determined separately for each unpaid loss reserve by applying the rules of this paragraph (c). This determination is made without regard to the reasonableness of the amount of the unpaid loss reserve and without regard to the taxpayer’s discretion, or lack thereof, in establishing the amount of the unpaid loss reserve. The amount of reserve strengthening for an unpaid loss reserve may not exceed the amount of the reserve, including any undiscounted strengthening amount, as of the end of the last taxable year beginning before January 1, 1987. For purposes of this section, an “unpaid loss reserve” is the aggregate of the unpaid loss estimate for losses (whether or not reported) incurred in an accident year of a line of business.
Hi ‡ if: ^ ‡ i|c
(3) Accident years before 1986. (i) In general. For each taxable year beginning in 1986, the amount of reserve strengthening (weakening) for an unpaid loss reserve for an accident year before 1986 is the amount by which the reserve at the end of the taxable year exceeds (is less than)—
(A) The reserve at the end of the immediately preceding taxable year; reduced by
(B) Claims paid and loss adjustment expenses paid (“loss payments”) in the taxable year beginning in 1986 with respect to losses that are attributable to the reserve. * * *
Essentially, the regulation provides that any increase in a reserve for a pre-1986 accident year is a strengthening.8 Although petitioner argues that the regulation is ambiguous and could be read either way, we are convinced that the regulation defines any increase to the reserve as a reserve strengthening which should be excluded from the fresh-start provisions. Respondent’s interpretation of reserve strengthening and the promulgation of the regulations are based upon the following language found in the conference report:
Reserve strengthening is considered to include all additions to reserves attributable to an increase in an estimate of a reserve established for a prior accident year (taking into account claims paid with respect to that accident year), and all additions to reserves resulting from a change in the assumptions (other than changes in assumed interest rates applicable to reserves for the 1986 accident year) used in estimating losses for the 1986 accident year, as well as all unspecified or unallocated additions to loss reserves. * * * [H. Conf. Rept. 99-841 (1986), 1986-3 C.B. (Vol. 4) 1, 367; emphasis supplied.]
The prior Senate Finance Committee report, however, did not use the all additions language, but instead defined reserve strengthening as follows:
The committee intends that any adjustments to reserves that are attributable to changes in reserves on account of changes in the basis for computing reserves (i.e., reserve strengthening or reserve weakening) * * * [S. Rept. 99-313 (1986), 1986-3 C.B. (Vol. 3) 1, 510; emphasis supplied.]
Accordingly, we are confronted with a situation where Congress utilized a technical insurance industry term in a statute, but the statute itself does not define it. Further, in the promulgation of the regulation, there was reliance upon a possible explanation of the term in the legislative history which is substantially different from and broader than the customary industry usage. Moreover, the portion of the legislative history relied upon by respondent conflicts with other portions of the legislative history and seems broader than is necessary to accomplish the stated purpose of preventing abuse from artificial increases. This situation is further complicated by the fact that Congress used the same term in prior legislation (1984) concerning life insurance companies, wherein it is clear that the term was used in its technical industry parlance. These somewhat circuitous circumstances make the path to the solution of this controversy more perplexing. Common to the consideration of all of the parties’ arguments is the meaning of the term “reserve strengthening”. Accordingly, we consider that concept first.
The Definition of Reserve Strengthening
a. Insurance Reserves
The term “reserve” is used differently in the insurance industry than it is in certain other commercial situations. In insurance parlance, reserves are not considered to be trust funds or funds in escrow. Security Ben. Life Ins. Co. v. United States, 517 F. Supp. 740, 747 (D. Kan. 1980), affd. 726 F.2d 1491 (10th Cir. 1984). In the insurance industry a policy reserve represents a liability; i.e., it represents an obligation to the policyholders. Historically, reserves have been described in PC insurance literature as estimated liabilities for losses and loss adjustment expenses.9 To some extent, loss reserves are estimates extrapolated from past trends, patterns, averages, and inferences and predictions as to the future. Accordingly, “The reserve simply operates as a charge on so much of an insurance company’s assets as must be maintained in order for the company to be able to meet its future commitments under the policies it has issued.” Id. at 747. The general concept of reserves is the same for life and PC insurance companies.
b. Reserve Strengthening10
Generally, increases in a company’s reserves are either attributable to (1) normal additions made each year to fund existing and increasing obligations under policies in force; or (2) additions required when a method or assumption used in calculating policy reserves is changed so as to produce higher reserves. The latter or less usual occurrence has been described as reserve strengthening. See Jefferson Standard Life Ins. Co. v. United States, 272 F. Supp. 97, 121 (M.D.N.C.1967), affd. in part, revd. in part and remanded 408 F.2d 842 (4th Cir. 1969).
In National Life & Accident Ins. Co. v. United States, 381 F. Supp. 1034 (M.D. Tenn. 1974), affd. 524 F.2d 559 (6th Cir. 1975), the Court of Appeals analyzed sections 809 and 810 and recognized a distinction between normal reserve increases and reserve increases “ ‘attributable to reserve strengthening’”. 524 F.2d at 560 (quoting section 1.809-5(a)(III), Income Tax Regs.). Reserve strengthening/weakening was defined by the District Court as resulting from a change in an actuarial assumption which produces a larger/ smaller reserve than would have been achieved had the old assumption been used. National Life & Accident Ins. Co. v. United States, 381 F. Supp. at 1037. Reserve strengthening is but one way in which a company’s reserves could be increased in a given year, and all other reserve increases (not attributable to reserve strengthening) are “normal reserve increases”. Id. at 1038.
A normal reserve addition for claims incurred in previous periods is made by an insurance company to reflect new information (such as the number or magnitude of claims) relating to that company’s liability for such claims. In contrast, reserve strengthening is limited to a change in the formula or mechanism for calculating a reserve, which would produce a larger reserve amount without regard to such new information.11 Thus, the term “reserve strengthening” is confined to a change in the basis for calculating the current reserve for claims incurred in a previous period (for which a reserve computed on a different basis had been held prior to the current period).12
Respondent acknowledges that the term “reserve strengthening” has a commonly understood industry meaning in the life insurance area, but argues that no such industry-wide definition exists in the PC insurance field. Petitioner counters that it is a common practice of all insurance companies, PC as well as life, to extrapolate from past trends in order to make educated predictions about the future.13 Also, petitioner relies heavily on the fact that in enacting the life insurance provisions contained in the Deficit Reduction Act of 1984 (defra), Pub. L. 98-369, 98 Stat. 494, Congress used the term “reserve strengthening” in a manner consistent with its classic definition. In that earlier legislation, which modified the provisions of subchapter L relating to the computation of life insurance reserves, Congress also provided a fresh-start transition rule. To provide relief from the effect of the new provisions, defra section 216(b), 98 Stat. 758, provided a fresh start under which any change in reserve methods attributable solely to the new rules was not regarded as a change in method for calculating reserves, and therefore would not cause recognition of the resulting gain or loss. Under the fresh start of DEFRA section 216(b), the difference between a company’s closing 1983 reserves and its opening 1984 reserves attributable to the required change in reserve computation was disregarded; i.e., forgiven, for tax purposes. Similarly to TRA 86, DEFRA limited the fresh-start adjustment. Under defra’s restrictions the fresh-start benefit was unavailable for certain reinsurance transactions and for “any reserve strengthening reported for Federal income tax purposes after September 27, 1983, for a taxable year ending before January 1, 1984.” defra sec. 216(b)(3)(A)(ii), 98 Stat. 759.
Respondent agrees that the use of reserve strengthening in connection with defra was in accord with life insurance industry usage,14 but contends the term has no well-defined meaning in the PC industry. In support of this contention, respondent, quoting from the report of petitioner’s expert, Irene Bass, points out that the NAIC does not specifically define reserve strengthening with respect to reporting requirements for the filing of information contained in the annual statement for PC insurers. Ms. Bass’ report includes the statement, however, that although NAIC does not specifically define the term, the annual statement provides guidelines useful in identifying the characteristics of reserve strengthening as it is understood by actuaries in the PC industry. With respect to the reporting requirements for life insurance companies, the NAIC annual statement similarly does not specifically define reserve strengthening, yet respondent acknowledges that the term does have a commonly understood industry definition in the life area.15
We are convinced that reserve strengthening concepts are as applicable to PC companies as life companies, although the need for reserve strengthening seems to occur with more frequency with respect to life insurance reserves. Although Federal tax literature seems to contain more references to reserve strengthening in association with life companies, no specific distinction between life and casualty companies regarding reserves is evident.16 More specifically, the concept of reserve strengthening would have the same meaning in the context of PC and life business. So, for example, reserve strengthening in the context of life companies would not be more broadly or narrowly construed than it would in the context of PC companies. Accordingly, in enacting TRA 86 section 1023, Congress could not have expected a different quantitative or qualitative meaning for the term “reserve strengthening”, depending upon whether it was used in connection with tax provisions specifically designed for life or PC companies. The fact that the same terminology was used as was employed in similar legislation 2 years earlier in the same subchapter of the Code creates the presumption that no change in meaning was intended. Zuanich v. Commissioner, 77 T.C. 428, 443 n.26 (1981) (quoting Dickerson, Interpretation and Application of Statutes 224 (1975)).
Respondent contends that the explanation of reserve strengthening found in the legislative history for TRA 86 is controlling and that all additions to petitioner’s 1986 reserves constitute reserve strengthening.17 Although support for respondent’s interpretation and the regulatory definition of the term can be found in the legislative history, the legislative history provides no persuasive rationale for interpreting the statutory term “reserve strengthening” in a manner different from industry usage. Congress used a technical term in a specialized portion of the Internal Revenue Code. Had Congress intended to exclude any addition to the reserves from the application of the fresh-start provisions as respondent contends, the statute could have included that language. Instead, the statute contains a term of art used in an unconditional manner. Had Congress used such plain language as “all additions” or “all increases”, we would agree with respondent and attribute the everyday plain meaning to those words. See Commissioner v. Soliman, 506 U.S. _, 113 S. Ct. 701 (1993); Hanover Bank v. Commissioner, 369 U.S. 672 (1962); Crane v. Commissioner, 331 U.S. 1 (1947). The provisions of subpart L have been drafted by Congress in language peculiar to the insurance industry and have been held to have the meaning generally attributed thereto by experts in that industry. Alinco Life Ins. Co. v. United States, 178 Ct. Cl. 813, 373 F.2d 336, 352 (1967).18
Petitioner’s contention that reserve strengthening does not apply to all increases to its reserves comports with the rationale contained in the congressional history and apparent purpose of the statute,19 but not with the regulatory definition.20 It appears that Congress intended to permit PC companies a fresh start for normal reserve increases (ones which are not artificial in nature) for the designated period. By excluding reserve strengthening from the fresh-start relief, Congress intended to prevent PC companies from inflating the amounts which would be afforded the special treatment. This conceptually intermeshes with the legislative history reference to “artificial” reserve increases. This is so because reserve strengthening is essentially an artificial (nonperiodic) change in the assumptions and/or methodology used to compute the reserves. Generally, such changes in assumptions or methodology result in a material change in the reserve’s level and may affect the adequacy of the total reserve.
Respondent contends that the exclusions from the fresh-start provisions are not restricted to artificial increases in reserves. However, as previously noted, the conference agreement expressly states that the purpose of denying the fresh start for amounts attributable to reserve strengthening was to prevent taxpayers from abusing the provision by “artificially increasing the amount of income forgiven under the fresh start”.
Conceptually, section 1.846-3(c), Income Tax Regs., accomplishes the computation of additions to reserves by comparing two specific points in time — the yearends of 1985 and 1986. That computational approach looks back to see what the additions to the reserves were, rather than analyzing whether the reserves were adequate. Conceptually, the process of reserve strengthening considers the assumptions or methodology and employs changes to increase the reserve from what it would have been had the underlying assumptions or methodology remained unchanged. The additions made by petitioner for the critical period under the regulation were routine adjustments to the reserves based upon past reserving practices. There were no increases to the reserves for the period in question attributable to changes in assumptions or methodology in computing the reserves or additions thereto.
Having analyzed the concepts concerning reserve strengthening, we proceed to consider the validity of the regulation section in controversy.
Validity of Section 1.846-3(c), Income Tax Regs.
Regulations may be either legislative or interpretative in character. Estate of Pullin v. Commissioner, 84 T.C. 789, 795 (1985). An interpretative regulation is issued under the general authority vested in the Secretary by section 7805, whereas a legislative regulation is issued pursuant to a specific congressional delegation to the Secretary. Unlike TRA 86 section 1023(c), which added section 846 to the Code, TRA 86 section 1023(e), which contains the fresh-start provision, does not specifically delegate regulatory authority to the Secretary. Section 846(g) contains express legislative regulation authority, but it is limited to carrying out the purposes of section 846. The challenged regulation, which is an attempt to carry out the purpose of the fresh-start provisions of section 1023(e), is not a part of section 846 but is a separate transitional provision and is accordingly interpretative.21
An interpretative regulation, while entitled to deference, is not entitled to as much deference as accorded a legislative regulation. United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982). Moreover, the standard of deference accorded an interpretative regulation only sets “the framework for judicial analysis; it does not displace it.” United States v. Cartwright, 411 U.S. 546, 550 (1973).
A regulation may not contradict the unambiguous language of a statute. Citizen’s Natl. Bank v. United States, 417 F.2d 675 (5th Cir. 1969); Hefti v. Commissioner, 97 T.C. 180, 189 (1991), affd. 983 F.2d 868 (8th Cir. 1993). Even if a regulation does not directly contradict or limit the language of the statute it purports to interpret, the regulation may still be invalid if it is fundamentally at odds with or inconsistent with the statute’s origin and purpose. United States v. Vogel Fertilizer Co., supra at 26; CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 1062 (1982), affd. 755 F.2d 790 (11th Cir. 1985). Unless an interpretative regulation is unreasonable and plainly inconsistent with the statute, it should be sustained. Bingler v. Johnson, 394 U.S. 741, 750 (1969).
In determining legislative intent the Supreme Court in West Virginia University Hospitals, Inc. v. Casey, 499 U.S. 83, 98-99 (1991), stated:
The best evidence of that purpose is the statutory text adopted by both Houses of Congress and submitted to the President. Where that contains a phrase that is unambiguous — that has a clearly accepted meaning in both legislative and judicial practice — we do not permit it to be expanded or contracted by the statements of individual legislators or committees during the course of the enactment process. * * * [Citations omitted.]
Petitioner urges that the regulation’s mechanical test to define and determine reserve strengthening premised on respondent’s interpretation of language contained in the conference committee report should be rejected. Petitioner contends that respondent’s reliance on the reference to “all additions to reserves” in the legislative history to support her position that the statute requires a mechanical test is contrary to: (1) The description of reserve strengthening in the Senate Finance Committee report,22 (2) the statement of legislative purpose in the conference committee report, and (3) the meaning of reserve strengthening in the parallel fresh-start transition rule of DEFRA section 216(b). In addition, petitioner asserts that respondent’s approach leads to “manifestly absurd results” that were not intended by Congress.23
Respondent maintains that the regulation’s mechanical test for determining whether strengthening occurred satisfies congressional intent. Under the test articulated in Chevron U.S.A. v. Natural Res. Def. Council, 467 U.S. 837 (1984), the first question a court must ask when reviewing an agency’s construction of a statute is whether Congress has directly spoken to the precise question at issue and has expressed a clear intent as to its resolution. This examination should begin with the language of the statute. Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980); Abourezk v. Reagan, 785 F.2d 1043, 1053 (D.C. Cir. 1986). The statute in issue, TRA 86 section 1023(e)(3), simply uses the term “reserve strengthening”. There is the strong presumption that Congress expresses its intention through the language it chooses. INS v. Cardoza-Fonseca, 480 U.S. 421, 432 n.12 (1987). In employing the traditional tools of statutory construction, a court should assume that Congress uses language in a consistent manner, unless otherwise indicated. United States v. Olympic Radio & Television, Inc., 349 U.S. 232, 235-236 (1955).24
In enacting the fresh-start provision of DEFRA, Congress used an industry term of art in a manner consistent with its traditional definition. The provisions of subpart L have been drafted by Congress in language peculiar to the insurance industry and therefore are intended to have the meaning generally attributed thereto by experts in that industry. Alinco Life Ins. Co. v. United States, 178 Ct. Cl. 813, 373 F.2d 336, 352 (1967). There is no reason to conclude that the use in tra 86 of the term “reserve strengthening” was other than as a word of art.
As stated in Abourezk v. Reagan, supra at 1054-1055 n.11, it is:
plainly wrong as a general matter, and in this case in particular, to regard committee reports as drafted more meticulously and as reflecting the congressional will more accurately than the statutory text itself. Committee Reports, we remind, do not embody the law. Congress, as Judge Scalia recently noted, votes on the statutory words, not on different expressions packaged in committee reports. Hirschey v. FERC, 111 F.2d 1, 7-8 & n.1 (D.C. Cir. 1985) (Scalia, J., concurring).
In order to adopt respondent’s regulatory use of the term “reserve strengthening”, we would have to redefine an insurance concept so as to reach a definition different from its established industry meaning. Considering the record in this case, we are unable to accept respondent’s regulatory definition. The statute here is neither silent nor ambiguous with respect to the specific issue in question. Reserve strengthening is a term that was adopted from the insurance industry and certain legal sources, and nothing in the statute rebuts the strong presumption that in expressing its will Congress intended the term to have any other meaning. Although we recognize that the legislative history contains contradictory explanations and to some extent supports respondent’s regulatory position, we conclude that Congress intended the term as it appears in the statute to be interpreted in a manner consistent with industry usage.25 By excluding reserve strengthening, as technically defined, Congress intended to limit PC companies’ ability to obtain an advantage by artificially changing their prior reserving practices and artificially increasing 1986 yearend reserves over what they would have been. Congress knew that the new discounting rules of section 846 would cause a one-time distortion in taxable income and intended a fresh start as a remedy.
We have reached the conclusion that section 1.846-3(c), Income Tax Regs., is invalid to the extent the term “reserve strengthening” has been inappropriately used, after weighing the following factors: (1) The statute is not ambiguous and uses a term of art in a portion of the Internal Revenue Code which has been specially designed for a particular industry and generally contains industry jargon; (2) the legislative history materials are internally contradictory in that there are references to all increases to reserves and explanations regarding artificial increases or a specific type of increase; (3) the regulatory definition of the term “reserve strengthening” does not comport with insurance industry usage; (4) the regulatory definition of the term “reserve strengthening” does not harmonize with its congressional use 2 years earlier in related and parallel statutes involving life, rather than PC, insurance companies; (5) the regulatory approach would result in anomalous results; and (6) the traditional industry definition of the term comports with the concept that Congress was attempting to limit any attempts by taxpayers to take advantage of the fresh-start provisions by means of artificial increases to reserves. Further, it appears that promulgation of the regulation was to some extent driven by concerns for administrative convenience and compliance.26 It should also be noted that section 1.846-3, Income Tax Regs., is a transitional rule applicable to a single taxable year — a year for which the normal 3-year period of assessment had expired. Sec. 6501(a). Additionally, the regulation was not approved until August 1992 and did not appear in the Federal Register until September of that year, some 5 years after the close of the taxable year, a time when most if not all affected taxpayers should have already filed returns. Accordingly, administrative convenience and compliance concerns, at this juncture, should not have much bearing on the outcome.
We accordingly hold that section 1.846-3(c), Income Tax Regs., is invalid to the extent that it defines all additions to reserves as reserve strengthening.
To reflect the foregoing and due to agreements between the parties,
Decision will be entered for petitioner.
Reviewed by the Court.
Hamblen, Parker, Shields, Clapp, Swift, Jacobs, Wright, Parr, Colvin, Chiechi, and Laro, JJ., agree with this majority opinion. Chabot, J., concurs in the result only.