# Calculating the Tax-Basis Income - Terms

the equations for Tax-Basis EP & Tax-Basis Incurred Loss use the following terms (listed in the artical):

PL = Paid Loss (during year)

IL = Incurred Loss (during year)

L^D = Losses after Discounting

D = Discount amount (= difference between undiscounted and discounted losses = IL – LD)

I'm trying to understand in the equation the what the "chg" represents?

the first example give loss at 7,000

and the irs discount rate as 5%

chg(L^D) = 7000/(1.05)

so why isn't the chg(L^D) for CY+1 not

chg(L^D) = (0-7000)/(1.05^2)

since we need to discount back another year? (like the investment income getting another year of interest)

## Comments

I think I just figured it out it's the change in the losses after discounting, so if the loss had been paid out in CY+2

then the chg(L^D) for CY+1 would be

(7000/(1.05^2)) - (7000/1.05)

and after reading a the next section L really stands for Loss Reserves not Loss as that would be reserves + paid amounts

Yes, what you say is essentially correct.

I came to the same conclusion as mec06e after spending some time scratching my head.. Please could the wiki be updated to say

L^D = Losses

Loss Reservesafter DiscountingChanged, thx!