The proposed regulations under Internal Revenue Code Section 338 that reserve strengthening following an acquisition should be capitalized represents a radical departure from existing law and should be reconsidered by the IRS/Treasury for many reasons. Until the March 2002 proposed regulations, the IRS had not issued any formal guidance on precisely how the assumption reinsurance rules should be applied to the transaction deemed to occur as a result of the Section 338(h)(10) election. A key question the IRS had not addressed was whether the measure of liabilities assumed by New Target in a Section 338(h)(10) transaction is the insurance company's statutory reserve or its discounted reserves as determined for federal income tax purposes. There is little or no authority with respect to the proper treatment of liabilities related to the normal ongoing business operations of a target company before the closing that are paid by an acquirer of the business in the ordinary course of its operations.