-CITE-
26 USC Subchapter L - Insurance Companies 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
-HEAD-
SUBCHAPTER L - INSURANCE COMPANIES
-MISC1-
Part
I. Life insurance companies.
II. Other insurance companies.
III. Provisions of general application.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1018(u)(32), Nov. 10, 1988,
102 Stat. 3592, redesignated parts III and IV as II and III,
respectively, and struck out former Part II "Mutual insurance
companies (other than life and certain marine insurance companies
and other than fire or flood insurance companies which operate on
basis of perpetual policies of premium deposits)."
1962 - Pub. L. 87-834, Sec. 8(g)(4)(A), Oct. 16, 1962, 76 Stat.
999, substituted "and certain marine insurance companies and other
than fire or flood insurance companies which operate on basis of
perpetual policies or premium deposits" for "or marine or fire
insurance companies issuing perpetual policies" in heading of part
II.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in sections 72, 264, 501, 594,
817, 953, 954, 1042, 1275, 1297, 1361, 1381, 1397E, 6425, 6655 of
this title.
-End-
-CITE-
26 USC PART I - LIFE INSURANCE COMPANIES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
-HEAD-
PART I - LIFE INSURANCE COMPANIES
-MISC1-
Subpart
A. Tax imposed.
B. Life insurance gross income.
C. Life insurance deductions.
D. Accounting, allocation, and foreign provisions.
E. Definitions and special rules.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 842, 844, 864, 953, 1016 of
this title.
-End-
-CITE-
26 USC Subpart A - Tax Imposed 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart A - Tax Imposed
-HEAD-
SUBPART A - TAX IMPOSED
-MISC1-
Sec.
801. Tax imposed.
-End-
-CITE-
26 USC Sec. 801 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart A - Tax Imposed
-HEAD-
Sec. 801. Tax imposed
-STATUTE-
(a) Tax imposed
(1) In general
A tax is hereby imposed for each taxable year on the life
insurance company taxable income of every life insurance company.
Such tax shall consist of a tax computed as provided in section
11 as though the life insurance company taxable income were the
taxable income referred to in section 11.
(2) Alternative tax in case of capital gains
(A) In general
If a life insurance company has a net capital gain for the
taxable year, then (in lieu of the tax imposed by paragraph
(1)), there is hereby imposed a tax (if such tax is less than
the tax imposed by paragraph (1)).
(B) Amount of tax
The amount of the tax imposed by this paragraph shall be the
sum of -
(i) a partial tax, computed as provided by paragraph (1),
on the life insurance company taxable income reduced by the
amount of the net capital gain, and
(ii) an amount determined as provided in section 1201(a) on
such net capital gain.
(C) Net capital gain not taken into account in determining
small life insurance company deduction
For purposes of subparagraph (B)(i), the amount allowable as
a deduction under paragraph (2) of section 804 shall be
determined by reducing the tentative LICTI by the amount of the
net capital gain (determined without regard to items
attributable to noninsurance businesses).
(b) Life insurance company taxable income
For purposes of this part, the term "life insurance company
taxable income" means -
(1) life insurance gross income, reduced by
(2) life insurance deductions.
(c) Taxation of distributions from pre-1984 policyholders surplus
account
For provision taxing distributions to shareholders from
pre-1984 policyholders surplus account, see section 815.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 720; amended Pub. L. 99-514, title X, Sec.
1011(b)(3), Oct. 22, 1986, 100 Stat. 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 801, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 112; amended Pub. L. 87-858, Sec. 3(a), Oct. 23,
1962, 76 Stat. 1134; Pub. L. 91-172, title I, Sec. 121(b)(5)(B),
Dec. 30, 1969, 83 Stat. 541; Pub. L. 93-406, title II, Sec.
2002(g)(11), Sept. 2, 1974, 88 Stat. 970; Pub. L. 94-455, title XV,
Sec. 1505(a), title XIX, Secs. 1901(c)(6), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1738, 1803, 1834; Pub. L. 95-600, title VII, Sec.
703(j)(4), Nov. 6, 1978, 92 Stat. 2941, defined "life insurance
company" and related terms, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a). See section 816 of this title.
Another prior section 801, acts Aug. 16, 1954, ch. 736, 68A Stat.
255; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 36, contained
provisions similar to this section, prior to the the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
A prior section 802, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 115; amended Pub. L. 87-858, Sec. 3(b)(1), Oct. 23,
1962, 76 Stat. 1136; Pub. L. 88-272, title II, Sec. 235(c)(1), Feb.
26, 1964, 78 Stat. 126; Pub. L. 91-172, title V, Sec. 511(c)(1),
Dec. 30, 1969, 83 Stat. 637; Pub. L. 94-455, title XIX, Sec.
1901(a)(95), (b)(33)(E), Oct. 4, 1976, 90 Stat. 1780, 1801; Pub. L.
95-600, title III, Sec. 301(b)(8), Nov. 6, 1978, 92 Stat. 2821,
contained provisions similar to this section, prior to the general
revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 802, acts Aug. 16, 1954, ch. 736, 68A Stat.
255; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 38; July 24, 1956, ch.
696, Secs. 1, 2(b), 70 Stat. 633; Mar. 17, 1958, Pub. L. 85-345,
Secs. 1, 2(a), 72 Stat. 36, contained provision similar to this
section, prior to the general revision of this part by Pub. L.
86-69, Sec. 2(a).
AMENDMENTS
1986 - Subsec. (a)(2)(C). Pub. L. 99-514 substituted "the amount
allowable as a deduction under paragraph (2)" for "the amounts
allowable as deductions under paragraphs (2) and (3)" in text and
struck from heading "special life insurance company deduction and"
before "small".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section 215 of Pub. L. 98-369 provided that: "The amendments made
by this subtitle [subtitle A (Secs. 211-219) of title II of div. A
of Pub. L. 98-369, amending this part, enacting section 845 of this
title, amending sections 72, 80, 243, 381, 401, 453B, 542, 594,
832, 841, 844, 891, 953, 1016, 1035, 1201, 1232A, 1351, 1503, 1504,
1561, 1563, 4371, 6501, 6511, 6601, and 6611 of this title, and
enacting provisions set out as notes under this section and
sections 453B, 806, 807, 809, 814, 816, 845, and 6655 of this
title] shall apply to taxable years beginning after December 31,
1983."
TREATMENT OF CERTAIN WORKERS' COMPENSATION FUNDS
Pub. L. 100-647, title VI, Sec. 6076, Nov. 10, 1988, 102 Stat.
3706, provided that:
"(a) Treatment for Taxable Years Beginning Before 1987. - In the
case of any taxable year beginning before January 1, 1987, a
deficiency shall not be assessed against (and if assessed, shall
not be collected from) any qualified group self-insurers' fund to
the extent such deficiency is attributable to the timing of
policyholder dividend deductions.
"(b) Qualified Group Self-Insurers' Fund. - For purposes of this
section, the term 'qualified group self-insurers' fund' means any
group of 2 or more employers which has been in existence for not
less than 2 years, and who enter into agreements to pool their
liabilities under the State workers' disability compensation laws
for the purpose of qualifying as a self-insurer under such laws, if
-
"(1) the group has received a certificate of approval from, and
is subject to regulation by, the State board or agency that is
responsible for administering the State workers' disability
compensation laws,
"(2) each employer who is a member of the group, by written
agreement, is jointly and severally bound to assume and
discharge, by payment, any lawful judgment or award entered by a
court of competent jurisdiction or by the State agency
responsible for administering the State workers' disability
compensation laws against a member of the group,
"(3) the group is prohibited by State law or regulation from
using the monies collected for a purpose other than to pay, or to
reserve against, claims under the State workers' disability
compensation laws and expenses,
"(4) the group is prohibited by State law or regulation from
taking projected investment income into account in determining
members' premiums,
"(5) the group is required by State law or regulation to submit
to the State board or agency that is responsible for
administering the State workers' disability compensation laws an
audited financial statement,
"(6) the group's investments are limited by State law or
regulation to bonds, notes, or other evidences of indebtedness
issued, assumed or guaranteed by the United States of America, or
by an agency or instrumentality thereof, certificates of deposit
in a federally insured bank, shares or savings deposits in a
federally insured savings and loan association or credit union,
and certificates of deposit issued by a commercial bank duly
chartered under State law, and other investments which are
approved by the State board or agency that is responsible for
administering the State workers' disability compensation laws,
and
"(7) the group exclusively covers workers' compensation
liability, is not a commercial insurance carrier or company
licensed by the State board, agency, or commissioner responsible
for regulating and licensing insurance carriers and companies;
and is not subject to filing under the regulatory statements of
the National Association of Insurance Commissioners."
TREATMENT OF CERTAIN MARKET DISCOUNT BONDS
Section 1011(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(a)(2), (3), Nov. 10, 1988, 102 Stat. 3450, 3451,
provided that:
"(1) In general. - Notwithstanding the amendments made by
subtitle B of title III [amending sections 593, 631, 852, 1201, and
1445 of this title and enacting provisions set out as notes under
sections 631 and 1201 of this title], any gain recognized by a
qualified life insurance company on the redemption at maturity of
any market discount bond (as defined in section 1278 of the
Internal Revenue Code of 1986) which was issued before July 19,
1984, and acquired by such company on or before September 25, 1985,
shall be subject to tax at the rate of 31.6 percent. The preceding
sentence shall apply only if the tax determined under the preceding
sentence is less than the tax which would otherwise be imposed.
"(2) Qualified life insurance company. - For purposes of
paragraph (1), the term 'qualified life insurance company' means
any life insurance company subject to tax under part I of
subchapter L of chapter 1 of the Internal Revenue Code of 1986."
WAIVER OF INTEREST ON CERTAIN UNDERPAYMENTS OF TAX
Section 1829 of Pub. L. 99-514 provided that: "No interest shall
be payable for any period before July 19, 1984, on any underpayment
of a tax imposed by the Internal Revenue Code of 1954 [now 1986],
to the extent such underpayment was created or increased by any
provision of subtitle A of title II of the Tax Reform Act of 1984
[see Effective Date note above] (relating to taxation of life
insurance companies)."
SCOPE OF SECTION 255 OF THE TAX EQUITY AND FISCAL RESPONSIBILITY
ACT OF 1982
Section 1830 of Pub. L. 99-514 provided that: "In the case of any
taxable year beginning before January 1, 1982, in applying the
provisions of section 255(c)(2) of the Tax Equity and Fiscal
Responsibility Act of 1982 [section 255(c)(2) of Pub. L. 97-248, 96
Stat. 534, formerly set out as a note under section 809 of this
title], the Internal Revenue Service shall give full and complete
effect to the terms of any modified coinsurance contract. The terms
to be given effect within the meaning of this provision shall
include, but are not limited to, the effective date and investment
income rate as stated in such contract."
TREATMENT OF CERTAIN SELF-INSURED WORKERS' COMPENSATION FUNDS
Section 1879(q) of Pub. L. 99-514 provided that:
"(1) Moratorium on collection activities. - During the period
beginning on the date of the enactment of this Act [Oct. 22, 1986]
and ending on August 16, 1987, the Secretary of the Treasury or his
delegate -
"(A) shall suspend any pending audit of any self-insured
workers' compensation fund where the audit involves the issue of
whether such fund is a mutual insurance company,
"(B) shall not initiate any audit of any such fund involving
such issue, and
"(C) shall take no steps to collect from such fund any
underpayment, interest, or penalty involving such issue.
"(2) Suspension of running of interest. - No interest shall be
payable under chapter 67 of the Internal Revenue Code of 1986 on
any underpayment by a self-insured workers' compensation fund
involving such issue for the period beginning on August 16, 1986,
and ending on August 16, 1987.
"(3) Additional time to file tax court proceeding. - If the
period during which a petition involving such issue could have been
filed with the Tax Court by any self-insured workers' compensation
fund had not expired before August 16, 1986, such period shall not
expire before August 16, 1987.
"(4) Self-insured workers' compensation fund. - For purposes of
this subsection, the term 'self-insured workers' compensation fund'
means any self-insured workers' compensation fund established
pursuant to applicable State law regulating self-insured workers'
compensation funds."
RESERVES COMPUTED ON NEW BASIS; FRESH START
Section 216 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, title XVIII, Sec. 1822, Oct. 22, 1986, 100 Stat. 2095, 2844;
Pub. L. 100-647, title I, Sec. 1018(i), Nov. 10, 1988, 102 Stat.
3583, provided that:
"(a) Recomputation of Reserves. -
"(1) In general. - As of the beginning of the first taxable
year beginning after December 31, 1983, for purposes of
subchapter L of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (other than section 816 thereof), the reserve for
any contract shall be recomputed as if the amendments made by
this subtitle [see Effective Date note above] had applied to such
contract when it was issued.
"(2) Premiums earned. - For the first taxable year beginning
after December 31, 1983, in determining 'premiums earned on
insurance contracts during the taxable year' as provided in
section 832(b)(4) of the Internal Revenue Code of 1986, life
insurance reserves which are included in unearned premiums on
outstanding business at the end of the preceding taxable year
shall be determined as provided in section 807 of the Internal
Revenue Code of 1986, as amended by this subtitle, as though
section 807 was applicable to such reserves in such preceding
taxable year.
"(3) Issuance date for group contracts. - For purposes of this
subsection, the issuance date of any group contract shall be
determined under section 807(e)(2) of the Internal Revenue Code
of 1986 (as added by this subtitle), except that if such issuance
date cannot be determined, the issuance date shall be determined
on the basis prescribed by the Secretary of the Treasury or his
delegate for purposes of this subsection.
"(b) Fresh Start. -
"(1) In general. - Except as provided in paragraph (2), in the
case of any insurance company, any change in the method of
accounting (and any change in the method of computing reserves)
between such company's first taxable year beginning after
December 31, 1983, and the preceding taxable year which is
required solely by the amendments made by this subtitle [see
Effective Date note above] shall be treated as not being a change
in the method of accounting (or change in the method of computing
reserves) for purposes of the Internal Revenue Code of 1986. The
preceding sentence shall apply for purposes of computing the
earnings and profits of any insurance company for its 1st taxable
year beginning in 1984. The preceding sentence shall be applied
by substituting '1985' for '1984' in the case of an insurance
company which is a member of a controlled group (as defined in
section 806(d)(3)), the common parent of which is
"(A) a company having its principal place of business in
Alabama and incorporated in Delaware on November 29, 1979, or
"(B) a company having its principal place of business in
Houston, Texas, and incorporated in Delaware on June 9, 1947.
"(2) Treatment of adjustments from years before 1984. -
"(A) Adjustments attributable to decreases in reserves. - No
adjustment under section 810(d) of the Internal Revenue Code of
1986 (as in effect on the day before the date of the enactment
of this Act [July 18, 1984]) attributable to any decrease in
reserves as a result of a change in a taxable year beginning
before 1984 shall be taken into account in any taxable year
beginning after 1983.
"(B) Adjustments attributable to increases in reserves. -
"(i) In general. - Any adjustment under section 810(d) of
the Internal Revenue Code of 1986 (as so in effect)
attributable to an increase in reserves as a result of a
change in a taxable year beginning before 1984 shall be taken
into account in taxable years beginning after 1983 to the
extent that -
"(I) the amount of the adjustments which would be taken into
account under such section in taxable years beginning after
1983 without regard to this subparagraph, exceeds
"(II) the amount of any fresh start adjustment attributable to
contracts for which there was such an increase in reserves as
a result of such change.
"(ii) Fresh start adjustment. - For purposes of clause (i),
the fresh start adjustment with respect to any contract is
the excess (if any) of -
"(I) the reserve attributable to such contract as of the close
of the taxpayer's last taxable year beginning before January
1, 1984, over
"(II) the reserve for such contract as of the beginning of the
taxpayer's first taxable year beginning after 1983 as
recomputed under subsection (a) of this section.
"(C) Related income inclusions not taken into account to the
extent deduction disallowed under subparagraph (b). - No
premium shall be included in income to the extent such premium
is directly related to an increase in a reserve for which a
deduction is disallowed by subparagraph (B).
"(3) Reinsurance transactions, and reserve strengthening, after
september 27, 1983. -
"(A) In general. - Paragraph (1) shall not apply (and section
807(f) of the Internal Revenue Code of 1986 as amended by this
subtitle shall apply) -
"(i) to any reserve transferred pursuant to -
"(I) a reinsurance agreement entered into after September 27,
1983, and before January 1, 1984, or
"(II) a modification of a reinsurance agreement made after
September 27, 1983, and before January 1, 1984, and
"(ii) to any reserve strengthening reported for Federal
income tax purposes after September 27, 1983, for a taxable
year ending before January 1, 1984.
Clause (ii) shall not apply to the computation of reserves on any
contract issued if such computation employs the reserve practice
used for purposes of the most recent annual statement filed
before September 27, 1983, for the type of contract with respect
to which such reserves are set up. For purposes of this
subparagraph, if the reinsurer's taxable year is not a calendar
year, the first day of the reinsurer's first taxable year
beginning after December 31, 1983, shall be substituted for
'January 1, 1984' each place it appears.
"(B) Treatment of reserve attributable to section 818(c)
election. - In the case of any reserve described in
subparagraph (A), for purposes of section 807(f) of the
Internal Revenue Code of 1986, any change in the treatment of
any contract to which an election under section 818(c) of such
Code (as in effect on the day before the date of the enactment
of this Act) applied shall be treated as a change in the basis
for determining the amount of any reserve.
"(C) 10-year spread inapplicable where no 10-year spread
under prior law. - In the case of any item to which section
807(f) of such Code applies by reason of subparagraph (A) or
(B), such item shall be taken into account for the first
taxable year beginning after December 31, 1983 (in lieu of over
the 10-year period otherwise provided in such section) unless
the item would have been required to be taken into account over
a period of 10 taxable years under section 810(d) of such Code
(as in effect on the day before the date of the enactment of
this Act).
"(D) Disallowance of special life insurance company deduction
and small life insurance company deduction. - Any amount
included in income under section 807(f) of such Code by reason
of subparagraph (A) or (B) (and any income attributable to
expenses transferred in connection with the transfer of
reserves described in subparagraph (A)) shall not be taken into
account for purposes of determining the amount of special life
insurance company deduction and the small life insurance
company deduction.
"(E) Disallowance of deductions under section 809(d). - No
deduction shall be allowed under paragraph (5) or (6) of
section 809(d) of such Code (as in effect before the amendments
made by this subtitle) with respect to any amount described in
either such paragraph which is transferred in connection with
the transfer of reserves described in subparagraph (A).
"(4) Elections under section 818(c) after september 27, 1983,
not to take effect. -
"(A) In general. - Except as provided in subparagraph (B),
any election after September 27, 1983, under section 818(c) of
the Internal Revenue Code of 1986 (as in effect on the day
before the date of the enactment of this Act) shall not take
effect.
"(B) Exception for certain contracts issued under plan of
insurance first filed after march 1, 1982, and before september
28, 1983. - Paragraph (3) and subparagraph (A) of this
paragraph shall not apply to any election under such section
818(c) if more than 95 percent of the reserves computed in
accordance with such election are attributable to risks under
life insurance contracts issued by the taxpayer under a plan of
insurance first filed after March 1, 1982, and before September
28, 1983.
"(C) Section 818(c) elections made by certain acquired
companies. -
"(i) In general. - If the case of any corporation -
"(I) which made an election under such section 818(c) before
September 28, 1983, and
"(II) which was acquired in a qualified stock purchase (as
defined in section 338(c) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]) before December 31, 1983,
the fact that such corporation is treated as a new corporation
under section 338 of such Code shall not result in the election
described in subclause (I) not applying to such new corporation.
"(ii) Time for making section 818(c) or 338 election. - In
the case of any corporation described in clause (i), the time
for making an election under section 818(c) of such Code
(with respect to the first taxable year of the corporation
beginning in 1983 and ending after September 28, 1983), or
making an election under section 338 of such Code with
respect to the qualified stock purchase described in clause
(i)(II), shall not expire before the close of the 60th day
after the date of the enactment of the Tax Reform Act of 1986
[Oct. 22, 1986].
"(iii) Statute of limitations. - In the case of any such
election under section 818(c) or 338 of such Code which would
not have been timely made but for clause (ii), the period for
assessing any deficiency attributable to such election (or
for filing claim for credit or refund of any overpayment
attributable to such election) shall not expire before the
date 2 years after the date of the enactment of this Act
[July 18, 1984].
"(5) Recapture of reinsurance after december 31, 1983. - If (A)
insurance or annuity contracts in force on December 31, 1983, are
subject to a conventional coinsurance agreement entered into
after December 31, 1981, and before January 1, 1984, and (B) such
contracts are recaptured by the reinsured in any taxable year
beginning after December 31, 1983, then -
"(i) if the amount of the reserves with respect to the
recaptured contracts, computed at the date of recapture, that
the reinsurer would have taken into account under section
810(c) of the Internal Revenue Code of 1986 (as in effect on
the day before the date of the enactment of this Act) exceeds
the amount of the reserves with respect to the recaptured
contracts, computed at the date of recapture, taken into
account by the reinsurer under section 807(c) of the Internal
Revenue Code of 1986 (as amended by this subtitle), such excess
(but not greater than the amount of such excess if computed on
January 1, 1984) shall be taken into account by the reinsurer
under the method described in section 807(f)(1)(B)(ii) of the
Internal Revenue Code of 1986 (as amended by this subtitle)
commencing with the taxable year of recapture, and
"(ii) the amount, if any, taken into account by the reinsurer
under clause (i) for purposes of part I of subchapter L of
chapter 1 of the Internal Revenue Code of 1986 shall be taken
into account by the reinsured under the method described in
section 807(f)(1)(B)(i) of the Internal Revenue Code of 1986
(as amended by this subtitle) commencing with the taxable year
of recapture.
The excess described in clause (i) shall be reduced by any
portion of such excess to which section 807(f) of the Internal
Revenue Code of 1986 applies by reason of paragraph (3) of this
subsection. For purposes of this paragraph, the term 'reinsurer'
refers to the taxpayer that held reserves with respect to the
recaptured contracts as of the end of the taxable year preceding
the first taxable year beginning after December 31, 1983, and the
term 'reinsured' refers to the taxpayer to which such reserves
are ultimately transferred upon termination.
"(c) Election Not To Have Reserves Recomputed. -
"(1) In general. - If a qualified life insurance company makes
an election under this paragraph -
"(A) subsection (a) shall not apply to such company, and
"(B) as of the beginning of the first taxable year beginning
after December 31, 1983, and thereafter, the reserve for any
contract issued before the first day of such taxable year by
such company shall be the statutory reserve for such contract
(within the meaning of section 809(b)(4)(B)(i) of the Internal
Revenue Code of 1986).
"(2) Election with respect to contracts issued after 1983 and
before 1989. -
"(A) In general. - If -
"(i) a qualified life insurance company makes an election
under paragraph (1), and
"(ii) the tentative LICTI (within the meaning of section
806(c) of such Code) of such company for its first taxable
year beginning after December 31, 1983, does not exceed
$3,000,000 (determined with regard to this paragraph),
such company may elect under this paragraph to have the reserve
for any contract issued on or after the first day of such first
taxable year and before January 1, 1989, be equal to the greater
of the statutory reserve for such contract (adjusted as provided
in subparagraph (B)) or the net surrender value of such contract
(as defined in section 807(e)(1) of the Internal Revenue Code of
1986 [formerly I.R.C. 1954]).
"(B) Adjustment to reserves. - If this paragraph applies to
any contract, the opening and closing statutory reserves for
such contract shall be adjusted as provided under the
principles of section 805(c)(1) of such Code (as in effect for
taxable years beginning in 1982 and 1983), except that section
805(c)(1)(B)(ii) of such Code (as so in effect) shall be
applied by substituting -
"(i) the prevailing State assumed interest rate (within the
meaning of section 807(c)(4) of such Code), for
"(ii) the adjusted reserves rate.
"(3) Qualified life insurance company. - For purposes of this
subsection, the term 'qualified life insurance company' means any
life insurance company which, as of December 31, 1983, had assets
of less than $100,000,000 (determined in the same manner as under
section 806(b)(3) of such Code).
"(4) Special rules for controlled groups. - For purposes of
applying the dollar limitations of paragraphs (2) and (3), rules
similar to the rules of section 806(d) of such Code shall apply.
"(5) Elections. - Any election under paragraph (1) or (2) -
"(A) shall be made at such time and in such manner as the
Secretary of the Treasury may prescribe, and
"(B) once made, shall be irrevocable."
TREATMENT OF CERTAIN COMPANIES OPERATING BOTH AS STOCK AND MUTUAL
COMPANY
Section 217(e) of Pub. L. 98-369 provided that: "If, during the
10-year period ending on December 31, 1983, a company has, as
authorized by the law of the State in which the company is
domiciled, been operating as a mutual life insurance company with
shareholders, such company shall be treated as a stock life
insurance company."
TREATMENT OF REINSURANCE AGREEMENTS REQUIRED BY NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS
Section 217(g) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "Effective
for taxable years beginning after December 31, 1981, and before
January 1, 1984, subsections (c)(1)(F) and (d)(12) of section 809
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in
effect on the day before the date of the enactment of this Act
[July 18, 1984]) shall not apply to dividends to policyholders
reimbursed to the taxpayer by a reinsurer in respect of accident
and health policies reinsured under a reinsurance agreement entered
into before June 30, 1955, pursuant to the direction of the
National Association of Insurance Commissioners and approved by the
State insurance commissioner of the taxpayer's State of domicile.
For purposes of subchapter L of chapter 1 of such Code (as in
effect on the day before the date of the enactment of this Act) any
such dividends shall be treated as dividends of the reinsurer and
not the taxpayer."
REPORTS TO CONGRESS ON REVENUE, SEGMENT BALANCE, ETC.
Section 231 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec.
2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(a) Revenue Reports. - Not later than July 1, 1985, and July 1
of each calendar year thereafter, the Secretary of the Treasury
shall submit to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate a report
on -
"(1) the aggregate amount of revenue received under part I of
subchapter L of chapter 1 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] for the most recent taxable years for
which data are available,
"(2) a comparison between the amount of such revenue and the
amount anticipated by reason of changes made by the Tax Equity
and Fiscal Responsibility Act of 1982 [Pub. L. 97-248] or the
Life Insurance Tax Act of 1984 [probably means title II of div. A
of Pub. L. 98-369], and
"(3) the reasons for any difference between such aggregate
revenues and anticipated revenues.
"(b) Report With Respect to Segment Balance, Etc. -
"(1) In general. - The Secretary of the Treasury (in
consultation with the Joint Committee on Taxation, the Committee
on Ways and Means of the House of Representatives, and the
Committee on Finance of the Senate) shall conduct a full and
complete study of the operation of part I of subchapter L of
chapter 1 of the Internal Revenue Code of 1986 during 1984, 1985,
and 1986. Such study shall also include an analysis of life
insurance products and the taxation thereof. Such study shall
also include an analysis of whether part I of such subchapter L
operates as a disincentive to growing companies.
"(2) Items to be included. - The study conducted under
paragraph (1) shall include -
"(A) an analysis of the portion of the taxes paid by mutual
life insurance companies and stock life insurance companies,
and
"(B) any other data considered relevant by either stock life
insurance companies or mutual life insurance companies in
determining appropriate segment balance, such as the respective
amounts of the following items held by each segment of the
industry -
"(i) equity,
"(ii) life insurance reserves,
"(iii) other types of reserves,
"(iv) dividends paid to policyholders and shareholders,
"(v) pension business,
"(vi) total assets, and
"(vii) gross receipts.
Such report shall also include an analysis of the extent to which
taxes paid by stockholders of life insurance companies shall be
included in analyzing segment balance.
"(3) Reports. -
"(A) Interim reports. - The Secretary of the Treasury shall
submit interim reports on the study conducted under this
subsection to the Committee on Ways and Means of the House of
Representatives and the Committee on Finance of the Senate not
later than July 1, 1986, 1987, and 1988.
"(B) Final report. - Not later than January 1, 1989, the
Secretary of the Treasury shall submit a final report on the
study conducted under this subsection to the Committee on Ways
and Means of the House of Representatives and the Committee on
Finance of the Senate.
"(c) Authority To Require Data. - The Secretary of the Treasury
shall have authority to require reporting of such data with respect
to life insurance companies and their products as may be necessary
to carry out the purposes of this section."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 11, 80, 243, 542, 815,
841, 847, 891, 1201, 1351, 1503, 1504, 1563 of this title.
-End-
-CITE-
26 USC Subpart B - Life Insurance Gross Income 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart B - Life Insurance Gross Income
-HEAD-
SUBPART B - LIFE INSURANCE GROSS INCOME
-MISC1-
Sec.
803. Life insurance gross income.
-End-
-CITE-
26 USC Sec. 803 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart B - Life Insurance Gross Income
-HEAD-
Sec. 803. Life insurance gross income
-STATUTE-
(a) In general
For purposes of this part, the term "life insurance gross income"
means the sum of the following amounts:
(1) Premiums
(A) The gross amount of premiums and other consideration on
insurance and annuity contracts, less
(B) return premiums, and premiums and other consideration
arising out of indemnity reinsurance.
(2) Decreases in certain reserves
Each net decrease in reserves which is required by section
807(a) to be taken into account under this paragraph.
(3) Other amounts
All amounts not includible under paragraph (1) or (2) which
under this subtitle are includible in gross income.
(b) Special rules for premiums
(1) Certain items included
For purposes of subsection (a)(1)(A), the term "gross amount of
premiums and other consideration" includes -
(A) advance premiums,
(B) deposits,
(C) fees,
(D) assessments,
(E) consideration in respect of assuming liabilities under
contracts not issued by the taxpayer, and
(F) the amount of policyholder dividends reimbursable to the
taxpayer by a reinsurer in respect of reinsured policies,
on insurance and annuity contracts.
(2) Policyholder dividends excluded from return premiums
For purposes of subsection (a)(1)(B) -
(A) In general
Except as provided in subparagraph (B), the term "return
premiums" does not include any policyholder dividends.
(B) Exception for indemnity reinsurance
Subparagraph (A) shall not apply to amounts of premiums or
other consideration returned to another life insurance company
in respect of indemnity reinsurance.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 721.)
-MISC1-
PRIOR PROVISIONS
A prior section 803, acts Aug. 16, 1954, ch. 736, 68A Stat. 256;
Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 39, related to income and
deductions in the case of life insurance companies, prior to the
general revision of this part by Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 112.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 807, 848, 953 of this
title.
-End-
-CITE-
26 USC Subpart C - Life Insurance Deductions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
SUBPART C - LIFE INSURANCE DEDUCTIONS
-MISC1-
Sec.
804. Life insurance deductions.
805. General deductions.
806. Small life insurance company deduction.
807. Rules for certain reserves.
808. Policyholder dividends deduction.
809. Reduction in certain deductions of mutual life
insurance companies.
810. Operations loss deduction.
AMENDMENTS
1986 - Pub. L. 99-514, title X, Sec. 1011(b)(11)(B), Oct. 22,
1986, 100 Stat. 2389, substituted "Small life insurance company
deduction" for "Special deductions" in item 806.
-End-
-CITE-
26 USC Sec. 804 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 804. Life insurance deductions
-STATUTE-
For purposes of this part, the term "life insurance deductions"
means -
(1) the general deductions provided in section 805, and
(2) the small life insurance company deduction (if any)
determined under section 806(a).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 722; amended Pub. L. 99-514, title X, Sec.
1011(b)(2), Oct. 22, 1986, 100 Stat. 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 804, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 115; amended Pub. L. 87-858, Sec. 3(b)(2), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-272, title II, Sec. 214(b)(3), Feb.
26, 1964, 78 Stat. 55; Pub. L. 91-172, title IV, Sec. 401(b)(2)(D),
Dec. 30, 1969, 83 Stat. 602; Pub. L. 94-455, title XIX, Sec.
1901(a)(96), (b)(1)(J)(i), (iii), (K), (M), (33)(F), Oct. 4, 1976,
90 Stat. 1780, 1791, 1801, defined the term "taxable investment
income" and provided for the computation of such income, prior to
the general revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 804, acts Aug. 16, 1954, ch. 736, 68A Stat.
258; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 41, related to reserve
and other policy liability deductions, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1986 - Pars. (2), (3). Pub. L. 99-514 redesignated par. (3) as
(2), substituted "section 806(a)" for "section 806(b)", and struck
out former par. (2), which read as follows: "the special life
insurance company deduction determined under section 806(a), and".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 801, 806, 810 of this
title.
-End-
-CITE-
26 USC Sec. 805 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 805. General deductions
-STATUTE-
(a) General rule
For purposes of this part, there shall be allowed the following
deductions:
(1) Death benefits, etc.
All claims and benefits accrued, and all losses incurred
(whether or not ascertained), during the taxable year on
insurance and annuity contracts.
(2) Increases in certain reserves
The net increase in reserves which is required by section
807(b) to be taken into account under this paragraph.
(3) Policyholder dividends
The deduction for policyholder dividends (determined under
section 808(c)).
(4) Dividends received by company
(A) In general
The deductions provided by sections 243, 244, and 245 (as
modified by subparagraph (B)) -
(i) for 100 percent dividends received, and
(ii) for the life insurance company's share of the
dividends (other than 100 percent dividends) received.
(B) Application of section 246(b)
In applying section 246(b) (relating to limitation on
aggregate amount of deductions for dividends received) for
purposes of subparagraph (A), the limit on the aggregate amount
of the deductions allowed by sections 243(a)(1), 244(a), and
245 shall be the percentage determined under section 246(b)(3)
of the life insurance company taxable income (and such
limitation shall be applied as provided in section 246(b)(3)),
computed without regard to -
(i) the small life insurance company deduction,
(ii) the operations loss deduction provided by section 810,
(iii) the deductions allowed by sections 243(a)(1), 244(a),
and 245, and
(iv) any capital loss carryback to the taxable year under
section 1212(a)(1),
but such limit shall not apply for any taxable year for which
there is a loss from operations.
(C) 100 percent dividend
For purposes of subparagraph (A) -
(i) In general
Except as provided in clause (ii), the term "100 percent
dividend" means any dividend if the percentage used for
purposes of determining the deduction allowable under section
243, 244, or 245(b) is 100 percent.
(ii) Treatment of dividends from noninsurance companies
The term "100 percent dividend" does not include any
distribution by a corporation which is not an insurance
company to the extent such distribution is out of tax-exempt
interest, or out of the increase for the taxable year in
policy cash values (within the meaning of subparagraph (F))
of life insurance policies and annuity and endowment
contracts to which section 264(f) applies, or out of
dividends which are not 100 percent dividends (determined
with the application of this clause as if it applies to
distributions by all corporations including insurance
companies).
(D) Special rules for certain dividends from insurance
companies
(i) In general
In the case of any 100 percent dividend paid to any life
insurance company out of the earnings and profits for any
taxable year beginning after December 31, 1983, of another
life insurance company if -
(I) the paying company's share determined under section
812 for such taxable year, exceeds
(II) the receiving company's share determined under
section 812 for its taxable year in which the dividend is
received or accrued,
the deduction allowed under section 243, 244, or 245(b) (as
the case may be) shall be reduced as provided in clause (ii).
(ii) Amount of reduction
The reduction under this clause for a dividend is an amount
equal to -
(I) the portion of such dividend attributable to prorated
amounts, multiplied by
(II) the percentage obtained by subtracting the share
described in subclause (II) of clause (i) from the share
described in subclause (I) of such clause.
(iii) Prorated amounts
For purposes of this subparagraph, the term "prorated
amounts" means tax-exempt interest, the increase for the
taxable year in policy cash values (within the meaning of
subparagraph (F)) of life insurance policies and annuity and
endowment contracts to which section 264(f) applies, and
dividends other than 100 percent dividends.
(iv) Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the
portion of any dividend attributable to prorated amounts -
(I) any dividend by the paying corporation shall be
treated as paid first out of earnings and profits for
taxable years beginning after December 31, 1983,
attributable to prorated amounts (to the extent thereof),
and
(II) by determining the portion of earnings and profits
so attributable without any reduction for the tax imposed
by this chapter.
(v) Subparagraph to apply to dividends from other insurance
companies
Rules similar to the rules of this subsection shall apply
in the case of 100 percent dividends paid by an insurance
company which is not a life insurance company.
(E) Certain dividends received by foreign corporations
Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall
apply to any dividend received by a foreign corporation from a
domestic corporation which would be a 100 percent dividend if
section 1504(b)(3) did not apply for purposes of applying
section 243(b)(2).
(F) Increase in policy cash values
For purposes of subparagraphs (C) and (D) -
(i) In general
The increase in the policy cash value for any taxable year
with respect to policy or contract is the amount of the
increase in the adjusted cash value during such taxable year
determined without regard to -
(I) gross premiums paid during such taxable year, and
(II) distributions (other than amounts includible in the
policyholder's gross income) during such taxable year to
which section 72(e) applies.
(ii) Adjusted cash value
For purposes of clause (i), the term "adjusted cash value"
means the cash surrender value of the policy or contract
increased by the sum of -
(I) commissions payable with respect to such policy or
contract for the taxable year, and
(II) asset management fees, surrender charges, mortality
and expense charges, and any other fees or charges
specified in regulations prescribed by the Secretary which
are imposed (or which would be imposed were the policy or
contract canceled) with respect to such policy or contract
for the taxable year.
(5) Operations loss deduction
The operations loss deduction (determined under section 810).
(6) Assumption by another person of liabilities under insurance,
etc., contracts
The consideration (other than consideration arising out of
indemnity reinsurance) in respect of the assumption by another
person of liabilities under insurance and annuity contracts.
(7) Reimbursable dividends
The amount of policyholder dividends which -
(A) are paid or accrued by another insurance company in
respect of policies the taxpayer has reinsured, and
(B) are reimbursable by the taxpayer under the terms of the
reinsurance contract.
(8) Other deductions
Subject to the modifications provided by subsection (b), all
other deductions allowed under this subtitle for purposes of
computing taxable income.
Except as provided in paragraph (3), no amount shall be allowed as
a deduction under this part in respect of policyholder dividends.
(b) Modifications
The modifications referred to in subsection (a)(8) are as
follows:
(1) Interest
In applying section 163 (relating to deduction for interest),
no deduction shall be allowed for interest in respect of items
described in section 807(c).
(2) Charitable, etc., contributions and gifts
In applying section 170 -
(A) the limit on the total deductions under such section
provided by section 170(b)(2) shall be 10 percent of the life
insurance company taxable income computed without regard to -
(i) the deduction provided by section 170,
(ii) the deductions provided by paragraphs (3) and (4) of
subsection (a),
(iii) the small life insurance company deduction,
(iv) any operations loss carryback to the taxable year
under section 810, and
(v) any capital loss carryback to the taxable year under
section 1212(a)(1), and
(B) under regulations prescribed by the Secretary, a rule
similar to the rule contained in section 170(d)(2)(B) (relating
to special rule for net operating loss carryovers) shall be
applied.
(3) Amortizable bond premium
(A) In general
Section 171 shall not apply.
(B) Cross reference
For rules relating to amortizable bond premium, see section
811(b).
(4) Net operating loss deduction
Except as provided by section 844, the deduction for net
operating losses provided in section 172 shall not be allowed.
(5) Dividends received deduction
Except as provided in subsection (a)(4), the deductions for
dividends received provided by sections 243, 244, and 245 shall
not be allowed.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 722; amended Pub. L. 99-514, title VI, Sec.
611(a)(5), title VIII, Sec. 805(c)(6), title X, Sec. 1011(b)(4),
title XVIII, Sec. 1821(p), Oct. 22, 1986, 100 Stat. 2249, 2362,
2389, 2842; Pub. L. 100-203, title X, Sec. 10221(c)(2), Dec. 22,
1987, 101 Stat. 1330-409; Pub. L. 104-188, title I, Sec.
1702(h)(3), Aug. 20, 1996, 110 Stat. 1873; Pub. L. 105-34, title X,
Sec. 1084(b)(1), Aug. 5, 1997, 111 Stat. 954.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 805, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 118; amended Pub. L. 87-792, Sec. 7(g), Oct. 10,
1962, 76 Stat. 829; Pub. L. 88-571, Sec. 5(a), Sept. 2, 1964, 78
Stat. 860; Pub. L. 91-172, title IX, Sec. 907(a)(1), Dec. 30, 1969,
83 Stat. 715; Pub. L. 93-406, title II, Secs. 1016(a)(6),
2002(g)(9), 2004(c)(3), Sept. 2, 1974, 88 Stat. 929, 970, 986; Pub.
L. 94-267, Sec. (1)(c)(4), Apr. 15, 1976, 90 Stat. 367; Pub. L.
94-455, title XIX, Sec. 1901(a)(97), Oct. 4, 1976, 90 Stat. 1780;
Pub. L. 95-600, title I, Secs. 141(f)(9), 155(a), Nov. 6, 1978, 92
Stat. 2795, 2801; Pub. L. 97-248, title II, Secs. 257(a), 260(b),
261, 264(a)-(c)(1), Sept. 3, 1982, 96 Stat. 537, 540, 543, 544,
related to policy and other contract liability requirements, prior
to general revision of this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 805, acts Aug. 16, 1954, ch. 736, 68A Stat.
258; Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 43, authorized a
special interest deduction, prior to the general revision of this
part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1997 - Subsec. (a)(4)(C)(ii). Pub. L. 105-34, Sec. 1084(b)(1)(A),
inserted ", or out of the increase for the taxable year in policy
cash values (within the meaning of subparagraph (F)) of life
insurance policies and annuity and endowment contracts to which
section 264(f) applies," after "tax-exempt interest".
Subsec. (a)(4)(D)(iii). Pub. L. 105-34, Sec. 1084(b)(1)(B),
substituted ", the increase for the taxable year in policy cash
values (within the meaning of subparagraph (F)) of life insurance
policies and annuity and endowment contracts to which section
264(f) applies, and" for "and".
Subsec. (a)(4)(F). Pub. L. 105-34, Sec. 1084(b)(1)(C), added
subpar. (F).
1996 - Subsec. (a)(4)(E). Pub. L. 104-188 substituted "243(b)(2)"
for "243(b)(5)".
1987 - Subsec. (a)(4)(B). Pub. L. 100-203 substituted "shall be
the percentage determined under section 246(b)(3) of the life
insurance company taxable income (and such limitation shall be
applied as provided in section 246(b)(3))" for "shall be 80 percent
of the life insurance company taxable income".
1986 - Subsec. (a)(4)(B). Pub. L. 99-514, Sec. 611(a)(5),
substituted "80 percent" for "85 percent" in introductory
provisions.
Subsec. (a)(4)(B)(i). Pub. L. 99-514, Sec. 1011(b)(4), struck out
"the special life insurance company deduction and" before "the
small life".
Subsec. (a)(4)(C) to (E). Pub. L. 99-514, Sec. 1821(p), added
subpars. (C) and (D), redesignated former subpar. (D) as (E), and
struck out former subpar. (C) which read as follows: "For purposes
of subparagraph (A), the term '100 percent dividend' means any
dividend if the percentage used for purposes of determining the
deduction allowable under section 243 or 244 is 100 percent. Such
term does not include any dividend to the extent it is a
distribution out of tax-exempt interest or out of dividends which
are not 100 percent dividends (determined with the application of
this sentence)."
Subsec. (b)(2). Pub. L. 99-514, Sec. 805(c)(6), redesignated par.
(3) as (2). Former par. (2), which provided that section 166(c)
(relating to reserve for bad debts) shall not apply, was struck
out.
Subsec. (b)(2)(A)(iii). Pub. L. 99-514, Sec. 1011(b)(4), which
directed that subsec. (b)(3)(A)(iii) be amended by striking out
"the special life insurance company deduction and" before "the
small life", was executed to subsec. (b)(2)(A)(iii) to reflect the
probable intent of Congress and the redesignation of subsec. (b)(3)
as (b)(2) by Pub. L. 99-514, Sec. 805(c)(6).
Subsec. (b)(3) to (6). Pub. L. 99-514, Sec. 805(c)(6),
redesignated pars. (3) to (6) as (2) to (5), respectively.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10221(e)(2) of Pub. L.
100-203, as amended, set out as a note under section 243 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 611(a)(5) of Pub. L. 99-514 applicable to
dividends received or accrued after Dec. 31, 1986, in taxable years
ending after such date, see section 611(b)(1) of Pub. L. 99-514,
set out as a note under section 246 of this title.
Amendment by section 805(c)(6) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, with certain changes
required in method of accounting, see section 805(d) of Pub. L.
99-514, set out as a note under section 166 of this title.
Amendment by section 1011(b)(4) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
Amendment by section 1821(p) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 805, 807, 810, 812, 815,
817, 818, 832, 953 of this title.
-End-
-CITE-
26 USC Sec. 806 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 806. Small life insurance company deduction
-STATUTE-
(a) Small life insurance company deduction
(1) In general
For purposes of section 804, the small life insurance company
deduction for any taxable year is 60 percent of so much of the
tentative LICTI for such taxable year as does not exceed
$3,000,000.
(2) Phaseout between $3,000,000 and $15,000,000
The amount of the small life insurance company deduction
determined under paragraph (1) for any taxable year shall be
reduced (but not below zero) by 15 percent of so much of the
tentative LICTI for such taxable year as exceeds $3,000,000.
(3) Small life insurance company deduction not allowable to
company with assets of $500,000,000 or more
(A) In general
The small life insurance company deduction shall not be
allowed for any taxable year to any life insurance company
which, at the close of such taxable year, has assets equal to
or greater than $500,000,000.
(B) Assets
For purposes of this paragraph, the term "assets" means all
assets of the company.
(C) Valuation of assets
For purposes of this paragraph, the amount attributable to -
(i) real property and stock shall be the fair market value
thereof, and
(ii) any other asset shall be the adjusted basis of such
asset for purposes of determining gain on sale or other
disposition.
(D) Special rule for interests in partnerships and trusts
For purposes of this paragraph -
(i) an interest in a partnership or trust shall not be
treated as an asset of the company, but
(ii) the company shall be treated as actually owning its
proportionate share of the assets held by the partnership or
trust (as the case may be).
(b) Tentative LICTI
For purposes of this part -
(1) In general
The term "tentative LICTI" means life insurance company taxable
income determined without regard to the small life insurance
company deduction.
(2) Exclusion of items attributable to noninsurance businesses
The amount of the tentative LICTI for any taxable year shall be
determined without regard to all items attributable to
noninsurance businesses.
(3) Noninsurance business
(A) In general
The term "noninsurance business" means any activity which is
not an insurance business.
(B) Certain activities treated as insurance businesses
For purposes of subparagraph (A), any activity which is not
an insurance business shall be treated as an insurance business
if -
(i) it is of a type traditionally carried on by life
insurance companies for investment purposes, but only if the
carrying on of such activity (other than in the case of real
estate) does not constitute the active conduct of a trade or
business, or
(ii) it involves the performance of administrative services
in connection with plans providing life insurance, pension,
or accident and health benefits.
(C) Limitation on amount of loss from noninsurance business
which may offset income from insurance business
In computing the life insurance company taxable income of any
life insurance company, any loss from a noninsurance business
shall be limited under the principles of section 1503(c).
(c) Special rule for controlled groups
(1) Small life insurance company deduction determined on
controlled group basis
For purposes of subsection (a) -
(A) all life insurance companies which are members of the
same controlled group shall be treated as 1 life insurance
company, and
(B) any small life insurance company deduction determined
with respect to such group shall be allocated among the life
insurance companies which are members of such group in
proportion to their respective tentative LICTI's.
(2) Nonlife insurance members included for asset test
For purposes of subsection (a)(3), all members of the same
controlled group (whether or not life insurance companies) shall
be treated as 1 company.
(3) Controlled group
For purposes of this subsection, the term "controlled group"
means any controlled group of corporations (as defined in section
1563(a)); except that subsections (a)(4) and (b)(2)(D) of section
1563 shall not apply.
(4) Adjustments to prevent excess detriment or benefit
Under regulations prescribed by the Secretary, proper
adjustments shall be made in the application of this subsection
to prevent any excess detriment or benefit (whether from
year-to-year or otherwise) arising from the application of this
subsection.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 724; amended Pub. L. 99-514, title X, Sec. 1011(a),
(b)(5)-(8), (11)(A), Oct. 22, 1986, 100 Stat. 2388, 2389.)
-MISC1-
PRIOR PROVISIONS
A prior section 806, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 120; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to certain
changes in reserves and assets, prior to the general revision of
this part by Pub. L. 98-369, Sec. 211(a).
Another prior section 806, act Aug. 16, 1954, ch. 736, 68A Stat.
258, related to adjustment for certain reserves, prior to the
general revision of this part by act Mar. 13, 1956, ch. 83, Sec. 2,
70 Stat. 36.
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1011(b)(11)(A), substituted "Small
life insurance company deduction" for "Special deductions" in
section catchline.
Subsec. (a). Pub. L. 99-514, Sec. 1011(a), redesignated subsec.
(b) as (a) and struck out former subsec. (a), special life
insurance company deduction, which read as follows: "For purposes
of section 804, the special life insurance company deduction for
any taxable year is 20 percent of the excess of the tentative LICTI
for such taxable year over the small life insurance company
deduction (if any)."
Subsec. (b). Pub. L. 99-514, Sec. 1011(a), (b)(5), redesignated
subsec. (c) as (b), and in par. (1), substituted "without regard to
the small life insurance company deduction" for "without regard to
- (A) the special life insurance company deduction, and (B) the
small life insurance company deduction". Former subsec. (b)
redesignated (a).
Subsecs. (c), (d). Pub. L. 99-514, Sec. 1011(a), (b)(6)-(8),
redesignated subsec. (d) as (c), in par. (1), in heading,
substituted "Small" for "Special life insurance company deduction
and small", in introductory provisions, substituted "subsection
(a)" for "subsections (a) and (b)", and in subpar. (B), struck out
"any special life insurance company deduction and", in par. (2),
substituted "subsection (a)(3)" for "subsection (b)(3)",
redesignated par. (5) as (4), and struck out former par. (4) which
provided for election with respect to loss from operations of
member of group. Former subsec. (c) redesignated (b).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1011(c)(1) of Pub. L. 99-514, set
out as a note under section 453B of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
DETERMINATION OF TENTATIVE LICTI WHERE CORPORATION MADE CERTAIN
ACQUISITIONS IN 1980, 1981, 1982, AND 1983
Section 217(c) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "If -
"(1) a corporation domiciled or having its principal place of
business in Alabama, Arkansas, Oklahoma, or Texas acquired the
assets of 1 or more insurance companies after 1979 and before
April 1, 1983, and
"(2) the bases of such assets in the hands of the corporation
were determined under section 334(b)(2) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954] or such corporation made an
election under section 338 of such Code with respect to such
assets,
then the tentative LICTI of the corporation holding such assets for
taxable years beginning after December 31, 1983, shall, for
purposes of determining the amount of the special deductions under
section 806 of such Code, be increased by the deduction allowable
under chapter 1 of such Code for the amortization of the cost of
insurance contracts acquired in such asset acquisition (and any
portion of any operations loss deduction attributable to such
amortization)."
DETERMINATION OF ASSETS OF CONTROLLED GROUP FOR PURPOSES OF SMALL
LIFE INSURANCE COMPANY DEDUCTION FOR 1984
Section 217(h) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of applying paragraph (2) of
section 806(d) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to nonlife insurance members included for
asset test) for the first taxable year beginning after December 31,
1983, the members of the controlled group referred to in such
paragraph shall be treated as including only those members of such
group which are described in paragraph (2) of this subsection if -
"(A) an election under section 1504(c)(2) of such Code is not
in effect for the controlled group for such taxable year,
"(B) during such taxable year, the controlled group does not
include a member which is taxable under part I of subchapter L of
chapter 1 of such Code and which became a member of such group
after September 27, 1983, and
"(C) the sum of the contributions to capital received by
members of the controlled group which are taxable under such part
I during such taxable year from the members of the controlled
group which are not taxable under such part does not exceed the
aggregate dividends paid during such taxable year by the members
of such group which are taxable under such part I.
"(2) Members of group taken into account. - For purposes of
paragraph (1), the members of the controlled group which are
described in this paragraph are -
"(A) any financial institution to which section 585 or 593 of
such Code applies,
"(B) any lending or finance business (as defined by section
542(d)),
"(C) any insurance company subject to tax imposed by subchapter
L of chapter 1 of such Code, and
"(D) any securities broker."
SPECIAL RULE FOR CERTAIN DEBT-FINANCED ACQUISITION OF STOCK
Section 217(k) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title X, Sec. 1011(c)(2), Oct. 22, 1986, 100 Stat. 2095,
2389, provided that: "If -
"(1) a life insurance company owns the stock of another
corporation through a partnership of which it is a partner,
"(2) the stock of the corporation was acquired on January 14,
1981, and
"(3) such stock was acquired by debt financing,
then, for purposes of determining the small life insurance company
deduction under section 806a of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this subtitle [subtitle A
(Secs. 211-219) of title II of div. A of Pub. L. 98-369, see Tables
for classifications]), the amount of tentative LICTI of such life
insurance company shall be computed without taking into account any
income, gain, loss, or deduction attributable to the ownership of
such stock. For purposes of determining taxable income, the amount
of any income, gain, loss, or deduction attributable to the
ownership of such stock shall be an amount equal to 46 times the
amount of such income, gain, loss, or deduction, divided by 36.8."
TREATMENT OF LOSSES FROM CERTAIN GUARANTEED INTEREST CONTRACTS
Section 217(l) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of determining the amount of the
special deductions under section 806 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] (as amended by this subtitle
[subtitle A (Secs. 211-219) of title II of div. A of Pub. L.
98-369, see Tables for classification]), for any taxable year
beginning before January 1, 1988, the amount of tentative LICTI of
any qualified life insurance company shall be computed without
taking into account any income, gain, loss, or deduction
attributable to a qualified GIC.
"(2) Qualified life insurance company. - For purposes of this
subsection, the term 'qualified life insurance company' means any
life insurance company if -
"(A) the accrual of discount less amortization of premium for
bonds and short-term investments (as shown in the first footnote
to Exhibit 3 of its 1983 annual statement for life insurance
companies approved by the National Association of Insurance
Commissioners (but excluding separate accounts) filed in its
State of domicile) exceeds $72,000,000 but does not exceed
$73,000,000, and
"(B) such life insurance company makes an election under this
subsection on its return for its first taxable year beginning
after December 31, 1983.
"(3) Qualified gic. - The term 'qualified GIC' means any group
contract -
"(A) which is issued before January 1, 1984,
"(B) which specifies the contract maturity or renewal date,
"(C) under which funds deposited by the contract holder plus
interest guaranteed at the inception of the contract for the term
of the contract and net of any specified expenses are paid as
directed by the contract holder, and
"(D) which is a pension plan contract (as defined in section
818(a) of the Internal Revenue Code of 1986).
"(4) Scope of election. - An election under this subsection shall
apply to all qualified GIC's of a qualified life insurance company.
Any such election, once made, shall be irrevocable.
"(5) Income on underlying assets taken into account. - In
determining the amount of any income attributable to a qualified
GIC, income on any asset attributable to such contract (as
determined in the manner provided by the Secretary of the Treasury
or his delegate) shall be taken into account.
"(6) Limitation on tax benefit. - The amount of any reduction in
tax for any taxable year by reason of this subsection for any
qualified life insurance company (or controlled group within the
meaning of section 806(d)(3) of the Internal Revenue Code of 1986)
shall not exceed the applicable amount set forth in the following
table:
"In the case of taxable The reduction
may
years beginning in: not exceed:
1984 $4,500,000
1985 $4,500,000
1986 $3,000,000
1987 $2,000,000"
SPECIAL RULE FOR CERTAIN INTERESTS IN OIL AND GAS PROPERTIES
Section 217(m) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In general. - For purposes of section 806 of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954], the ownership by a
qualified life insurance company of any undivided interest in
operating mineral interests with respect to any oil or gas
properties held on December 31, 1983, shall be treated as an
insurance business.
"(2) Qualified life insurance company. - For purposes of
paragraph (1), the term 'qualified life insurance company' means a
mutual life insurance company which -
"(A) was originally incorporated in March of 1857, and
"(B) has a cost to such company (as of December 31, 1983) in
the operating mineral interests described in paragraph (1) in
excess of $250,000,000."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 453B, 465, 804, 815 of
this title.
-End-
-CITE-
26 USC Sec. 807 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 807. Rules for certain reserves
-STATUTE-
(a) Decrease treated as gross income
If for any taxable year -
(1) the opening balance for the items described in subsection
(c), exceeds
(2)(A) the closing balance for such items, reduced by
(B) the sum of (i) the amount of the policyholders' share of
tax-exempt interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within
the meaning of section 805(a)(4)(F)) of life insurance policies
and annuity and endowment contracts to which section 264(f)
applies, plus (ii) any excess described in section 809(a)(2) for
the taxable year,
such excess shall be included in gross income under section
803(a)(2).
(b) Increase treated as deduction
If for any taxable year -
(1)(A) the closing balance for the items described in
subsection (c), reduced by
(B) the sum of (i) the amount of the policyholders' share of
tax-exempt interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within
the meaning of section 805(a)(4)(F)) of life insurance policies
and annuity and endowment contracts to which section 264(f)
applies, plus (ii) any excess described in section 809(a)(2) for
the taxable year, exceeds
(2) the opening balance for such items,
such excess shall be taken into account as a deduction under
section 805(a)(2).
(c) Items taken into account
The items referred to in subsections (a) and (b) are as follows:
(1) The life insurance reserves (as defined in section 816(b)).
(2) The unearned premiums and unpaid losses included in total
reserves under section 816(c)(2).
(3) The amounts (discounted at the appropriate rate of
interest) necessary to satisfy the obligations under insurance
and annuity contracts, but only if such obligations do not
involve (at the time with respect to which the computation is
made under this paragraph) life, accident, or health
contingencies.
(4) Dividend accumulations, and other amounts, held at interest
in connection with insurance and annuity contracts.
(5) Premiums received in advance, and liabilities for premium
deposit funds.
(6) Reasonable special contingency reserves under contracts of
group term life insurance or group accident and health insurance
which are established and maintained for the provision of
insurance on retired lives, for premium stabilization, or for a
combination thereof.
For purposes of paragraph (3), the appropriate rate of interest for
any obligation is whichever of the following rates is the highest
as of the time such obligation first did not involve life,
accident, or health contingencies: the applicable Federal interest
rate under subsection (d)(2)(B)(i), the prevailing State assumed
interest rate under subsection (d)(2)(B)(ii), or the rate of
interest assumed by the company in determining the guaranteed
benefit. In no case shall the amount determined under paragraph (3)
for any contract be less than the net surrender value of such
contract. For purposes of paragraph (2) and section 805(a)(1), the
amount of the unpaid losses (other than losses on life insurance
contracts) shall be the amount of the discounted unpaid losses as
defined in section 846.
(d) Method of computing reserves for purposes of determining income
(1) In general
For purposes of this part (other than section 816), the amount
of the life insurance reserves for any contract shall be the
greater of -
(A) the net surrender value of such contract, or
(B) the reserve determined under paragraph (2).
In no event shall the reserve determined under the preceding
sentence for any contract as of any time exceed the amount which
would be taken into account with respect to such contract as of
such time in determining statutory reserves (as defined in
section 809(b)(4)(B)).
(2) Amount of reserve
The amount of the reserve determined under this paragraph with
respect to any contract shall be determined by using -
(A) the tax reserve method applicable to such contract,
(B) the greater of -
(i) the applicable Federal interest rate, or
(ii) the prevailing State assumed interest rate, and
(C) the prevailing commissioners' standard tables for
mortality and morbidity adjusted as appropriate to reflect the
risks (such as substandard risks) incurred under the contract
which are not otherwise taken into account.
(3) Tax reserve method
For purposes of this subsection -
(A) In general
The term "tax reserve method" means -
(i) Life insurance contracts
The CRVM in the case of a contract covered by the CRVM.
(ii) Annuity contracts
The CARVM in the case of a contract covered by the CARVM.
(iii) Noncancellable accident and health insurance contracts
In the case of any noncancellable accident and health
insurance contract (other than a qualified long-term care
insurance contract, as defined in section 7702B(b)), a 2-year
full preliminary term method.
(iv) Other contracts
In the case of any contract not described in clause (i),
(ii), or (iii) -
(I) the reserve method prescribed by the National
Association of Insurance Commissioners which covers such
contract (as of the date of issuance), or
(II) if no reserve method has been prescribed by the
National Association of Insurance Commissioners which
covers such contract, a reserve method which is consistent
with the reserve method required under clause (i), (ii), or
(iii) or under subclause (I) of this clause as of the date
of the issuance of such contract (whichever is most
appropriate).
(B) Definition of CRVM and CARVM
For purposes of this paragraph -
(i) CRVM
The term "CRVM" means the Commissioners' Reserve Valuation
Method prescribed by the National Association of Insurance
Commissioners which is in effect on the date of the issuance
of the contract.
(ii) CARVM
The term "CARVM" means the Commissioners' Annuities Reserve
Valuation Method prescribed by the National Association of
Insurance Commissioners which is in effect on the date of the
issuance of the contract.
(C) No additional reserve deduction allowed for deficiency
reserves
Nothing in any reserve method described under this paragraph
shall permit any increase in the reserve because the net
premium (computed on the basis of assumptions required under
this subsection) exceeds the actual premiums or other
consideration charged for the benefit.
(4) Applicable Federal interest rate; prevailing State assumed
interest rate
For purposes of this subsection -
(A) Applicable Federal interest rate
(i) In general
Except as provided in clause (ii), the term "applicable
Federal interest rate" means the annual rate determined by
the Secretary under section 846(c)(2) for the calendar year
in which the contract was issued.
(ii) Election to recompute Federal interest rate every 5
years
(I) In general
In computing the amount of the reserve with respect to
any contract to which an election under this clause applies
for periods during any recomputation period, the applicable
Federal interest rate shall be the annual rate determined
by the Secretary under section 846(c)(2) for the 1st year
of such period. No change in the applicable Federal
interest rate shall be made under the preceding sentence
unless such change would equal or exceed 1/2 of 1
percentage point.
(II) Recomputation period
For purposes of subclause (I), the term "recomputation
period" means, with respect to any contract, the 5 calendar
year period beginning with the 5th calendar year beginning
after the calendar year in which the contract was issued
(and each subsequent 5 calendar year period).
(III) Election
An election under this clause shall apply to all
contracts issued during the calendar year for which the
election was made or during any subsequent calendar year
unless such election is revoked with the consent of the
Secretary.
(IV) Spread not available
Subsection (f) shall not apply to any adjustment required
under this clause.
(B) Prevailing State assumed interest rate
(i) In general
The term "prevailing State assumed interest rate" means,
with respect to any contract, the highest assumed interest
rate permitted to be used in computing life insurance
reserves for insurance contracts or annuity contracts (as the
case may be) under the insurance laws of at least 26 States.
For purposes of the preceding sentence, the effect of
nonforfeiture laws of a State on interest rates for reserves
shall not be taken into account.
(ii) When rate determined
The prevailing State assumed interest rate with respect to
any contract shall be determined as of the beginning of the
calendar year in which the contract was issued.
(5) Prevailing commissioners' standard tables
For purposes of this subsection -
(A) In general
The term "prevailing commissioners' standard tables" means,
with respect to any contract, the most recent commissioners'
standard tables prescribed by the National Association of
Insurance Commissioners which are permitted to be used in
computing reserves for that type of contract under the
insurance laws of at least 26 States when the contract was
issued.
(B) Insurer may use old tables for 3 years when tables change
If the prevailing commissioners' standard tables as of the
beginning of any calendar year (hereinafter in this
subparagraph referred to as the "year of change") is different
from the prevailing commissioners' standard tables as of the
beginning of the preceding calendar year, the issuer may use
the prevailing commissioners' standard tables as of the
beginning of the preceding calendar year with respect to any
contract issued after the change and before the close of the
3-year period beginning on the first day of the year of change.
(C) Special rule for contracts for which there are no
commissioners' standard tables
If there are no commissioners' standard tables applicable to
any contract when it is issued, the mortality and morbidity
tables used for purposes of paragraph (2)(C) shall be
determined under regulations prescribed by the Secretary. When
the Secretary by regulation changes the table applicable to a
type of contract, the new table shall be treated (for purposes
of subparagraph (B) and for purposes of determining the issue
dates of contracts for which it shall be used) as if it were a
new prevailing commissioner's standard table adopted by the
twenty-sixth State as of a date (no earlier than the date the
regulation is issued) specified by the Secretary.
(D) Special rule for contracts issued before 1948
If -
(i) a contract was issued before 1948, and
(ii) there were no commissioners' standard tables
applicable to such contract when it was issued,
the mortality and morbidity tables used in computing statutory
reserves for such contracts shall be used for purposes of
paragraph (2)(C).
(E) Special rule where more than 1 table or option applicable
If, with respect to any category of risks, there are 2 or
more tables (or options under 1 or more tables) which meet the
requirements of subparagraph (A) (or, where applicable,
subparagraph (B) or (C)), the table (and option thereunder)
which generally yields the lowest reserves shall be used for
purposes of paragraph (2)(C).
(e) Special rules for computing reserves
(1) Net surrender value
For purposes of this section -
(A) In general
The net surrender value of any contract shall be determined -
(i) with regard to any penalty or charge which would be
imposed on surrender, but
(ii) without regard to any market value adjustment on
surrender.
(B) Special rule for pension plan contracts
In the case of a pension plan contract, the balance in the
policyholder's fund shall be treated as the net surrender value
of such contract. For purposes of the preceding sentence, such
balance shall be determined with regard to any penalty or
forfeiture which would be imposed on surrender but without
regard to any market value adjustment.
(2) Issuance date in case of group contracts
For purposes of this section, in the case of a group contract,
the date on which such contract is issued shall be the date as of
which the master plan is issued (or, with respect to a benefit
guaranteed to a participant after such date, the date as of which
such benefit is guaranteed).
(3) Supplemental benefits
(A) Qualified supplemental benefits treated separately
For purposes of this part, the amount of the life insurance
reserve for any qualified supplemental benefit -
(i) shall be computed separately as though such benefit
were under a separate contract, and
(ii) shall, except to the extent otherwise provided in
regulations, be the reserve taken into account for purposes
of the annual statement approved by the National Association
of Insurance Commissioners.
(B) Supplemental benefits which are not qualified supplemental
benefits
In the case of any supplemental benefit described in
subparagraph (D) which is not a qualified supplemental benefit,
the amount of the reserve determined under paragraph (2) of
subsection (d) shall, except to the extent otherwise provided
in regulations, be the reserve taken into account for purposes
of the annual statement approved by the National Association of
Insurance Commissioners.
(C) Qualified supplemental benefit
For purposes of this paragraph, the term "qualified
supplemental benefit" means any supplemental benefit described
in subparagraph (D) if -
(i) there is a separately identified premium or charge for
such benefit, and
(ii) any net surrender value under the contract
attributable to any other benefit is not available to fund
such benefit.
(D) Supplemental benefits
For purposes of this paragraph, the supplemental benefits
described in this subparagraph are any -
(i) guaranteed insurability,
(ii) accidental death or disability benefit,
(iii) convertibility,
(iv) disability waiver benefit, or
(v) other benefit prescribed by regulations,
which is supplemental to a contract for which there is a
reserve described in subsection (c).
(4) Certain contracts issued by foreign branches of domestic life
insurance companies
(A) In general
In the case of any qualified foreign contract, the amount of
the reserve shall be not less than the minimum reserve required
by the laws, regulations, or administrative guidance of the
regulatory authority of the foreign country referred to in
subparagraph (B) (but not to exceed the net level reserves for
such contract).
(B) Qualified foreign contract
For purposes of subparagraph (A), the term "qualified foreign
contract" means any contract issued by a foreign life insurance
branch (which has its principal place of business in a foreign
country) of a domestic life insurance company if -
(i) such contract is issued on the life or health of a
resident of such country,
(ii) such domestic life insurance company was required by
such foreign country (as of the time it began operations in
such country) to operate in such country through a branch,
and
(iii) such foreign country is not contiguous to the United
States.
(5) Treatment of substandard risks
(A) Separate computation
Except to the extent provided in regulations, the amount of
the life insurance reserve for any qualified substandard risk
shall be computed separately under subsection (d)(1) from any
other reserve under the contract.
(B) Qualified substandard risk
For purposes of subparagraph (A), the term "qualified
substandard risk" means any substandard risk if -
(i) the insurance company maintains a separate reserve for
such risk,
(ii) there is a separately identified premium or charge for
such risk,
(iii) the amount of the net surrender value under the
contract is not increased or decreased by reason of such
risk, and
(iv) the net surrender value under the contract is not
regularly used to pay premium charges for such risk.
(C) Limitation on amount of life insurance reserve
The amount of the life insurance reserve determined for any
qualified substandard risk shall in no event exceed the sum of
the separately identified premiums charged for such risk plus
interest less mortality charges for such risk.
(D) Limitation on amount of contracts to which paragraph
applies
The aggregate amount of insurance in force under contracts to
which this paragraph applies shall not exceed 10 percent of the
insurance in force (other than term insurance) under life
insurance contracts of the company.
(6) Special rules for contracts issued before January 1, 1989,
under existing plans of insurance, with term insurance or
annuity benefits
For purposes of this part -
(A) In general
In the case of a life insurance contract issued before
January 1, 1989, under an existing plan of insurance, the life
insurance reserve for any benefit to which this paragraph
applies shall be computed separately under subsection (d)(1)
from any other reserve under the contract.
(B) Benefits to which this paragraph applies
This paragraph applies to any term insurance or annuity
benefit with respect to which the requirements of clauses (i)
and (ii) of paragraph (3)(C) are met.
(C) Existing plan of insurance
For purposes of this paragraph, the term "existing plan of
insurance" means, with respect to any contract, any plan of
insurance which was filed by the company using such contract in
one or more States before January 1, 1984, and is on file in
the appropriate State for such contract.
(7) Special rules for treatment of certain nonlife reserves
(A) In general
The amount taken into account for purposes of subsections (a)
and (b) as -
(i) the opening balance of the items referred to in
subparagraph (C), and
(ii) the closing balance of such items,
shall be 80 percent of the amount which (without regard to this
subparagraph) would have been taken into account as such
opening or closing balance, as the case may be.
(B) Transitional rule
(i) In general
In the case of any taxable year beginning on or after
September 30, 1990, and before September 30, 1996, there
shall be included in the gross income of any life insurance
company an amount equal to 3 1/3 percent of such company's
closing balance of the items referred to in subparagraph (C)
for its most recent taxable year beginning before September
30, 1990.
(ii) Termination as life insurance company
Except as provided in section 381(c)(22), if, for any
taxable year beginning on or before September 30, 1996, the
taxpayer ceases to be a life insurance company, the aggregate
inclusions which would have been made under clause (i) for
such taxable year and subsequent taxable years but for such
cessation shall be taken into account for the taxable year
preceding such cessation year.
(C) Description of items
For purposes of this paragraph, the items referred to in this
subparagraph are the items described in subsection (c) which
consist of unearned premiums and premiums received in advance
under insurance contracts not described in section
816(b)(1)(B).
(f) Adjustment for change in computing reserves
(1) 10-year spread
(A) In general
For purposes of this part, if the basis for determining any
item referred to in subsection (c) as of the close of any
taxable year differs from the basis for such determination as
of the close of the preceding taxable year, then so much of the
difference between -
(i) the amount of the item at the close of the taxable
year, computed on the new basis, and
(ii) the amount of the item at the close of the taxable
year, computed on the old basis,
as is attributable to contracts issued before the taxable year
shall be taken into account under the method provided in
subparagraph (B).
(B) Method
The method provided in this subparagraph is as follows:
(i) if the amount determined under subparagraph (A)(i)
exceeds the amount determined under subparagraph (A)(ii),
1/10 of such excess shall be taken into account, for each of
the succeeding 10 taxable years, as a deduction under section
805(a)(2); or
(ii) if the amount determined under subparagraph (A)(ii)
exceeds the amount determined under subparagraph (A)(i),
1/10 of such excess shall be included in gross income, for
each of the 10 succeeding taxable years, under section
803(a)(2).
(2) Termination as life insurance company
Except as provided in section 381(c)(22) (relating to
carryovers in certain corporate readjustments), if for any
taxable year the taxpayer is not a life insurance company, the
balance of any adjustments under this subsection shall be taken
into account for the preceding taxable year.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 726; amended Pub. L. 99-514, title X, Sec. 1023(b),
title XVIII, Sec. 1821(a), (s), Oct. 22, 1986, 100 Stat. 2399,
2837, 2843; Pub. L. 100-203, title X, Sec. 10241(a)-(b)(2)(A), Dec.
22, 1987, 101 Stat. 1330-419, 1330-420; Pub. L. 101-508, title XI,
Sec. 11302(a), Nov. 5, 1990, 104 Stat. 1388-449; Pub. L. 104-188,
title I, Sec. 1704(t)(61), Aug. 20, 1996, 110 Stat. 1890; Pub. L.
104-191, title III, Sec. 321(b), Aug. 21, 1996, 110 Stat. 2058;
Pub. L. 105-34, title X, Sec. 1084(b)(2), Aug. 5, 1997, 111 Stat.
954.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 807, act Aug. 16, 1954, ch. 736, 68A Stat. 259,
related to adjustment for certain reserves, prior to the general
revision of this part by act Mar. 13, 1956, ch. 83, Sec. 2, 70
Stat. 36.
AMENDMENTS
1997 - Subsec. (a)(2)(B). Pub. L. 105-34, Sec. 1084(b)(2)(A),
substituted "interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,"
for "interest,".
Subsec. (b)(1)(B). Pub. L. 105-34, Sec. 1084(b)(2)(B),
substituted "interest and the amount of the policyholder's share of
the increase for the taxable year in policy cash values (within the
meaning of section 805(a)(4)(F)) of life insurance policies and
annuity and endowment contracts to which section 264(f) applies,"
for "interest,".
1996 - Subsec. (d)(3)(A)(iii). Pub. L. 104-191 inserted "(other
than a qualified long-term care insurance contract, as defined in
section 7702B(b))" after "insurance contract".
Subsec. (d)(3)(B)(ii). Pub. L. 104-188 substituted
"Commissioners' Annuities" for "Commissoners' Annuities".
1990 - Subsec. (e)(7). Pub. L. 101-508 added par. (7).
1987 - Subsec. (c). Pub. L. 100-203, Sec. 10241(b)(2)(A),
substituted "whichever of the following rates is the highest as of
the time such obligation first did not involve life, accident, or
health contingencies: the applicable Federal interest rate under
subsection (d)(2)(B)(i), the prevailing State assumed interest rate
under subsection (d)(2)(B)(ii), or the rate of interest assumed by
the company in determining the guaranteed benefit." for "the higher
of the prevailing State assumed interest rate as of the time such
obligation first did not involve life, accident, or health
contingencies or the rate of interest assumed by the company (as of
such time) in determining the guaranteed benefit." in third to last
sentence.
Subsec. (d)(2)(B). Pub. L. 100-203, Sec. 10241(a), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the prevailing State assumed interest rate, and".
Subsec. (d)(4). Pub. L. 100-203, Sec. 10241(b)(1), substituted
"Applicable Federal interest rate; prevailing State assumed
interest rate" for "Prevailing State assumed interest rate" in
heading and amended text generally, revising and restating as
subpars. (A) and (B) provisions of former subpars. (A) to (D).
1986 - Subsec. (c). Pub. L. 99-514, Sec. 1023(b), inserted at end
"For purposes of paragraph (2) and section 805(a)(1), the amount of
the unpaid losses (other than losses on life insurance contracts)
shall be the amount of the discounted unpaid losses as defined in
section 846."
Pub. L. 99-514, Sec. 1821(a), inserted at end "In no case shall
the amount determined under paragraph (3) for any contract be less
than the net surrender value of such contract."
Subsec. (d)(5)(C). Pub. L. 99-514, Sec. 1821(s), inserted at end
"When the Secretary by regulation changes the table applicable to a
type of contract, the new table shall be treated (for purposes of
subparagraph (B) and for purposes of determining the issue dates of
contracts for which it shall be used) as if it were a new
prevailing commissioner's standard table adopted by the
twenty-sixth State as of a date (no earlier than the date the
regulation is issued) specified by the Secretary."
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-191 applicable to contracts issued after
Dec. 31, 1997, see section 321(f) of Pub. L. 104-191, set out as an
Effective Date note under section 7702B of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11302(b) of Pub. L. 101-508 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning on or after September 30, 1990."
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10241(c) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and section
812 of this title] shall apply to contracts issued in taxable years
beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1023(b) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1023(e) of Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title.
Amendment by section 1821(a), (s) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
TREATMENT OF CERTAIN ASSESSMENT LIFE INSURANCE COMPANIES
Section 217(f) of subtitle A (Secs. 211-219) of title II of div.
A of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that:
"(1) Mortality and morbidity tables. - In the case of a contract
issued by an assessment life insurance company, the mortality and
morbidity tables used in computing statutory reserves for such
contract shall be used for purposes of paragraph (2)(C) of section
807(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
(as amended by this subtitle) if such tables were -
"(A) in use since 1965, and
"(B) developed on the basis of the experience of assessment
life insurance companies in the State in which such assessment
life insurance company is domiciled.
"(2) Treatment of certain mutual assessment life insurance
companies. - In the case of any contract issued by a mutual
assessment life insurance company which -
"(A) has been in existence since 1965, and
"(B) operates under chapter 13 or 14 of the Texas Insurance
Code,
for purposes of part I of subchapter L of chapter 1 of the Internal
Revenue Code of 1986, the amount of the life insurance reserves for
such contract shall be equal to the amount taken into account with
respect to such contract in determining statutory reserves.
"(3) Statutory reserves. - For purposes of this subsection, the
term 'statutory reserves' has the meaning given to such term by
section 809(b)(4)(B) of such Code."
SPECIAL RULE FOR COMPANIES USING NET LEVEL RESERVE METHOD FOR
NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE CONTRACTS
Section 217(n) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, title XVIII, Sec. 1823, Oct. 22, 1986, 100 Stat. 2095,
2845, provided that: "A company shall be treated as meeting the
requirements of section 807(d)(3)(A)(iii) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as amended by this Act, with
respect to any directly-written noncancellable accident and health
insurance contract (whether under existing or new plans of
insurance) for any taxable year if -
"(1) such company -
"(A) was using the net level reserve method to compute at
least 99 percent of its statutory reserves on such contracts as
of December 31, 1982, and
"(B) received more than half its total direct premiums in
1982 from directly-written noncancellable accident and health
insurance,
"(2) after December 31, 1983, and through such taxable year,
such company has continuously used the net level reserve method
for computing at least 99 percent of its tax and statutory
reserves on such contracts, and
"(3) for any such contract for which the company does not use
the net level reserve method, such company uses the same method
for computing tax reserves as such company uses for computing its
statutory reserves."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 412, 415, 417, 803, 805,
809, 811, 812, 817, 817A, 818, 832, 842, 846, 848, 954, 1351, 7702
of this title; title 29 sections 1055, 1082.
-End-
-CITE-
26 USC Sec. 808 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 808. Policyholder dividends deduction
-STATUTE-
(a) Policyholder dividend defined
For purposes of this part, the term "policyholder dividend" means
any dividend or similar distribution to policyholders in their
capacity as such.
(b) Certain amounts included
For purposes of this part, the term "policyholder dividend"
includes -
(1) any amount paid or credited (including as an increase in
benefits) where the amount is not fixed in the contract but
depends on the experience of the company or the discretion of the
management,
(2) excess interest,
(3) premium adjustments, and
(4) experience-rated refunds.
(c) Amount of deduction
(1) In general
Except as limited by paragraph (2), the deduction for
policyholder dividends for any taxable year shall be an amount
equal to the policyholder dividends paid or accrued during the
taxable year.
(2) Reduction in case of mutual companies
In the case of a mutual life insurance company, the deduction
for policyholder dividends for any taxable year shall be reduced
by the amount determined under section 809.
(d) Definitions
For purposes of this section -
(1) Excess interest
The term "excess interest" means any amount in the nature of
interest -
(A) paid or credited to a policyholder in his capacity as
such, and
(B) in excess of interest determined at the prevailing State
assumed rate for such contract.
(2) Premium adjustment
The term "premium adjustment" means any reduction in the
premium under an insurance or annuity contract which (but for the
reduction) would have been required to be paid under the
contract.
(3) Experience-rated refund
The term "experience-rated refund" means any refund or credit
based on the experience of the contract or group involved.
(e) Treatment of policyholder dividends
For purposes of this part, any policyholder dividend which -
(1) increases the cash surrender value of the contract or other
benefits payable under the contract, or
(2) reduces the premium otherwise required to be paid,
shall be treated as paid to the policyholder and returned by the
policyholder to the company as a premium.
(f) Coordination of 1984 fresh-start adjustment with acceleration
of policyholder dividends deduction through change in business
practice
(1) In general
The amount determined under paragraph (1) of subsection (c) for
the year of change shall (before any reduction under paragraph
(2) of subsection (c)) be reduced by so much of the accelerated
policyholder dividends deduction for such year as does not exceed
the 1984 fresh-start adjustment for policyholder dividends (to
the extent such adjustment was not previously taken into account
under this subsection).
(2) Year of change
For purposes of this subsection, the term "year of change"
means the taxable year in which the change in business practices
which results in the accelerated policyholder dividends deduction
takes effect.
(3) Accelerated policyholder dividends deduction defined
For purposes of this subsection, the term "accelerated
policyholder dividends deduction" means the amount which (but for
this subsection) would be determined for the taxable year under
paragraph (1) of subsection (c) but which would have been
determined (under such paragraph) for a later taxable year under
the business practices of the taxpayer as in effect at the close
of the preceding taxable year.
(4) 1984 fresh-start adjustment for policyholder dividends
For purposes of this subsection, the term "1984 fresh-start
adjustment for policyholder dividends" means the amounts held as
of December 31, 1983, by the taxpayer as reserves for dividends
to policyholders under section 811(b) (as in effect on the day
before the date of the enactment of the Tax Reform Act of 1984)
other than for dividends which accrued before January 1, 1984.
Such amounts shall be properly reduced to reflect the amount of
previously nondeductible policyholder dividends (as determined
under section 809(f) as in effect on the day before the date of
the enactment of the Tax Reform Act of 1984).
(5) Separate application with respect to lines of business
This subsection shall be applied separately with respect to
each line of business of the taxpayer.
(6) Subsection not to apply to mere change in dividend amount
This subsection shall not apply to a mere change in the amount
of policyholder dividends.
(7) Subsection not to apply to policies issued after December 31,
1983
(A) In general
This subsection shall not apply to any policyholder dividend
paid or accrued with respect to a policy issued after December
31, 1983.
(B) Exchanges of substantially similar policies
For purposes of subparagraph (A), any policy issued after
December 31, 1983, in exchange for a substantially similar
policy issued on or before such date shall be treated as issued
before January 1, 1984. A similar rule shall apply in the case
of a series of exchanges.
(8) Subsection to apply to policies provided under employee
benefit plans
This subsection shall not apply to any policyholder dividend
paid or accrued with respect to a group policy issued in
connection with a plan to provide welfare benefits to employees
(within the meaning of section 419(e)(2)).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 732; amended Pub. L. 99-514, title XVIII, Sec.
1821(b), (c), Oct. 22, 1986, 100 Stat. 2838.)
-REFTEXT-
REFERENCES IN TEXT
The date of enactment of the Tax Reform Act of 1984, referred to
in subsec. (f)(4), is the date of enactment of Pub. L. 98-369, div.
A, which was approved July 18, 1984.
-MISC1-
AMENDMENTS
1986 - Subsec. (d)(1)(B). Pub. L. 99-514, Sec. 1821(b), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "determined at a rate in excess of the prevailing State
assumed interest rate for such contract."
Subsec. (f). Pub. L. 99-514, Sec. 1821(c), added subsec. (f).
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 805, 809, 812, 818, 848,
7702B of this title.
-End-
-CITE-
26 USC Sec. 809 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 809. Reduction in certain deductions of mutual life insurance
companies
-STATUTE-
(a) General rule
(1) Policyholder dividends
In the case of any mutual life insurance company, the amount of
the deduction allowed under section 808 shall be reduced (but not
below zero) by the differential earnings amount.
(2) Reduction in reserve deduction in certain cases
In the case of any mutual life insurance company, if the
differential earnings amount exceeds the amount allowable as a
deduction under section 808 for the taxable year (determined
without regard to this section), such excess shall be taken into
account under subsections (a) and (b) of section 807.
(3) Differential earnings amount
For purposes of this section, the term "differential earnings
amount" means, with respect to any taxable year, an amount equal
to the product of -
(A) the life insurance company's average equity base for the
taxable year, multiplied by
(B) the differential earnings rate for such taxable year.
(b) Average equity base
For purposes of this section -
(1) In general
The term "average equity base" means, with respect to any
taxable year, the average of -
(A) the equity base determined as of the close of the taxable
year, and
(B) the equity base determined as of the close of the
preceding taxable year.
(2) Equity base
The term "equity base" means an amount determined in the manner
prescribed by regulations equal to -
(A) the surplus and capital,
(B) adjusted as provided in paragraphs (3), (4), (5), and (6)
of this subsection.
No item shall be taken into account more than once in determining
equity base.
(3) Increase for nonadmitted financial assets
(A) In general
The amount of the surplus and capital shall be increased by
the amount of the nonadmitted financial assets.
(B) Nonadmitted financial assets
For purposes of subparagraph (A), the term "nonadmitted
financial asset" means any nonadmitted asset of the company
which is -
(i) a bond,
(ii) stock,
(iii) real estate,
(iv) a mortgage loan on real estate, or
(v) any other invested asset.
(4) Increase where statutory reserves exceed tax reserves
(A) In general
If -
(i) the aggregate amount of statutory reserves, exceeds
(ii) the aggregate amount of tax reserves,
the amount of the surplus and capital shall be increased by the
amount of such excess.
(B) Definitions
For purposes of this paragraph -
(i) Statutory reserves
The term "statutory reserves" means the aggregate amount
set forth in the annual statement with respect to items
described in section 807(c). Such term shall not include any
reserve attributable to a deferred and uncollected premium if
the establishment of such reserve is not permitted under
section 811(c(.
(ii) Tax reserves
The term "tax reserves" means the aggregate of the items
described in section 807(c) as determined for purposes of
section 807.
(5) Increase by amount of certain other reserves
The amount of the surplus and capital shall be increased by the
sum of -
(A) the amount of any mandatory securities valuation reserve,
(B) the amount of any deficiency reserve, and
(C) the amount of any voluntary reserve or similar liability
not described in subparagraph (A) or (B).
(6) Adjustment for next year's policyholder dividends
The amount of the surplus and capital shall be increased by 50
percent of the amount of any provision for policyholder dividends
(or other similar liability) payable in the following taxable
year.
(c) Differential earnings rate
(1) In general
For purposes of this section, the differential earnings rate
for any taxable year is the excess of -
(A) the imputed earnings rate for the taxable year, over
(B) the average mutual earnings rate for the second calendar
year preceding the calendar year in which the taxable year
begins.
(2) Transitional rule
The differential earnings rate -
(A) for any taxable year beginning in 1984, or
(B) for purposes of computing the amount of underpayment
under section 6655 (including the application of section
6655(d)(3)) (!1) for any taxable year beginning in 1985,
shall be equal to 7.8 percent.
(3) Coordination with estimated tax payments
For purposes of applying section 6655 with respect to any
installment of estimated tax, the amount of tax shall be
determined by using the lesser of -
(A) the differential earnings rate of the second tax year
preceding the taxable year for which the installment is made,
or
(B) the differential earnings rate for the taxable year for
which the installment is made.
(d) Imputed earnings rate
(1) In general
For purposes of this section, the imputed earnings rate for any
taxable year is -
(A) 16.5 percent in the case of taxable years beginning in
1984, and
(B) in the case of taxable years beginning after 1984, an
amount which bears the same ratio to 16.5 percent as the
current stock earnings rate for the taxable year bears to the
base period stock earnings rate.
(2) Current stock earnings rate
For purposes of this subsection, the term "current stock
earnings rate" means, with respect to any taxable year, the
average of the stock earnings rates determined under paragraph
(4) for the 3 calendar years preceding the calendar year in which
the taxable year begins.
(3) Base period stock earnings rate
For purposes of this subsection, the base period stock earnings
rate is the average of the stock earnings rates determined under
paragraph (4) for calendar years 1981, 1982, and 1983.
(4) Stock earnings rate
(A) In general
For purposes of this subsection, the stock earnings rate for
any calendar year is the numerical average of the earnings
rates of the 50 largest stock companies.
(B) Earnings rate
For purposes of subparagraph (A), the earnings rate of any
stock company is the percentage (determined by the Secretary)
which -
(i) the statement gain or loss from operations for the
calendar year of such company, is of
(ii) such company's average equity base for such year.
(C) 50 largest stock companies
For purposes of this paragraph, the term "50 largest stock
companies" means a group (as determined by the Secretary) of
stock life insurance companies which consists of the 50 largest
domestic stock life insurance companies which are subject to
tax under this part. The Secretary -
(i) shall, for purposes of determining the base period
stock earnings rate, exclude from the group determined under
the preceding sentence any company which had a negative
equity base at any time during 1981, 1982, or 1983,
(ii) shall exclude from such group for any calendar year
any company which has a negative equity base, and
(iii) may by regulations exclude any other company which
otherwise would have been included in such group if the
inclusion of the excluded company or companies would, by
reason of the small equity base of such company, seriously
distort the stock earnings rate.
The aggregate number of companies excluded by the Secretary
under clause (iii) shall not exceed the excess of 2 over the
number of companies excluded under clause (ii).
(D) Treatment of affiliated groups
For purposes of this paragraph, all stock life insurance
companies which are members of the same affiliated group shall
be treated as one stock life insurance company.
(e) Average mutual earnings rate
For purposes of this section, the average mutual earnings rate
for any calendar year is the percentage (determined by the
Secretary) which -
(1) the aggregate statement gain or loss from operations for
such year of domestic mutual life insurance companies, is of
(2) their aggregate average equity bases for such year.
(f) Recomputation in subsequent year
(1) Inclusion in income where recomputed amount greater
In the case of any mutual life insurance company, if -
(A) the recomputed differential earnings amount for any
taxable year, exceeds
(B) the differential earnings amount determined under this
section for such taxable year,
such excess shall be included in life insurance gross income for
the succeeding taxable year.
(2) Deduction where recomputed amount smaller
In the case of any mutual life insurance company, if -
(A) the differential earnings amount determined under this
section for any taxable year, exceeds
(B) the recomputed differential earnings amount for such
taxable year,
such excess shall be allowed as a life insurance deduction for
the succeeding taxable year.
(3) Recomputed differential earnings amount
For purposes of this subsection, the term "recomputed
differential earnings amount" means, with respect to any taxable
year, the amount which would be the differential earnings amount
for such taxable year if the average mutual earnings rate taken
into account under subsection (c)(1)(B) were the average mutual
earnings rate for the calendar year in which the taxable year
begins.
(4) Special rule where company ceases to be mutual life insurance
company
Except as provided in section 381(c)(22), if -
(A) a life insurance company is a mutual life insurance
company for any taxable year, but
(B) such life insurance company is not a mutual life
insurance company for the succeeding taxable year,
any adjustment under paragraph (1) or (2) by reason of the
recomputed differential earnings amount for the first of such
taxable years shall be taken into account for the first of such
taxable years.
(5) Subsection not to apply for purposes of estimated tax
Section 6655 shall be applied to any taxable year without
regard to any adjustments under this subsection for such year.
(g) Definitions and special rules
For purposes of this section -
(1) Statement gain or loss from operations
The term "statement gain or loss from operations" means the net
gain or loss from operations required to be set forth in the
annual statement, determined without regard to Federal income
taxes, and -
(A) determined by substituting for the amount shown for
policyholder dividends the amount of deduction for policyholder
dividends determined under section 808 (without regard to
section 808(c)(2)),
(B) determined on the basis of the tax reserves rather than
statutory reserves, and
(C) properly adjusted for realized capital gains and losses
and other relevant items.
(2) Other terms
Except as otherwise provided in this section, the terms used in
this section shall have the same respective meanings as when used
in the annual statement.
(3) Determinations based on amount set forth in annual statement
Except as otherwise provided in this section or in regulations,
all determinations under this section shall be made on the basis
of the amounts required to be set forth on the annual statement.
(4) Annual statement
The term "annual statement" means the annual statement for life
insurance companies approved by the National Association of
Insurance Commissioners.
(5) Reduction in equity base for portion of equity allocable to
life insurance business in noncontiguous Western Hemisphere
countries
The equity base of any mutual life insurance company shall be
reduced by an amount equal to the portion of the equity base
attributable to the life insurance business multiplied by a
fraction -
(A) the numerator of which is the portion of the tax reserves
which is allocable to life insurance contracts issued on the
life of residents of countries in the Western Hemisphere which
are not contiguous to the United States, and
(B) the denominator of which is the amount of the tax
reserves allocable to life insurance contracts.
The preceding sentence shall not apply unless the fraction
determined under the preceding sentence exceeds 1/20 .
(6) Special rule for certain contracts issued before January 1,
1985
In determining the amount of tax reserves of a subsidiary of a
mutual insurance company for purposes of subsection (b)(4),
section 811(d) shall not apply with respect to any life insurance
contract issued before January 1, 1985, under a plan of life
insurance in existence on July 1, 1983.
(h) Treatment of stock companies owned by mutual life insurance
companies
(1) Treatment as mutual life insurance companies for purposes of
determining stock earnings rates and mutual earnings rates
Solely for purposes of subsections (d) and (e), a stock life
insurance company shall be treated as a mutual life insurance
company if stock possessing -
(A) at least 80 percent of the total combined voting power of
all classes of stock of such stock life insurance company
entitled to vote, or
(B) at least 80 percent of the total value of shares of all
classes of stock of such stock life insurance company,
is owned at any time during the calendar year directly (or
through the application of section 318) by one or more mutual
life insurance companies.
(2) Treatment of affiliated group which includes mutual parent
and stock subsidiary
In the case of an affiliated group of corporations which
includes a common parent which is a mutual life insurance company
and one or more stock life insurance companies, for purposes of
determining the average equity base of such common parent (and
the statement gain or loss from operations) -
(A) stock in such stock life insurance companies held by such
common parent (and dividends on such stock) shall not be taken
into account, and
(B) such common parent and such stock life insurance
companies shall be treated as though they were one mutual life
insurance company.
(3) Adjustment where stock company not member of affiliated group
In the case of any stock life insurance company which is
described in paragraph (1) but is not a member of an affiliated
group described in paragraph (2), under regulations, proper
adjustments shall be made in the average equity bases (and
statement gains or losses from operations) of mutual life
insurance companies owning stock in such company as may be
necessary or appropriate to carry out the purposes of this
section.
(i) Transitional rule for certain high surplus mutual life
insurance companies
(1) In general
For purposes of subsection (a)(3), the average equity base of a
high surplus mutual life insurance company for any taxable year
shall not include the applicable percentage of the excess equity
base of such company for such taxable year.
(2) Definitions
For purposes of this subsection -
(A) Excess equity base
The term "excess equity base" means the excess of -
(i) the average equity base of the company for the taxable
year, over
(ii) the amount which would be its average equity base if
its equity percentage equaled the following percentage:
For taxable years
beginning in: The percentage
is:
1984 14.5
1985 or 1986 14
1987 or 1988 13.5
In no case shall the excess equity base for any taxable year be
greater than the excess equity base for the company's first
taxable year beginning in 1984.
(B) Applicable percentage
The term "applicable percentage" means the percentage
determined in accordance with the following table:
For taxable years The applicable
beginning in: percentage is:
1984 100
1985 80
1986 60
1987 40
1988 20
1989 or thereafter 0.
(C) High surplus mutual life insurance company
The term "high surplus mutual life insurance company" means
any mutual life insurance company if, for the taxable year
beginning in 1984, its equity percentage exceeded 14.5 percent.
(D) Equity percentage
The term "equity percentage" means, with respect to any
mutual life insurance company, the percentage which -
(i) the average equity base of such company (determined
under this section without regard to this subsection) for a
taxable year bears to
(ii) the average of -
(I) the assets of such company as of the close of the
preceding taxable year, and
(II) the assets of such company as of the close of the
taxable year.
For purposes of the preceding sentence, the assets of a company
shall include all assets taken into account under this section
in determining its equity base (after applying the principles
of subsection (h)).
(j) Differential earnings rate treated as zero for certain years
Notwithstanding subsection (c) or (f), the differential earnings
rate shall be treated as zero for purposes of computing both the
differential earnings amount and the recomputed differential
earnings amount for a mutual life insurance company's taxable years
beginning in 2001, 2002, or 2003.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 733; amended Pub. L. 99-514, title XVIII, Sec.
1821(d)-(h), (r), Oct. 22, 1986, 100 Stat. 2839, 2840, 2843; Pub.
L. 100-647, title I, Sec. 1018(u)(47), Nov. 10, 1988, 102 Stat.
3593; Pub. L. 107-147, title VI, Sec. 611(a), Mar. 9, 2002, 116
Stat. 61.)
-REFTEXT-
REFERENCES IN TEXT
Section 6655(d) of this title, referred to in subsec. (c)(2)(B),
was amended by Pub. L. 100-203, title X, Sec. 10301(a), Dec. 22,
1987, 101 Stat. 1330-424, and, as so amended, did not contain a
par. (3). Section 6655(d) was subsequently amended by Pub. L.
102-227, title II, Sec. 201(a), Dec. 11, 1991, 105 Stat. 1689,
which added a new par. (3), Pub. L. 102-318, title V, Sec.
512(a)(3), July 3, 1992, 106 Stat. 300, which struck out the par.
(3) added by Pub. L. 102-227 and added another new par. (3), and
Pub. L. 103-66, title XIII, Sec. 13225(a)(2)(A)(i), Aug. 10, 1993,
107 Stat. 486, which struck out the par. (3) added by Pub. L.
102-318.
-MISC1-
PRIOR PROVISIONS
A prior section 809, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 121; amended Pub. L. 87-59, Sec. 2(a), (b), June 27,
1961, 75 Stat. 120; Pub. L. 87-790, Sec. 3(a), Oct. 10, 1962, 76
Stat. 808; Pub. L. 87-858, Sec. 3(b)(3), (c), Oct. 23, 1962, 76
Stat. 1137; Pub. L. 88-272, title II, Secs. 214(b)(4), 228(a), Feb.
26, 1964, 78 Stat. 55, 98; Pub. L. 91-172, title II, Sec.
201(a)(2)(C), title IX, Sec. 907(c)(2)(B), Dec. 30, 1969, 83 Stat.
558, 717; Pub. L. 94-455, title XV, Sec. 1508(a), title XIX, Secs.
1901(a)(98), (b)(1)(J)(iv), (L)-(N), 33(G), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1741, 1781, 1791, 1801, 1834; Pub. L. 97-248, title
II, Secs. 255(b)(2)-(4), 259(a), 264(c)(2), (3), Sept. 3, 1982, 96
Stat. 534, 538, 544; Pub. L. 97-448, title I, Sec. 102(m)(1), Jan.
12, 1983, 96 Stat. 2374, related to general provisions regarding
gain and loss from operations, prior to the general revision of
this part by Pub. L. 98-369, Sec. 211(a).
AMENDMENTS
2002 - Subsec. (j). Pub. L. 107-147 added subsec. (j).
1988 - Subsec. (d)(4)(C). Pub. L. 100-647 substituted "The
Secretary" for "the Secretary".
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 1821(d), inserted at
end "No item shall be taken into account more than once in
determining equity base."
Subsec. (c)(3). Pub. L. 99-514, Sec. 1821(g), added par. (3).
Subsec. (d)(4)(C). Pub. L. 99-514, Sec. 1821(e)(1), (2)(A),
substituted "largest domestic stock life insurance companies" for
"largest stock life insurance companies", and substituted the
provisions of cls. (i) to (iii) and closing provisions for "may by
regulations provide for exclusion from the group determined under
the preceding sentence of any stock life insurance company if (i)
the equity of such company is not great enough for such company to
be 1 of the 50 largest stock life insurance companies if the
determination were made on the basis of equity, and (ii) by reason
of the small equity base of such company, it has an earnings rate
which would seriously distort the stock earnings rate".
Subsec. (e)(1). Pub. L. 99-514, Sec. 1821(e)(2)(B), substituted
"domestic mutual" for "mutual".
Subsec. (f)(3). Pub. L. 99-514, Sec. 1821(r), substituted
"subsection (c)(1)(B)" for "subsection (c)(2)".
Subsec. (f)(5). Pub. L. 99-514, Sec. 1821(h), added par. (5).
Subsec. (g)(1)(A). Pub. L. 99-514, Sec. 1821(f), substituted
"determined without regard to Federal income taxes, and (A)
determined by substituting for the amount shown for policyholder
dividends the amount of deduction for policyholder dividends
determined under section 808 (without regard to section 808(c)(2)"
for "(A) determined with regard to policyholder dividends (as
defined in section 808) but without regard to Federal income
taxes".
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 611(b), Mar. 9, 2002, 116 Stat.
61, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 2000."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL RULE FOR APPLICATION OF HIGH SURPLUS MUTUAL RULES
Section 1821(q) of Pub. L. 99-514 provided that: "In the case of
any mutual life insurance company -
"(1) which was incorporated on February 23, 1888, and
"(2) which acquired a stock subsidiary during 1982,
the amount of such company's excess equity base for purposes of
section 809(i) of such Code shall, notwithstanding the last
sentence of section 809(i)(2)(D), equal $175,000,000."
TREATMENT OF REINSURANCE AGREEMENTS REQUIRED BY NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS
For applicability of former provisions of subsecs. (c)(1)(F) and
(d)(12) of this section to dividends to policyholders reimbursed to
the taxpayer by a reinsurer in respect of accident and health
policies reinsured under a reinsurance agreement entered into
before June 30, 1955, pursuant to the direction of the National
Association of Insurance Commissioners and approved by the State
insurance commissioner of the taxpayer's State of domicile, see
section 217(g) of Pub. L. 98-369, set out as a note under section
801 of this title.
REDUCTION IN EQUITY BASE FOR MUTUAL SUCCESSOR OF FRATERNAL BENEFIT
SOCIETY
Section 217(j) of subtitle A (Secs. 211-219) of title II of div.
A of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that: "In the case of any mutual
life insurance company which -
"(1) is the successor to a fraternal benefit society, and
"(2) which assumed the surplus of such fraternal benefit
society in 1950 or in March of 1961,
for purposes of section 809 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] (as amended by this subtitle), the equity
base of such mutual life insurance company shall be reduced by the
amount of the surplus so assumed plus earnings thereon, (i) for
taxable years before 1984, at a 7 percent interest rate, and (ii)
for taxable years 1984 and following, at the average mutual
earnings rate for such year."
CLARIFICATION OF AUTHORITY TO REQUIRE CERTAIN INFORMATION
Section 219 of title II of div. A of Pub. L. 98-369 provided
that: "Nothing in any provision of law shall be construed to
prevent the Secretary of the Treasury or his delegate from
requiring (from time to time) life insurance companies to provide
such data with respect to taxable years beginning before January 1,
1984, as may be necessary to carry out the provisions of section
809 of such Code (as added by this title)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 807, 808, 812, 817, 842
of this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Sec. 810 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
-HEAD-
Sec. 810. Operations loss deduction
-STATUTE-
(a) Deduction allowed
There shall be allowed as a deduction for the taxable year an
amount equal to the aggregate of -
(1) the operations loss carryovers to such year, plus
(2) the operations loss carrybacks to such year.
For purposes of this part, the term "operations loss deduction"
means the deduction allowed by this subsection.
(b) Operations loss carrybacks and carryovers
(1) Years to which loss may be carried
The loss from operations for any taxable year (hereinafter in
this section referred to as the "loss year") shall be -
(A) an operations loss carryback to each of the 3 taxable
years preceding the loss year,
(B) an operations loss carryover to each of the 15 taxable
years following the loss year, and
(C) if the life insurance company is a new company for the
loss year, an operations loss carryover to each of the 3
taxable years following the 15 taxable years described in
subparagraph (B).
(2) Amount of carrybacks and carryovers
The entire amount of the loss from operations for any loss year
shall be carried to the earliest of the taxable years to which
(by reason of paragraph (1)) such loss may be carried. The
portion of such loss which shall be carried to each of the other
taxable years shall be the excess (if any) of the amount of such
loss over the sum of the offsets (as defined in subsection (d))
for each of the prior taxable years to which such loss may be
carried.
(3) Election for operations loss carrybacks
In the case of a loss from operations for any taxable year, the
taxpayer may elect to relinquish the entire carryback period for
such loss. Such election shall be made by the due date (including
extensions of time) for filing the return for the taxable year of
the loss from operations for which the election is to be in
effect, and, once made for any taxable year, such election shall
be irrevocable for that taxable year.
(c) Computation of loss from operations
For purposes of this section -
(1) In general
The term "loss from operations" means the excess of the life
insurance deductions for any taxable year over the life insurance
gross income for such taxable year.
(2) Modifications
For purposes of paragraph (1) -
(A) the operations loss deduction shall not be allowed, and
(B) the deductions allowed by sections 243 (relating to
dividends received by corporations), 244 (relating to dividends
received on certain preferred stock of public utilities), and
245 (relating to dividends received from certain foreign
corporations) shall be computed without regard to section
246(b) as modified by section 805(a)(4).
(d) Offset defined
(1) In general
For purposes of subsection (b)(2), the term "offset" means,
with respect to any taxable year, an amount equal to that
increase in the operations loss deduction for the taxable year
which reduces the life insurance company taxable income (computed
without regard to paragraphs (2) and (3) of section 804) (!1) or
such year to zero.
(2) Operations loss deduction
For purposes of paragraph (1), the operations loss deduction
for any taxable year shall be computed without regard to the loss
from operations for the loss year or for any taxable year
thereafter.
(e) New company defined
For purposes of this part, a life insurance company is a new
company for any taxable year only if such taxable year begins not
more than 5 years after the first day on which it (or any
predecessor, if section 381(c)(22) applies) was authorized to do
business as an insurance company.
(f) Application of subtitles A and F in respect of operation losses
Except as provided in section 805(b)(5),(!1) subtitles A and F
shall apply in respect of operation loss carrybacks, operation loss
carryovers, and the operations loss deduction under this part, in
the same manner and to the same extent as such subtitles apply in
respect of net operating loss carrybacks, net operating loss
carryovers, and the net operating loss deduction.
(g) Transitional rule
For purposes of this section and section 812 (as in effect before
the enactment of the Life Insurance Tax Act of 1984), this section
shall be treated as a continuation of such section 812.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 738.)
-REFTEXT-
REFERENCES IN TEXT
Paragraphs (2) and (3) of section 804, referred to in subsec.
(d)(1), were repealed and a new paragraph (2) enacted by Pub. L.
99-514, title X, Sec. 1011(b)(2), Oct. 22, 1986, 100 Stat. 2389.
Section 805(b)(5) of this title, referred to in subsec. (f), was
redesignated section 805(b)(4) of this title by Pub. L. 99-514,
title VIII, Sec. 805(c)(6), Oct. 22, 1986, 100 Stat. 2362.
The Life Insurance Tax Act of 1984, referred to in subsec. (g),
probably means title II of div. A of Pub. L. 98-369, which amended
this part generally and was approved July 18, 1984.
-MISC1-
PRIOR PROVISIONS
A prior section 810, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 125; amended Pub. L. 91-172, title I, Sec.
121(b)(5)(B), title IX, Sec. 907(a)(2), Dec. 30, 1969, 83 Stat.
541, 715, related to rules for certain reserves, prior to the
general revision of this part by Pub. L. 98-369, Sec. 211(a).
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 381, 805, 844, 1351 of
this title.
-FOOTNOTE-
(!1) See References in Text note below.
-End-
-CITE-
26 USC Subpart D - Accounting, Allocation, and Foreign
Provisions 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
SUBPART D - ACCOUNTING, ALLOCATION, AND FOREIGN PROVISIONS
-MISC1-
Sec.
811. Accounting provisions.
812. Definition of company's share and policyholders'
share.
[813. Repealed.]
814. Contiguous country branches of domestic life insurance
companies.
815. Distributions to shareholders from pre-1984
policyholders surplus account.
AMENDMENTS
1987 - Pub. L. 100-203, title X, Sec. 10242(c)(4), Dec. 22, 1987,
101 Stat. 1330-423, struck out item 813 "Foreign life insurance
companies".
-End-
-CITE-
26 USC Sec. 811 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 811. Accounting provisions
-STATUTE-
(a) Method of accounting
All computations entering into the determination of the taxes
imposed by this part shall be made -
(1) under an accrual method of accounting, or
(2) to the extent permitted under regulations prescribed by the
Secretary, under a combination of an accrual method of accounting
with any other method permitted by this chapter (other than the
cash receipts and disbursements method).
To the extent not inconsistent with the preceding sentence or any
other provision of this part, all such computations shall be made
in a manner consistent with the manner required for purposes of the
annual statement approved by the National Association of Insurance
Commissioners.
(b) Amortization of premium and accrual of discount
(1) In general
The appropriate items of income, deductions, and adjustments
under this part shall be adjusted to reflect the appropriate
amortization of premium and the appropriate accrual of discount
attributable to the taxable year on bonds, notes, debentures, or
other evidences of indebtedness held by a life insurance company.
Such amortization and accrual shall be determined -
(A) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations
prescribed by the Secretary.
(2) Special rules
(A) Amortization of bond premium
In the case of any bond (as defined in section 171(d)), the
amount of bond premium, and the amortizable bond premium for
the taxable year, shall be determined under section 171(b) as
if the election set forth in section 171(c) had been made.
(B) Convertible evidence of indebtedness
In no case shall the amount of premium on a convertible
evidence of indebtedness include any amount attributable to the
conversion features of the evidence of indebtedness.
(3) Exception
No accrual of discount shall be required under paragraph (1) on
any bond (as defined in section 171(d)), except in the case of
discount which is -
(A) interest to which section 103 applies, or
(B) original issue discount (as defined in section 1273).
(c) No double counting
Nothing in this part shall permit -
(1) a reserve to be established for any item unless the gross
amount of premiums and other consideration attributable to such
item are required to be included in life insurance gross income,
(2) the same item to be counted more than once for reserve
purposes, or
(3) any item to be deducted (either directly or as an increase
in reserves) more than once.
(d) Method of computing reserves on contract where interest is
guaranteed beyond end of taxable year
For purposes of this part (other than section 816), amounts in
the nature of interest to be paid or credited under any contract
for any period which is computed at a rate which -
(1) exceeds the greater of the prevailing State assumed
interest rate or applicable Federal interest rate in effect under
section 807 for the contract for such period, and
(2) is guaranteed beyond the end of the taxable year on which
the reserves are being computed,
shall be taken into account in computing the reserves with respect
to such contract as if such interest were guaranteed only up to the
end of the taxable year.
(e) Short taxable years
If any return of a corporation made under this part is for a
period of less than the entire calendar year (referred to in this
subsection as "short period"), then section 443 shall not apply in
respect to such period, but life insurance company taxable income
shall be determined, under regulations prescribed by the Secretary,
on an annual basis by a ratable daily projection of the appropriate
figures for the short period.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title I, Sec. 42(a)(8),
title II, Sec. 211(a), July 18, 1984, 98 Stat. 557, 740; Pub. L.
100-647, title II, Sec. 2004(p)(1), Nov. 10, 1988, 102 Stat. 3608.)
-MISC1-
PRIOR PROVISIONS
A prior section 811, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 126; amended Pub. L. 97-248, title II, Sec.
255(b)(1), Sept. 3, 1982, 96 Stat. 533; Pub. L. 98-369, div. A,
title VII, Sec. 714(a), July 18, 1984, 98 Stat. 960, related to
dividends to policyholders, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 811, act Aug. 16, 1954, ch. 736, Sec. 811,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 44; amended July
24, 1956, ch. 696, Sec. 2(c), 70 Stat. 633; Mar. 17, 1958, Pub. L.
85-345, Sec. 2(c), 72 Stat. 37, imposed a tax on the life insurance
company taxable income of all life insurance companies for taxable
years beginning after Dec. 31, 1957, prior to the general revision
of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1988 - Subsec. (d)(1). Pub. L. 100-647 substituted "the greater
of the prevailing State assumed interest rate or applicable Federal
interest rate in effect under section 807 for the contract" for
"the prevailing State assumed interest rate for the contract".
1984 - Subsec. (b)(3). Pub. L. 98-369, Sec. 42(a)(8), substituted
"section 1273" for "section 1232(b)".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 42(a)(8) of Pub. L. 98-369 applicable to
taxable years ending after July 18, 1984, see section 44 of Pub. L.
98-369, set out as an Effective Date note under section 1271 of
this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 805, 808, 809, 817A, 848,
1016, 1272 of this title.
-End-
-CITE-
26 USC Sec. 812 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 812. Definition of company's share and policyholders' share
-STATUTE-
(a) General rule
(1) Company's share
For purposes of section 805(a)(4), the term "company's share"
means, with respect to any taxable year, the percentage obtained
by dividing -
(A) the company's share of the net investment income for the
taxable year, by
(B) the net investment income for the taxable year.
(2) Policyholders' share
For purposes of section 807, the term "policyholders' share"
means, with respect to any taxable year, the excess of 100
percent over the percentage determined under paragraph (1).
(b) Company's share of net investment income
(1) In general
For purposes of this section, the company's share of net
investment income is the excess (if any) of -
(A) the net investment income for the taxable year, over
(B) the sum of -
(i) the policy interest, for the taxable year, plus
(ii) the gross investment income's proportionate share of
policyholder dividends for the taxable year.
(2) Policy interest
For purposes of this subsection, the term "policy interest"
means -
(A) required interest (at the greater of the prevailing State
assumed rate or the applicable Federal interest rate) on
reserves under section 807(c) (other than paragraph (2)
thereof),
(B) the deductible portion of excess interest,
(C) the deductible portion of any amount (whether or not a
policyholder dividend), and not taken into account under
subparagraph (A) or (B), credited to -
(i) a policyholder's fund under a pension plan contract for
employees (other than retired employees), or
(ii) a deferred annuity contract before the annuity
starting date, and
(D) interest on amounts left on deposit with the company.
In any case where neither the prevailing State assumed interest
rate nor the applicable Federal interest rate is used, another
appropriate rate shall be used for purposes of subparagraph (A).
(3) Gross investment income's proportionate share of policyholder
dividends
For purposes of paragraph (1), the gross investment income's
proportionate share of policyholder dividends is -
(A) the deduction for policyholders' dividends determined
under sections 808 and 809 for the taxable year, but not
including -
(i) the deductible portion of excess interest,
(ii) the deductible portion of policyholder dividends on
contracts referred to in clauses (i) and (ii) of paragraph
(2)(C), and
(iii) the deductible portion of the premium and mortality
charge adjustments with respect to contracts paying excess
interest for such year,
multiplied by
(B) the fraction -
(i) the numerator of which is gross investment income for
the taxable year (reduced by the policy interest for such
year), and
(ii) the denominator of which is life insurance gross
income reduced by the excess (if any) of the closing balance
for the items described in section 807(c) over the opening
balance for such items for the taxable year.
For purposes of subparagraph (B)(ii), life insurance gross
income shall be determined by including tax-exempt interest and
by applying section 807(a)(2)(B) as if it did not contain
clause (i) thereof.
(c) Net investment income
For purposes of this section, the term "net investment income"
means -
(1) except as provided in paragraph (2), 90 percent of gross
investment income; or
(2) in the case of gross investment income attributable to
assets held in segregated asset accounts under variable
contracts, 95 percent of gross investment income.
(d) Gross investment income
For purposes of this section, the term "gross investment income"
means the sum of the following:
(1) Interest, etc.
The gross amount of income from -
(A) interest (including tax-exempt interest), dividends,
rents, and royalties,
(B) the entering into of any lease, mortgage, or other
instrument or agreement from which the life insurance company
derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or
agreement described in subparagraph (B), and
(D) the increase for any taxable year in the policy cash
values (within the meaning of section 805(a)(4)(F)) of life
insurance policies and annuity and endowment contracts to which
section 264(f) applies.
(2) Short-term capital gain
The amount (if any) by which the net short-term capital gain
exceeds the net long-term capital loss.
(3) Trade or business income
The gross income from any trade or business (other than an
insurance business) carried on by the life insurance company, or
by a partnership of which the life insurance company is a
partner. In computing gross income under this paragraph, there
shall be excluded any item described in paragraph (1).
Except as provided in paragraph (2), in computing gross investment
income under this subsection, there shall be excluded any gain from
the sale or exchange of a capital asset, and any gain considered as
gain from the sale or exchange of a capital asset.
(e) Dividends from certain subsidiaries not included in gross
investment income
(1) In general
For purposes of this section, the term "gross investment
income" shall not include any dividend received by the life
insurance company which is a 100 percent dividend.
(2) 100 percent dividend defined
(A) In general
Except as provided in subparagraphs (B) and (C), the term
"100 percent dividend" means any dividend if the percentage
used for purposes of determining the deduction allowable under
section 243, 244, or 245(b) is 100 percent.
(B) Certain dividends out of tax-exempt interest, etc.
The term "100 percent dividend" does not include any
distribution by a corporation to the extent such distribution
is out of tax-exempt interest or out of dividends which are not
100 percent dividends (determined with the application of this
subparagraph).
(C) Certain dividends received by foreign corporations
The term "100 percent dividends" does not include any
dividend described in section 805(a)(4)(E) (relating to certain
dividends in the case of foreign corporations).
(f) No double counting
Under regulations, proper adjustments shall be made in the
application of this section to prevent an item from being counted
more than once.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 741; amended Pub. L. 99-514, title XVIII, Sec.
1821(i), Oct. 22, 1986, 100 Stat. 2840; Pub. L. 100-203, title X,
Sec. 10241(b)(2)(B), Dec. 22, 1987, 101 Stat. 1330-420; Pub. L.
100-647, title I, Sec. 1018(h)(1), title II, Sec. 2004(p)(2), Nov.
10, 1988, 102 Stat. 3583, 3608; Pub. L. 104-188, title I, Sec.
1602(b)(2), Aug. 20, 1996, 110 Stat. 1833; Pub. L. 105-34, title X,
Sec. 1084(b)(3), Aug. 5, 1997, 111 Stat. 955.)
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
PRIOR PROVISIONS
A prior section 812, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 127; amended Pub. L. 87-858, Sec. 3(d)(1), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-571, Sec. 1(a), Sept. 2, 1964, 78
Stat. 857; Pub. L. 94-455, title VIII, Sec. 806(d)(1), title XIX,
Sec. 1901(a)(99), Oct. 4, 1976, 90 Stat. 1598, 1781; Pub. L. 97-34,
title II, Sec. 207(b), Aug. 13, 1981, 95 Stat. 225, related to
operations loss deductions, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 812, act Aug. 16, 1954, ch. 736, Sec. 812,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 45, related to
reserve and other policy liability deduction, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1997 - Subsec. (d)(1)(D). Pub. L. 105-34 added subpar. (D).
1996 - Subsec. (g). Pub. L. 104-188 struck out subsec. (g) which
read as follows: "Treatment of Interest Partially Tax-Exempt Under
Section 133. - For purposes of this section and subsections (a) and
(b) of section 807, the terms 'gross investment income' and
'tax-exempt interest' shall not include any interest received with
respect to a securities acquisition loan (as defined in section
133(b)). Such interest shall not be included in life insurance
gross income for purposes of subsection (b)(3)."
1988 - Subsec. (b)(2). Pub. L. 100-647, Sec. 2004(p)(2),
substituted "In any case where neither the prevailing State assumed
interest rate nor the applicable Federal interest rate is used,
another appropriate rate shall be used for purposes of subparagraph
(A)." for "In any case where the prevailing State assumed rate is
not used, another appropriate rate shall be treated as the
prevailing State assumed rate for purposes of subparagraph (A)."
Subsec. (e). Pub. L. 100-647, Sec. 1018(h)(1), amended subsec.
(e) generally. Prior to amendment, subsec. (e) read as follows:
"For purposes of this section, the term 'gross investment income'
shall not include any dividend received by the life insurance
company which is a 100-percent dividend (as defined in section
805(a)(4)(C)). Such term also shall not include any dividend
described in section 805(a)(4)(D) (relating to certain dividends in
the case of foreign corporations)."
1987 - Subsec. (b)(2). Pub. L. 100-203 substituted "at the
greater of the prevailing State assumed rate or the applicable
Federal interest rate" for "at the prevailing State assumed rate
or, where such rate is not used, another appropriate rate" in
subpar. (A), and inserted provision at end that in any case where
the prevailing State assumed rate is not used, another appropriate
rate be treated as the prevailing State assumed rate for purposes
of subpar. (A).
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 1821(i)(1), inserted
"or, where such rate is not used, another appropriate rate" after
"assumed rate", in subpar. (A) and added subpar. (D).
Subsec. (b)(3)(B). Pub. L. 99-514, Sec. 1821(i)(2), struck out
"(including tax-exempt interest)" after "insurance gross income" in
cl. (ii) and inserted at end "For purposes of subparagraph (B)(ii),
life insurance gross income shall be determined by including
tax-exempt interest and by applying section 807(a)(2)(B) as if it
did not contain clause (i) thereof."
Subsec. (c). Pub. L. 99-514, Sec. 1821(i)(3), amended subsec. (c)
generally. Prior to amendment, subsec. (c) read as follows: "For
purposes of this section, the term 'net investment income' means 90
percent of gross investment income."
Subsec. (g). Pub. L. 99-514, Sec. 1821(i)(4), added subsec. (g).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1602(b)(1) of Pub. L. 104-188 applicable to
loans made after Aug. 20, 1996, with exception, and provisions
relating to certain refinancings, see section 1602(c) of Pub. L.
104-188, set out as an Effective Date of Repeal note under former
section 133 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1018(h)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall take
effect as if included in the amendments made by section 211 of the
Tax Reform Act of 1984 [Pub. L. 98-369]."
Amendment by section 2004(p)(2) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to contracts issued in
taxable years beginning after Dec. 31, 1987, see section 10241(c)
of Pub. L. 100-203, set out as a note under section 807 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 805, 810, 817A of this
title.
-End-
-CITE-
26 USC Sec. 813 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
[Sec. 813. Repealed. Pub. L. 100-203, title X, Sec. 10242(c)(1),
Dec. 22, 1987, 101 Stat. 1330-423]
-MISC1-
Section, added Pub. L. 98-369, div. A, title II, Sec. 211(a),
July 18, 1984, 98 Stat. 743; amended Pub. L. 99-514, title X, Sec.
1011(b)(9), title XVIII, Sec. 1821(j), Oct. 22, 1986, 100 Stat.
2389, 2841; Pub. L. 100-647, title I, Sec. 1010(a)(1), Nov. 10,
1988, 102 Stat. 3450, related to foreign life insurance companies.
A prior section 813, act Aug. 16, 1954, ch. 736, Sec. 813, as
added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
adjustment for certain reserves, prior to the general revision of
this part by Pub. L. 86-69, Sec. 2(a).
EFFECTIVE DATE OF REPEAL
Repeal applicable to taxable years beginning after Dec. 31, 1987,
see section 10242(d) of Pub. L. 100-203, set out as an Effective
Date of 1987 Amendment note under section 816 of this title.
-End-
-CITE-
26 USC Sec. 814 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 814. Contiguous country branches of domestic life insurance
companies
-STATUTE-
(a) Exclusion of items
In the case of a domestic mutual insurance company which -
(1) is a life insurance company,
(2) has a contiguous country life insurance branch, and
(3) makes the election provided by subsection (g) with respect
to such branch,
there shall be excluded from each item involved in the
determination of life insurance company taxable income the items
separately accounted for in accordance with subsection (c).
(b) Contiguous country life insurance branch
For purposes of this section, the term contiguous country life
insurance branch means a branch which -
(1) issues insurance contracts insuring risks in connection
with the lives or health of residents of a country which is
contiguous to the United States,
(2) has its principal place of business in such contiguous
country, and
(3) would constitute a mutual life insurance company if such
branch were a separate domestic insurance company.
For purposes of this section, the term "insurance contract" means
any life, health, accident, or annuity contract or reinsurance
contract or any contract relating thereto.
(c) Separate accounting required
Any taxpayer which makes the election provided by subsection (g)
shall establish and maintain a separate account for the various
income, exclusion, deduction, asset, reserve, liability, and
surplus items properly attributable to the contracts described in
subsection (b). Such separate accounting shall be made -
(1) in accordance with the method regularly employed by such
company, if such method clearly reflects income derived from, and
the other items attributable to, the contracts described in
subsection (b), and
(2) in all other cases, in accordance with regulations
prescribed by the Secretary.
(d) Recognition of gain on assets in branch account
If the aggregate fair market value of all the invested assets and
tangible property which are separately accounted for by the
domestic life insurance company in the branch account established
pursuant to subsection (c) exceeds the aggregate adjusted basis of
such assets for purposes of determining gain, then the domestic
life insurance company shall be treated as having sold all such
assets on the first day of the first taxable year for which the
election is in effect at their fair market value on such first day.
Notwithstanding any other provision of this chapter, the net gain
shall be recognized to the domestic life insurance company on the
deemed sale described in the preceding sentence.
(e) Transactions between contiguous country branch and domestic
life insurance company
(1) Reimbursement for home office services, etc.
Any payment, transfer, reimbursement, credit, or allowance
which is made from a separate account established pursuant to
subsection (c) to one or more other accounts of a domestic life
insurance company as reimbursement for costs incurred for or with
respect to the insurance (or reinsurance) of risks accounted for
in such separate account shall be taken into account by the
domestic life insurance company in the same manner as if such
payment, transfer, reimbursement, credit, or allowance had been
received from a separate person.
(2) Repatriation of income
(A) In general
Except as provided in subparagraph (B), any amount directly
or indirectly transferred or credited from a branch account
established pursuant to subsection (c) to one or more other
accounts of such company shall, unless such transfer or credit
is a reimbursement to which paragraph (1) applies, be added to
the income of the domestic life insurance company.
(B) Limitation
The addition provided by subparagraph (A) for the taxable
year with respect to any contiguous country life insurance
branch shall not exceed the amount by which -
(i) the aggregate decrease in the tentative LICTI of the
domestic life insurance company for the taxable year and for
all prior taxable years resulting solely from the application
of subsection (a) of this section with respect to such
branch, exceeds
(ii) the amount of additions to tentative LICTI pursuant to
subparagraph (A) with respect to such contiguous country
branch for all prior taxable years.
(C) Transitional rule
For purposes of this paragraph, in the case of a prior
taxable year beginning before January 1, 1984, the term
"tentative LICTI" means life insurance company taxable income
determined under this part (as in effect for such year) without
regard to this paragraph.
(f) Other rules
(1) Treatment of foreign taxes
(A) In general
No income, war profits, or excess profits taxes paid or
accrued to any foreign country or possession of the United
States which is attributable to income excluded under
subsection (a) shall be taken into account for purposes of
subpart A of part III of subchapter N (relating to foreign tax
credit) or allowable as a deduction.
(B) Treatment of repatriated amounts
For purposes of sections 78 and 902, where any amount is
added to the life insurance company taxable income of the
domestic life insurance company by reason of subsection (e)(2),
the contiguous country life insurance branch shall be treated
as a foreign corporation. Any amount so added shall be treated
as a dividend paid by a foreign corporation, and the taxes paid
to any foreign country or possession of the United States with
respect to such amount shall be deemed to have been paid by
such branch.
(2) United States source income allocable to contiguous country
branch
For purposes of sections 881, 882, and 1442, each contiguous
country life insurance branch shall be treated as a foreign
corporation. Such sections shall be applied to each such branch
in the same manner as if such sections contained the provisions
of any treaty to which the United States and the contiguous
country are parties, to the same extent such provisions would
apply if such branch were incorporated in such contiguous
country.
(g) Election
A taxpayer may make the election provided by this subsection with
respect to any contiguous country for any taxable year. An election
made under this subsection for any taxable year shall remain in
effect for all subsequent taxable years, except that it may be
revoked with the consent of the Secretary. The election provided by
this subsection shall be made not later than the time prescribed by
law for filing the return for the taxable year (including
extensions thereof) with respect to which such election is made,
and such election and any approved revocation thereof shall be made
in the manner provided by the Secretary.
(h) Special rule for domestic stock life insurance companies
At the election of a domestic stock life insurance company which
has a contiguous country life insurance branch described in
subsection (b) (without regard to the mutual requirement in
subsection (b)(3)), the assets of such branch may be transferred to
a foreign corporation organized under the laws of the contiguous
country without the application of section 367. Subsection (a)
shall apply to the stock of such foreign corporation as if such
domestic company were a mutual company and as if the stock were an
item described in subsection (c). Subsection (e)(2) shall apply to
amounts transferred or credited to such domestic company as if such
domestic company and such foreign corporation constituted one
domestic mutual life insurance company. The insurance contracts
which may be transferred pursuant to this subsection shall include
only those which are similar to the types of insurance contracts
issued by a mutual life insurance company. Notwithstanding the
first sentence of this subsection, if the aggregate fair market
value of the invested assets and tangible property which are
separately accounted for by the domestic life insurance company in
the branch account exceeds the aggregate adjusted basis of such
assets for purposes of determining gain, the domestic life
insurance company shall be deemed to have sold all such assets on
the first day of the taxable year for which the election under this
subsection applies and the net gain shall be recognized to the
domestic life insurance company on the deemed sale, but not in
excess of the proportion of such net gain which equals the
proportion which the aggregate fair market value of such assets
which are transferred pursuant to this subsection is of the
aggregate fair market value of all such assets.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 744; amended Pub. L. 105-34, title XI, Sec.
1131(c)(1), Aug. 5, 1997, 111 Stat. 980.)
-MISC1-
AMENDMENTS
1997 - Subsec. (h). Pub. L. 105-34 struck out "or 1491" after
"section 367".
NEW SECTION 814 TREATED AS CONTINUATION OF SECTION 819A
Section 217(a) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For purposes
of section 814 of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (relating to contiguous country branches of domestic
life insurance companies) -
"(1) any election under section 819A of such Code (as in effect
on the day before the date of the enactment of this Act [July 18,
1984]) shall be treated as an election under such section 814,
and
"(2) any reference to a provision of such section 814 shall be
treated as including a reference to the corresponding provision
of such section 819A."
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
-End-
-CITE-
26 USC Sec. 815 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart D - Accounting, Allocation, and Foreign Provisions
-HEAD-
Sec. 815. Distributions to shareholders from pre-1984 policyholders
surplus account
-STATUTE-
(a) General rule
In the case of a stock life insurance company which has an
existing policyholders surplus account, the tax imposed by section
801 for any taxable year shall be the amount which would be imposed
by such section for such year on the sum of -
(1) life insurance company taxable income for such year (but
not less than zero), plus
(2) the amount of direct and indirect distributions during such
year to shareholders from such account.
For purposes of the preceding sentence, the term "indirect
distribution" shall not include any bona fide loan with arms-length
terms and conditions.
(b) Ordering rule
For purposes of this section, any distribution to shareholders
shall be treated as made -
(1) first out of the shareholders surplus account, to the
extent thereof,
(2) then out of the policyholders surplus account, to the
extent thereof, and
(3) finally, out of other accounts.
(c) Shareholders surplus account
(1) In general
Each stock life insurance company which has an existing
policyholders surplus account shall continue its shareholders
surplus account for purposes of this part.
(2) Additions to account
The amount added to the shareholders surplus account for any
taxable year beginning after December 31, 1983, shall be the
excess of -
(A) the sum of -
(i) the life insurance company's taxable income (but not
below zero),
(ii) the small life insurance company deduction provided by
section 806, and
(iii) the deductions for dividends received provided by
sections 243, 244, and 245 (as modified by section 805(a)(4))
and the amount of interest excluded from gross income under
section 103, over
(B) the taxes imposed for the taxable year by section 801
(determined without regard to this section).
If for any taxable year a tax is imposed by section 55, under
regulations proper adjustments shall be made for such year and
all subsequent taxable years in the amounts taken into account
under subparagraphs (A) and (B) of this paragraph and
subparagraph (B) of subsection (d)(3).
(3) Subtractions from account
There shall be subtracted from the shareholders surplus account
for any taxable year the amount which is treated under this
section as distributed out of such account.
(d) Policyholders surplus account
(1) In general
Each stock life insurance company which has an existing
policyholders surplus account shall continue such account.
(2) No additions to account
No amount shall be added to the policyholders surplus account
for any taxable year beginning after December 31, 1983.
(3) Subtractions from account
There shall be subtracted from the policyholders surplus
account for any taxable year an amount equal to the sum of -
(A) the amount which (without regard to subparagraph (B)) is
treated under this section as distributed out of the
policyholders surplus account, and
(B) the amount by which the tax imposed for the taxable year
by section 801 is increased by reason of this section.
(e) Existing policyholders surplus account
For purposes of this section, the term "existing policyholders
surplus account" means any policyholders surplus account which has
a balance as of the close of December 31, 1983.
(f) Other rules applicable to policyholders surplus account
continued
Except to the extent inconsistent with the provisions of this
part, the provisions of subsections (d), (e), (f), and (g) of
section 815 (and of sections 819(b), 6501(c)(6), 6501(k),
6511(d)(6), 6601(d)(3), and 6611(f)(4)) as in effect before the
enactment of the Tax Reform Act of 1984 are hereby made applicable
in respect of any policyholders surplus account for which there was
a balance as of December 31, 1983.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 747; amended Pub. L. 99-514, title X, Sec.
1011(b)(10), title XVIII, Sec. 1821(k)(1), (2), Oct. 22, 1986, 100
Stat. 2389, 2841; Pub. L. 100-647, title I, Sec. 1010(j)(1), Nov.
10, 1988, 102 Stat. 3456.)
-REFTEXT-
REFERENCES IN TEXT
The enactment of the Tax Reform Act of 1984, referred to in
subsec. (f), means the enactment of division A of Pub. L. 98-369,
which was approved July 18, 1984.
-MISC1-
PRIOR PROVISIONS
A prior section 815, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 129; amended Pub. L. 87-790, Sec. 3(b), Oct. 10,
1962, 76 Stat. 808; Pub. L. 87-858, Sec. 3(b)(4), (e), Oct. 23,
1962, 76 Stat. 1137; Pub. L. 88-571, Secs. 2, 3(a), 4(a), Sept. 2,
1964, 78 Stat. 857, 859; Pub. L. 90-225, Sec. 4(a), (b), Dec. 27,
1967, 81 Stat. 733, 734; Pub. L. 91-172, title IX, Sec. 907(b),
Dec. 30, 1969, 83 Stat. 715; Pub. L. 94-331, Sec. 1(a), June 30,
1976, 90 Stat. 781; Pub. L. 94-455, title XIX, Secs. 1901(b)(1)(O),
(24), (33)(H), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1791, 1798,
1801, 1834, contained provisions similar to this section, prior to
the general revision of this part by Pub. L. 98-369, Sec. 211(a).
AMENDMENTS
1988 - Subsec. (c)(2). Pub. L. 100-647 inserted at end "If for
any taxable year a tax is imposed by section 55, under regulations
proper adjustments shall be made for such year and all subsequent
taxable years in the amounts taken into account under subparagraphs
(A) and (B) of this paragraph and subparagraph (B) of subsection
(d)(3)."
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1821(k)(2), inserted at
end "For purposes of the preceding sentence, the term 'indirect
distribution' shall not include any bona fide loan with arms-length
terms and conditions."
Subsec. (c)(2)(A)(ii). Pub. L. 99-514, Sec. 1011(b)(10),
substituted "small life insurance company deduction" for "special
deductions".
Subsec. (f). Pub. L. 99-514, Sec. 1821(k)(1), inserted reference
to section 819(b).
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1010(j)(2) of Pub. L. 100-647 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
to taxable years beginning after December 31, 1986."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1011(b)(10) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1011(c)(1)
of Pub. L. 99-514, set out as a note under section 453B of this
title.
Amendment by section 1821(k)(1), (2) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
OPERATIONS LOSS DEDUCTION OF INSOLVENT COMPANIES MAY OFFSET
DISTRIBUTIONS FROM POLICYHOLDERS SURPLUS ACCOUNT
Section 1013 of Pub. L. 99-514 provided that:
"(a) In General. - If -
"(1) on November 15, 1985, a life insurance company was
insolvent,
"(2) pursuant to the order of any court of competent
jurisdiction in a title 11 or similar case (as defined in section
368(a)(3) of the Internal Revenue Code of 1954 [now 1986]), such
company is liquidated, and
"(3) as a result of such liquidation, the tax imposed by
section 801 of such Code for any taxable year (hereinafter in
this subsection referred to as the 'liquidation year') would (but
for this subsection) be increased under section 815(a) of such
Code,
then the amount described in section 815(a)(2) of such Code shall
be reduced by the loss from operations (if any) for the liquidation
year, and by the unused operations loss carryovers (if any) to the
liquidation year (determined after the application of section 810
of such Code for such year). No carryover of any loss from
operations of such company arising during the liquidation year (or
any prior taxable year) shall be allowable for any taxable year
succeeding the liquidation year.
"(b) Definitions. - For purposes of subsection (a) -
"(1) Insolvent. - The term 'insolvent' means the excess of
liabilities over the fair market value of assets.
"(2) Loss from operations. - The term 'loss from operations'
has the meaning given such term by section 810(c) of such Code.
"(c) Effective Date. - This section shall apply to liquidations
on or after November 15, 1985, in taxable years ending after such
date."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
AMOUNT OF INDIRECT DISTRIBUTION FOR LOANS BEFORE MARCH 1, 1986;
DETERMINATION; EXCEPTION
Section 1821(k)(3) of Pub. L. 99-514 provided that: "In the case
of any loan made before March 1, 1986 (other than a loan which is
renegotiated, extended, renewed, or revised after February 28,
1986), which does not meet the requirements of the last sentence of
section 815(a) of the Internal Revenue Code of 1954 [now 1986] (as
added by paragraph (2)), the amount of the indirect distribution
for purposes of such section 815(a) shall be the foregone interest
on the loan (determined by using the lowest rate which would have
met the arms-length requirements of such sentence for such a
loan)."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 801 of this title.
-End-
-CITE-
26 USC Subpart E - Definitions and Special Rules 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
SUBPART E - DEFINITIONS AND SPECIAL RULES
-MISC1-
Sec.
816. Life insurance company defined.
817. Treatment of variable contracts.
817A. Special rules for modified guaranteed contracts.
818. Other definitions and special rules.
AMENDMENTS
1996 - Pub. L. 104-188, title I, Sec. 1612(b), Aug. 20, 1996, 110
Stat. 1847, added item 817A.
-End-
-CITE-
26 USC Sec. 816 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 816. Life insurance company defined
-STATUTE-
(a) Life insurance company defined
For purposes of this subtitle, the term "life insurance company"
means an insurance company which is engaged in the business of
issuing life insurance and annuity contracts (either separately or
combined with accident and health insurance), or noncancellable
contracts of health and accident insurance, if -
(1) its life insurance reserves (as defined in subsection (b)),
plus
(2) unearned premiums, and unpaid losses (whether or not
ascertained), on noncancellable life, accident, or health
policies not included in life insurance reserves,
comprise more than 50 percent of its total reserves (as defined in
subsection (c)). For purposes of the preceding sentence, the term
"insurance company" means any company more than half of the
business of which during the taxable year is the issuing of
insurance or annuity contracts or the reinsuring of risks
underwritten by insurance companies.
(b) Life insurance reserves defined
(1) In general
For purposes of this part, the term "life insurance reserves"
means amounts -
(A) which are computed or estimated on the basis of
recognized mortality or morbidity tables and assumed rates of
interest, and
(B) which are set aside to mature or liquidate, either by
payment or reinsurance, future unaccrued claims arising from
life insurance, annuity, and noncancellable accident and health
insurance contracts (including life insurance or annuity
contracts combined with noncancellable accident and health
insurance) involving, at the time with respect to which the
reserve is computed, life, accident, or health contingencies.
(2) Reserves must be required by law
Except -
(A) in the case of policies covering life, accident, and
health insurance combined in one policy issued on the weekly
premium payment plan, continuing for life and not subject to
cancellation, and
(B) as provided in paragraph (3),
in addition to the requirements set forth in paragraph (1), life
insurance reserves must be required by law.
(3) Assessment companies
In the case of an assessment life insurance company or
association, the term "life insurance reserves" includes -
(A) sums actually deposited by such company or association
with State officers pursuant to law as guaranty or reserve
funds, and
(B) any funds maintained, under the charter or articles of
incorporation or association (or bylaws approved by a State
insurance commissioner) of such company or association,
exclusively for the payment of claims arising under
certificates of membership or policies issued on the assessment
plan and not subject to any other use.
(4) Amount of reserves
For purposes of this subsection, subsection (a), and subsection
(c), the amount of any reserve (or portion thereof) for any
taxable year shall be the mean of such reserve (or portion
thereof) at the beginning and end of the taxable year.
(c) Total reserves defined
For purposes of subsection (a), the term "total reserves" means -
(1) life insurance reserves,
(2) unearned premiums, and unpaid losses (whether or not
ascertained), not included in life insurance reserves, and
(3) all other insurance reserves required by law.
(d) Adjustments in reserves for policy loans
For purposes only of determining under subsection (a) whether or
not an insurance company is a life insurance company, the life
insurance reserves, and the total reserves, shall each be reduced
by an amount equal to the mean of the aggregates, at the beginning
and end of the taxable year, of the policy loans outstanding with
respect to contracts for which life insurance reserves are
maintained.
(e) Guaranteed renewable contracts
For purposes of this part, guaranteed renewable life, accident,
and health insurance shall be treated in the same manner as
noncancellable life, accident, and health insurance.
(f) Amounts not involving life, accident, or health contingencies
For purposes only of determining under subsection (a) whether or
not an insurance company is a life insurance company, amounts set
aside and held at interest to satisfy obligations under contracts
which do not contain permanent guarantees with respect to life,
accident, or health contingencies shall not be included in reserves
described in paragraph (1) or (3) of subsection (c).
(g) Burial and funeral benefit insurance companies
A burial or funeral benefit insurance company engaged directly in
the manufacture of funeral supplies or the performance of funeral
services shall not be taxable under this part but shall be taxable
under section 831.
(h) Treatment of deficiency reserves
For purposes of this section and section 842(b)(2)(B)(i), the
terms "life insurance reserves" and "total reserves" shall not
include deficiency reserves.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 748; amended Pub. L. 99-514, title XVIII, Sec.
1821(l), Oct. 22, 1986, 100 Stat. 2841; Pub. L. 100-203, title X,
Sec. 10242(c)(2), Dec. 22, 1987, 101 Stat. 1330-423; Pub. L.
100-647, title I, Sec. 1010(f)(6), title II, Sec. 2004(q)(1), Nov.
10, 1988, 102 Stat. 3454, 3608.)
-MISC1-
PRIOR PROVISIONS
A prior section 816, act Aug. 16, 1954, ch. 736, Sec. 816, as
added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
taxation of foreign life insurance companies, prior to the general
revision of this part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1988 - Subsec. (g). Pub. L. 100-647, Sec. 1010(f)(6), substituted
"section 831" for "section 821 or section 831".
Subsec. (h). Pub. L. 100-647, Sec. 2004(q)(1), substituted
"section 842(b)(2)(B)(i)" for "section 842(c)(1)(A)".
1987 - Subsec. (h). Pub. L. 100-203 substituted "section
842(c)(1)(A)" for "section 813(a)(4)(B)".
1986 - Subsec. (h). Pub. L. 99-514 added subsec. (h).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1010(f)(6) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provision of
the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
Amendment by section 2004(q)(1) of Pub. L. 100-647 effective,
except as otherwise provided, as if included in the provisions of
the Revenue Act of 1987, Pub. L. 100-203, title X, to which such
amendment relates, see section 2004(u) of Pub. L. 100-647, set out
as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10242(d) of Pub. L. 100-203 provided that: "The
amendments made by this section [amending this section and sections
842, 864, and 4371 of this title and repealing section 813 of this
title] shall apply to taxable years beginning after December 31,
1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise
provided, as if included in the provisions of the Tax Reform Act of
1984, Pub. L. 98-369, div. A, to which such amendment relates, see
section 1881 of Pub. L. 99-514, set out as a note under section 48
of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
SPECIAL ELECTION TO TREAT INDIVIDUAL NONCANCELLABLE ACCIDENT AND
HEALTH CONTRACTS AS CANCELLABLE
Section 217(i) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100-647, title I,
Sec. 1010(h)(1), Nov. 10, 1988, 102 Stat. 3455, provided that:
"(1) In general. - A mutual life insurance company may elect to
treat all individual noncancellable (or guaranteed renewable)
accident and health insurance contracts as though they were
cancellable for purposes of section 816 of subchapter L of chapter
1 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954].
"(2) Effect of election on subsidiaries of electing parent. - For
purposes of determining the amount of the small life insurance
company deduction of any controlled group which includes a mutual
company which made an election under paragraph (1), the taxable
income of such electing company shall be taken into account under
section 806(b)(2) of the Internal Revenue Code of 1986 (relating to
phaseout of small life insurance company deduction).
"(3) Election. - An election under paragraph (1) shall apply to
the company's first taxable year beginning after December 31, 1983,
and all taxable years thereafter.
"(4) Time and manner. - An election under paragraph (1) shall be
made -
"(A) on the return of the taxpayer for its first taxable year
beginning after December 31, 1983, and
"(B) in such manner as the Secretary of the Treasury or his
delegate may prescribe."
[Section 1010(h)(2), (3) of Pub. L. 100-647 provided that:
["(2) Effective date. - The amendment made by this subsection
[amending section 217(i) of Pub. L. 98-369, set out above] shall
apply to taxable years beginning after December 31, 1986, and
before January 1, 1992.
["(3) Revenue loss limited. - The decrease in the amount of
Federal revenue by reason of the amendment made by this subsection
shall not exceed $300,000 per taxable year."]
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 220, 223, 453B, 465, 594,
807, 811, 817, 817A, 842, 848, 7702B of this title.
-End-
-CITE-
26 USC Sec. 817 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 817. Treatment of variable contracts
-STATUTE-
(a) Increases and decreases in reserves
For purposes of subsections (a) and (b) of section 807, the sum
of the items described in section 807(c) taken into account as of
the close of the taxable year with respect to any variable contract
shall, under regulations prescribed by the Secretary, be adjusted -
(1) by subtracting therefrom an amount equal to the sum of the
amounts added from time to time (for the taxable year) to the
reserves separately accounted for in accordance with subsection
(c) by reason of appreciation in value of assets (whether or not
the assets have been disposed of), and
(2) by adding thereto an amount equal to the sum of the amounts
subtracted from time to time (for the taxable year) from such
reserves by reason of depreciation in value of assets (whether or
not the assets have been disposed of).
The deduction allowable for items described in paragraphs (1) and
(6) of section 805(a) with respect to variable contracts shall be
reduced to the extent that the amount of such items is increased
for the taxable year by appreciation (or increased to the extent
that the amount of such items is decreased for the taxable year by
depreciation) not reflected in adjustments under the preceding
sentence.
(b) Adjustment to basis of assets held in segregated asset account
In the case of variable contracts, the basis of each asset in a
segregated asset account shall (in addition to all other
adjustments to basis) be -
(1) increased by the amount of any appreciation in value, and
(2) decreased by the amount of any depreciation in value,
to the extent such appreciation and depreciation are from time to
time reflected in the increases and decreases in reserves or other
items referred to in subsection (a) with respect to such contracts.
(c) Separate accounting
For purposes of this part (other than section 809), a life
insurance company which issues variable contracts shall separately
account for the various income, exclusion, deduction, asset,
reserve, and other liability items properly attributable to such
variable contracts. For such items as are not accounted for
directly, separate accounting shall be made -
(1) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(2) in all other cases, in accordance with regulations
prescribed by the Secretary.
(d) Variable contract defined
For purposes of this part, the term "variable contract" means a
contract -
(1) which provides for the allocation of all or part of the
amounts received under the contract to an account which, pursuant
to State law or regulation, is segregated from the general asset
accounts of the company,
(2) which -
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) provides for funding of insurance on retired lives as
described in section 807(c)(6), and
(3) under which -
(A) in the case of an annuity contract, the amounts paid in,
or the amount paid out, reflect the investment return and the
market value of the segregated asset account,
(B) in the case of a life insurance contract, the amount of
the death benefit (or the period of coverage) is adjusted on
the basis of the investment return and the market value of the
segregated asset account, or
(C) in the case of funds held under a contract described in
paragraph (2)(C), the amounts paid in, or the amounts paid out,
reflect the investment return and the market value of the
segregated asset account.
If a contract ceases to reflect current investment return and
current market value, such contract shall not be considered as
meeting the requirements of paragraph (3) after such cessation.
Paragraph (3) shall be applied without regard to whether there is a
guarantee, and obligations under such guarantee which exceed
obligations under the contract without regard to such guarantee
shall be accounted for as part of the company's general account.
(e) Pension plan contracts treated as paying annuity
A pension plan contract which is not a life, accident, or health,
property, casualty, or liability insurance contract shall be
treated as a contract which provides for the payments of annuities
for purposes of subsection (d).
(f) Other special rules
(1) Life insurance reserves
For purposes of subsection (b)(1)(A) of section 816, the
reflection of the investment return and the market value of the
segregated asset account shall be considered an assumed rate of
interest.
(2) Additional separate computations
Under regulations prescribed by the Secretary, such additional
separate computations shall be made, with respect to the items
separately accounted for in accordance with subsection (c), as
may be necessary to carry out the purposes of this section and
this part.
(g) Variable annuity contracts treated as annuity contracts
For purposes of this part, the term "annuity contract" includes a
contract which provides for the payment of a variable annuity
computed on the basis of -
(1) recognized mortality tables, and
(2)(A) the investment experience of a segregated asset account,
or
(B) the company-wide investment experience of the company.
Paragraph (2)(B) shall not apply to any company which issues
contracts which are not variable contracts.
(h) Treatment of certain nondiversified contracts
(1) In general
For purposes of subchapter L, section 72 (relating to
annuities), and section 7702(a) (relating to definition of life
insurance contract), a variable contract (other than a pension
plan contract) which is otherwise described in this section and
which is based on a segregated asset account shall not be treated
as an annuity, endowment, or life insurance contract for any
period (and any subsequent period) for which the investments made
by such account are not, in accordance with regulations
prescribed by the Secretary, adequately diversified.
(2) Safe harbor for diversification
A segregated asset account shall be treated as meeting the
requirements of paragraph (1) for any quarter of a taxable year
if as of the close of such quarter -
(A) it meets the requirements of section 851(b)(3), and
(B) no more than 55 percent of the value of the total assets
of the account are assets described in section 851(b)(3)(A)(i).
(3) Special rule for investments in United States obligations
To the extent that any segregated asset account with respect to
a variable life insurance contract is invested in securities
issued by the United States Treasury, the investments made by
such account shall be treated as adequately diversified for
purposes of paragraph (1).
(4) Look-through in certain cases
For purposes of this subsection, if all of the beneficial
interests in a regulated investment company or in a trust are
held by 1 or more -
(A) insurance companies (or affiliated companies) in their
general account or in segregated asset accounts, or
(B) fund managers (or affiliated companies) in connection
with the creation or management of the regulated investment
company or trust,
the diversification requirements of paragraph (1) shall be
applied by taking into account the assets held by such regulated
investment company or trust.
(5) Independent investment advisors permitted
Nothing in this subsection shall be construed as prohibiting
the use of independent investment advisors.
(6) Government securities funds
In determining whether a segregated asset account is adequately
diversified for purposes of paragraph (1), each United States
Government agency or instrumentality shall be treated as a
separate issuer.
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 750; amended Pub. L. 99-514, title XVIII, Sec.
1821(m), (t)(1), Oct. 22, 1986, 100 Stat. 2841, 2844; Pub. L.
100-647, title VI, Sec. 6080(a), Nov. 10, 1988, 102 Stat. 3710;
Pub. L. 104-188, title I, Sec. 1611(a), Aug. 20, 1996, 110 Stat.
1845; Pub. L. 105-34, title XII, Sec. 1271(b)(8), Aug. 5, 1997, 111
Stat. 1037.)
-MISC1-
PRIOR PROVISIONS
A prior section 817, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 132; amended Pub. L. 94-455, title XIV, Sec.
1402(b)(1)(M), (2), title XIX, Secs. 1901(a)(100), 1951(b)(11)(A),
Oct. 4, 1976, 90 Stat. 1732, 1781, 1839, related to rules regarding
certain gains and losses, prior to the general revision of this
part by Pub. L. 98-369, Sec. 211(a).
Another prior section 817, act Aug. 16, 1954, ch. 736, Sec. 817,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
denial of double deductions, prior to the general revision of this
part by Pub. L. 86-69, Sec. 2(a).
AMENDMENTS
1997 - Subsec. (h)(2)(A). Pub. L. 105-34, Sec. 1271(b)(8)(A),
substituted "851(b)(3)" for "851(b)(4)".
Subsec. (h)(2)(B). Pub. L. 105-34, Sec. 1271(b)(8)(B),
substituted "851(b)(3)(A)(i)" for "851(b)(4)(A)(i)".
1996 - Subsec. (d)(2)(C). Pub. L. 104-188, Sec. 1611(a)(1), added
subpar. (C).
Subsec. (d)(3)(C). Pub. L. 104-188, Sec. 1611(a)(2), added
subpar. (C).
1988 - Subsec. (h)(6). Pub. L. 100-647 added par. (6).
1986 - Subsec. (d). Pub. L. 99-514, Sec. 1821(t)(1), inserted at
end "Paragraph (3) shall be applied without regard to whether there
is a guarantee, and obligations under such guarantee which exceed
obligations under the contract without regard to such guarantee
shall be accounted for as part of the company's general account."
Subsec. (h)(1). Pub. L. 99-514, Sec. 1821(m)(2), struck out last
sentence which read as follows: "For purposes of this paragraph and
paragraph (2), beneficial interests in a regulated investment
company or in a trust shall not be treated as 1 investment if all
of the beneficial interests in such company or trust are held by 1
or more segregated asset accounts of 1 or more insurance
companies."
Subsec. (h)(3) to (5). Pub. L. 99-514, Sec. 1821(m)(1), added
pars. (3) and (4), redesignated former par. (4) as (5), and struck
out former par. (3) which read as follows: "In the case of a
segregated asset account with respect to variable life insurance
contracts, paragraph (1) shall not apply in the case of securities
issued by the United States Treasury which are owned by a regulated
investment company or by a trust all the beneficial interests in
which are held by 1 or more segregated asset accounts of the
company issuing the contract."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1271(c) of Pub. L. 105-34 provided that: "The amendments
made by this section [amending this section and sections 851 and
1092 of this title] shall apply to taxable years beginning after
the date of the enactment of this Act [Aug. 5, 1997]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 1611(b) of Pub. L. 104-188 provided that: "The amendments
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1995."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6080(b) of Pub. L. 100-647 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1987."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1821(t)(2) of Pub. L. 99-514 provided that: "The
amendment made by paragraph (1) [amending this section] shall apply
-
"(A) to contracts issued after December 31, 1986, and
"(B) to contracts issued before January 1, 1987, if such
contract was treated as a variable contract on the taxpayer's
return."
Amendment by section 1821(m) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment
relates, see section 1881 of Pub. L. 99-514, set out as a note
under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31,
1983, see section 215 of Pub. L. 98-369, set out as a note under
section 801 of this title.
DELAY IN EFFECTIVE DATE FOR DIVERSIFICATION REQUIREMENTS WITH
RESPECT TO ACCOUNTS FOR CERTAIN IMMEDIATE ANNUITIES
Section 1010(i) of Pub. L. 100-647 provided that: "Section 817(h)
of the 1986 Code shall not apply until January 1, 1989, with
respect to a variable contract (as defined in section 817(d) of the
1986 Code) if -
"(1) such contract provides for the payment of an immediate
annuity (as defined in section 72(u)(4) of the 1986 Code),
"(2) such contract was outstanding on September 12, 1986, and
"(3) the segregated asset account on which such contract is
based was, on September 12, 1986, wholly invested in deposits
insured by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 264, 817A, 860E, 953,
954, 4982, 7702 of this title.
-End-
-CITE-
26 USC Sec. 817A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 817A. Special rules for modified guaranteed contracts
-STATUTE-
(a) Computation of reserves
In the case of a modified guaranteed contract, clause (ii) of
section 807(e)(1)(A) shall not apply.
(b) Segregated assets under modified guaranteed contracts marked to
market
(1) In general
In the case of any life insurance company, for purposes of this
subtitle -
(A) Any gain or loss with respect to a segregated asset shall
be treated as ordinary income or loss, as the case may be.
(B) If any segregated asset is held by such company as of the
close of any taxable year -
(i) such company shall recognize gain or loss as if such
asset were sold for its fair market value on the last
business day of such taxable year, and
(ii) any such gain or loss shall be taken into account for
such taxable year.
Proper adjustment shall be made in the amount of any gain or
loss subsequently realized for gain or loss taken into account
under the preceding sentence. The Secretary may provide by
regulations for the application of this subparagraph at times
other than the times provided in this subparagraph.
(2) Segregated asset
For purposes of paragraph (1), the term "segregated asset"
means any asset held as part of a segregated account referred to
in subsection (d)(1) under a modified guaranteed contract.
(c) Special rule in computing life insurance reserves
For purposes of applying section 816(b)(1)(A) to any modified
guaranteed contract, an assumed rate of interest shall include a
rate of interest determined, from time to time, with reference to a
market rate of interest.
(d) Modified guaranteed contract defined
For purposes of this section, the term "modified guaranteed
contract" means a contract not described in section 817 -
(1) all or part of the amounts received under which are
allocated to an account which, pursuant to State law or
regulation, is segregated from the general asset accounts of the
company and is valued from time to time with reference to market
values,
(2) which -
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) is a pension plan contract which is not a life, accident,
or health, property, casualty, or liability contract,
(3) for which reserves are valued at market for annual
statement purposes, and
(4) which provides for a net surrender value or a
policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817,
such portion shall be treated for purposes of this section as a
separate contract.
(e) Regulations
The Secretary may prescribe regulations -
(1) to provide for the treatment of market value adjustments
under sections 72, 7702, 7702A, and 807(e)(1)(B),
(2) to determine the interest rates applicable under sections
807(c)(3), 807(d)(2)(B), and 812 with respect to a modified
guaranteed contract annually, in a manner appropriate for
modified guaranteed contracts and, to the extent appropriate for
such a contract, to modify or waive the applicability of section
811(d),
(3) to provide rules to limit ordinary gain or loss treatment
to assets constituting reserves for modified guaranteed contracts
(and not other assets) of the company,
(4) to provide appropriate treatment of transfers of assets to
and from the segregated account, and
(5) as may be necessary or appropriate to carry out the
purposes of this section.
-SOURCE-
(Added Pub. L. 104-188, title I, Sec. 1612(a), Aug. 20, 1996, 110
Stat. 1846.)
-MISC1-
EFFECTIVE DATE
Section 1612(c) of Pub. L. 104-188 provided that:
"(1) In general. - The amendments made by this section [enacting
this section] shall apply to taxable years beginning after December
31, 1995.
"(2) Treatment of net adjustments. - Except as provided in
paragraph (3), in the case of any taxpayer required by the
amendments made by this section to change its calculation of
reserves to take into account market value adjustments and to mark
segregated assets to market for any taxable year -
"(A) such changes shall be treated as a change in method of
accounting initiated by the taxpayer,
"(B) such changes shall be treated as made with the consent of
the Secretary, and
"(C) the adjustments required by reason of section 481 of the
Internal Revenue Code of 1986, shall be taken into account as
ordinary income by the taxpayer for the taxpayer's first taxable
year beginning after December 31, 1995.
"(3) Limitation on loss recognition and on deduction for reserve
increases. -
"(A) Limitation on loss recognition. -
"(i) In general. - The aggregate loss recognized by reason of
the application of section 481 of the Internal Revenue Code of
1986 with respect to section 817A(b) of such Code (as added by
this section) for the first taxable year of the taxpayer
beginning after December 31, 1995, shall not exceed the amount
included in the taxpayer's gross income for such year by reason
of the excess (if any) of -
"(I) the amount of life insurance reserves as of the close
of the prior taxable year, over
"(II) the amount of such reserves as of the beginning of
such first taxable year,
to the extent such excess is attributable to subsection (a) of
such section 817A. Notwithstanding the preceding sentence, the
adjusted basis of each segregated asset shall be determined as if
all such losses were recognized.
"(ii) Disallowed loss allowed over period. - The amount of
the loss which is not allowed under clause (i) shall be allowed
ratably over the period of 7 taxable years beginning with the
taxpayer's first taxable year beginning after December 31,
1995.
"(B) Limitation on deduction for increase in reserves. -
"(i) In general. - The deduction allowed for the first
taxable year of the taxpayer beginning after December 31, 1995,
by reason of the application of section 481 of such Code with
respect to section 817A(a) of such Code (as added by this
section) shall not exceed the aggregate built-in gain
recognized by reason of the application of such section 481
with respect to section 817A(b) of such Code (as added by this
section) for such first taxable year.
"(ii) Disallowed deduction allowed over period. - The amount
of the deduction which is disallowed under clause (i) shall be
allowed ratably over the period of 7 taxable years beginning
with the taxpayer's first taxable year beginning after December
31, 1995.
"(iii) Built-in gain. - For purposes of this subparagraph,
the built-in gain on an asset is the amount equal to the excess
of -
"(I) the fair market value of the asset as of the beginning
of the first taxable year of the taxpayer beginning after
December 31, 1995, over
"(II) the adjusted basis of such asset as of such time."
-End-
-CITE-
26 USC Sec. 818 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart E - Definitions and Special Rules
-HEAD-
Sec. 818. Other definitions and special rules
-STATUTE-
(a) Pension plan contracts
For purposes of this part, the term "pension plan contract" means
any contract -
(1) entered into with trusts which (as of the time the
contracts were entered into) were deemed to be trusts described
in section 401(a) and exempt from tax under section 501(a) (or
trusts exempt from tax under section 165 of the Internal Revenue
Code of 1939 or the corresponding provisions of prior revenue
laws);
(2) entered into under plans which (as of the time the
contracts were entered into) were deemed to be plans described in
section 403(a), or plans meeting the requirements of paragraphs
(3), (4), (5), and (6) of section 165(a) of the Internal Revenue
Code of 1939;
(3) provided for employees of the life insurance company under
a plan which, for the taxable year, meets the requirements of
paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14),
(15), (16), (17), (19), (20), (22), (26), and (27) of section
401(a);
(4) purchased to provide retirement annuities for its employees
by an organization which (as of the time the contracts were
purchased) was an organization described in section 501(c)(3)
which was exempt from tax under section 501(a) (or was an
organization exempt from tax under section 101(6) of the Internal
Revenue Code of 1939 or the corresponding provisions of prior
revenue laws), or purchased to provide retirement annuities for
employees described in section 403(b)(1)(A)(ii) by an employer
which is a State, a political subdivision of a State, or an
agency or instrumentality of any one or more of the foregoing;
(5) entered into with trusts which (at the time the contracts
were entered into) were individual retirement accounts described
in section 408(a) or under contracts entered into with individual
retirement annuities described in section 408(b); or
(6) purchased by -
(A) a governmental plan (within the meaning of section
414(d)) or an eligible deferred compensation plan (within the
meaning of section 457(b)), or
(B) the Government of the United States, the government of
any State or political subdivision thereof, or by any agency or
instrumentality of the foregoing, or any organization (other
than a governmental unit) exempt from tax under this subtitle,
for use in satisfying an obligation of such government,
political subdivision, agency or instrumentality, or
organization to provide a benefit under a plan described in
subparagraph (A).
(b) Treatment of capital gains and losses, etc.
In the case of a life insurance company -
(1) in applying section 1231(a), the term "property used in the
trade or business" shall be treated as including only -
(A) property used in carrying on an insurance business, of a
character which is subject to the allowance for depreciation
provided in section 167, held for more than 1 year, and real
property used in carrying on an insurance business, held for
more than 1 year, which is not described in section
1231(b)(1)(A), (B), or (C), and
(B) property described in section 1231(b)(2), and
(2) in applying section 1221(a)(2), the reference to property
used in trade or business shall be treated as including only
property used in carrying on an insurance business.
(c) Gain on property held on December 31, 1958 and certain
substituted property acquired after 1958
(1) Property held on December 31, 1958
In the case of property held by the taxpayer on December 31,
1958, if -
(A) the fair market value of such property on such date
exceeds the adjusted basis for determining gain as of such
date, and
(B) the taxpayer has been a life insurance company at all
times on and after December 31, 1958,
the gain on the sale or other disposition of such property shall
be treated as an amount (not less than zero) equal to the amount
by which the gain (determined without regard to this subsection)
exceeds the difference between the fair market value on December
31, 1958, and the adjusted basis for determining gain as of such
date.
(2) Certain property acquired after December 31, 1958
In the case of property acquired after December 31, 1958, and
having a substituted basis (within the meaning of section
1016(b)) -
(A) for purposes of paragraph (1), such property shall be
deemed held continuously by the taxpayer since the beginning of
the holding period thereof, determined with reference to
section 1223,
(B) the fair market value and adjusted basis referred to in
paragraph (1) shall be that of that property for which the
holding period taken into account includes December 31, 1958,
(C) paragraph (1) shall apply only if the property or
properties the holding periods of which are taken into account
were held only by life insurance companies after December 31,
1958, during the holding periods so taken into account,
(D) the difference between the fair market value and adjusted
basis referred to in paragraph (1) shall be reduced (to not
less than zero) by the excess of (i) the gain that would have
been recognized but for this subsection on all prior sales or
dispositions after December 31, 1958, of properties referred to
in subparagraph (C), over (ii) the gain which was recognized on
such sales or other dispositions, and
(E) the basis of such property shall be determined as if the
gain which would have been recognized but for this subsection
were recognized gain.
(3) Property defined
For purposes of paragraphs (1) and (2), the term "property"
does not include insurance and annuity contracts and property
described in paragraph (1) of section 1221(a).
(d) Insurance or annuity contract includes contracts supplementary
thereto
For purposes of this part, the term "insurance or annuity
contract" includes any contract supplementary thereto.
(e) Special rules for consolidated returns
(1) Items of companies other than life insurance companies
If an election under section 1504(c)(2) is in effect with
respect to an affiliated group for the taxable year, all items of
the members of such group which are not life insurance companies
shall not be taken into account in determining the amount of the
tentative LICTI of members of such group which are life insurance
companies.
(2) Dividends within group
In the case of a life insurance company filing or required to
file a consolidated return under section 1501 with respect to any
affiliated group for any taxable year, any determination under
this part with respect to any dividend paid by one member of such
group to another member of such group shall be made as if such
group was not filing a consolidated return.
(f) Allocation of certain items for purposes of foreign tax credit,
etc.
(1) In general
Under regulations, in applying sections 861, 862, and 863 to a
life insurance company, the deduction for policyholder dividends
(determined under section 808(c)), reserve adjustments under
subsections (a) and (b) of section 807, and death benefits and
other amounts described in section 805(a)(1) shall be treated as
items which cannot definitely be allocated to an item or class of
gross income.
(2) Election of alternative allocation
(A) In general
On or before September 15, 1985, any life insurance company
may elect to treat items described in paragraph (1) as properly
apportioned or allocated among items of gross income to the
extent (and in the manner) prescribed in regulations.
(B) Election irrevocable
Any election under subparagraph (A), once made, may be
revoked only with the consent of the Secretary.
(3) Items described in section 807(c) treated as not interest for
source rules, etc.
For purposes of part I of subchapter N, items described in any
paragraph of section 807(c) shall be treated as amounts which are
not interest.
(g) Qualified accelerated death benefit riders treated as life
insurance
For purposes of this part -
(1) In general
Any reference to a life insurance contract shall be treated as
including a reference to a qualified accelerated death benefit
rider on such contract.
(2) Qualified accelerated death benefit riders
For purposes of this subsection, the term "qualified
accelerated death benefit rider" means any rider on a life
insurance contract if the only payments under the rider are
payments meeting the requirements of section 101(g).
(3) Exception for long-term care riders
Paragraph (1) shall not apply to any rider which is treated as
a long-term care insurance contract under section 7702B.
-SOURCE-
(Added and amended Pub. L. 98-369, div. A, title II, Sec. 211(a),
title X, Sec. 1001(b)(10), (e), July 18, 1984, 98 Stat. 752, 1011,
1012; Pub. L. 99-514, title XI, Secs. 1106(d)(3)(C), 1112(d)(4),
1136(b), title XVIII, Sec. 1821(n), (o), Oct. 22, 1986, 100 Stat.
2424, 2445, 2486, 2842; Pub. L. 100-647, title I, Secs. 1010(k),
1011(e)(5)(A), Nov. 10, 1988, 102 Stat. 3456, 3461; Pub. L.
104-191, title III, Sec. 332(a), Aug. 21, 1996, 110 Stat. 2069;
Pub. L. 106-170, title V, Sec. 532(c)(1)(D), (3), Dec. 17, 1999,
113 Stat. 1930, 1931.)
-REFTEXT-
REFERENCES IN TEXT
Section 165 of the Internal Revenue Code of 1939, referred to in
subsec. (a)(1), (2), was classified to section 165 of former Title
26, Internal Revenue Code. Section 101 of the Internal Revenue Code
of 1939, referred to in subsec. (a)(4) was classified to section
101 of former Title 26, Internal Revenue Code. Sections 101 and 165
were repealed by section 7851(a)(1)(A) of this title. For table of
comparisons of the 1939 Code to the 1986 Code, see Table I
preceding section 1 of this title. See, also, section 7851(e) of
this title for provision that references in the 1986 Code to a
provision of the 1939 Code, not then applicable, shall be deemed a
reference to the corresponding provision of the 1986 Code, which is
then applicable.
-MISC1-
PRIOR PROVISIONS
A prior section 818, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 133; amended Pub. L. 88-272, title II, Sec.
228(b)(1), Feb. 26, 1964, 78 Stat. 98; Pub. L. 91-688, Sec. 1(a),
Jan. 12, 1971, 84 Stat. 2072; Pub. L. 94-455, title XIX, Secs.
1901(a)(101), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1781, 1834;
Pub. L. 97-248, title II, Secs. 258(a), 260(a), 262, 267(a), Sept.
3, 1982, 96 Stat. 538-540, 550, related to accounting provisions
generally, prior to the general revision of this part by Pub. L.
98-369, Sec. 211(a).
Another prior section 818, act Aug. 16, 1954, ch. 736, Sec. 818,
as added Mar. 13, 1956, ch. 83, Sec. 2, 70 Stat. 46, related to
certain new insurance companies, prior to the general revision of
this part by Pub. L. 86-69, Sec. 2(a).
A prior section 819, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 136; amended Pub. L. 89-809, title I, Sec.
104(i)(3), Nov. 13, 1966, 80 Stat. 1561; Pub. L. 94-455, title XIX,
Secs. 1901(a)(102), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1781,
1834, related to foreign life insurance companies, prior to the
general revision of this part by Pub. L. 98-369, Sec. 211(a). See
section 813 of this title.
A prior section 819A, added Pub. L. 94-455, title X, Sec.
1043(a), Oct. 4, 1976, 90 Stat. 1639, related to contiguous country
branches of domestic life insurance companies, prior to the general
revision of this part by Pub. L. 98-369, Sec. 211(a). See section
814 of this title.
A prior section 820, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 137; amended Pub. L. 94-455, title XIX, Secs.
1901(a)(103), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1834,
related to optional treatment of policies reinsured under modified
coinsurance contracts, prior to repeal by Pub. L. 97-248, title II,
Sec. 255(a), (c), Sept. 3, 1982, 96 Stat. 533, 534, applicable to
taxable years beginning after Dec. 31, 1981, with exception.
A prior section 821, acts Aug. 16, 1954, ch. 736, 68A Stat. 260;
Mar. 30, 1955, ch. 18, Sec. 2, 69 Stat. 14; Mar. 13, 1956, ch. 83,
Sec. 3(a)(1), (2), 70 Stat. 47; Mar. 29, 1956, ch. 115, Sec. 2, 70
Stat. 66; Mar. 29, 1957, Pub. L. 85-12, Sec. 2, 71 Stat. 9; June
30, 1958, Pub. L. 85-475, Sec. 2, 72 Stat. 259; June 30, 1959, Pub.
L. 86-75, Sec. 2, 73 Stat. 157; June 30, 1960, Pub. L. 86-564,
title II, Sec. 201, 74 Stat. 290; June 30, 1961, Pub. L. 87-72,
Sec. 2, 75 Stat. 193; June 28, 1962, Pub. L. 87-508, Sec. 2, 76
Stat. 114; Oct. 16, 1962, Pub. L. 87-834, Sec. 8(a), 76 Stat. 989;
June 29, 1963 Pub. L. 88-52, Sec. 2, 77 Stat. 72; Feb. 26, 1964,
Pub. L. 88-272, title I, Sec. 123(a), 78 Stat. 29; Nov. 13, 1966,
Pub. L. 89-809, title I, Sec. 104(i)(4), 80 Stat. 1562; Oct. 4,
1976, Pub. L. 94-455, title IX, Sec. 901(b), title XV, Sec.
1507(b)(1), title XIX, Secs. 1901(a)(104), 1906(b)(13)(A), 90 Stat.
1607, 1739, 1782, 1834; May 23, 1977, Pub. L. 95-30, title II, Sec.
201(3), (4), 91 Stat. 141; Nov. 6, 1978, Pub. L. 95-600, title III,
Sec. 301(b)(9), 92 Stat. 2821; Aug. 13, 1981, Pub. L. 97-34, title
II, Sec. 231(b)(1), (2), 95 Stat. 249, related to tax on mutual
insurance companies to which former part II applied, prior to
repeal by Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986,
100 Stat. 2405, effective for taxable years beginning after Dec.
31, 1986.
A prior section 822 was renumbered section 834 of this title by
Pub. L. 99-514, title X, Sec. 1024(a)(3), Oct. 22, 1986, 100 Stat.
2405.
A prior section 823, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 992; amended Pub. L. 91-172, title IX, Sec.
907(c)(2)(B), Dec. 30, 1969, 83 Stat. 717, related to determination
of statutory underwriting income or loss, prior to repeal by Pub.
L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat. 2405,
effective for taxable years beginning after Dec. 31, 1986.
Another prior section 823, act Aug. 16, 1954, ch. 736, 68A Stat.
263, which defined "net premiums" and "dividends to policyholders",
was redesignated section 822(f) of this title by section 8(b)(4) of
Pub. L. 87-834.
A prior section 824, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 993; amended Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834, related to adjustments
to provide protection against losses, prior to repeal by Pub. L.
99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat. 2405,
effective for taxable years beginning after Dec. 31, 1986.
A prior section 825, added Pub. L. 87-834, Sec. 8(c), Oct. 16,
1962, 76 Stat. 995; amended Pub. L. 91-172 title IX, Sec.
907(c)(2)(C), (D), Dec. 30, 1969, 83 Stat. 717; Pub. L. 94-455,
title VIII, Sec. 806(d)(2), title XIX, Sec. 1901(a)(106), Oct. 4,
1976, 90 Stat. 1599, 1782; Pub. L. 97-34, title II, Sec. 207(b),
Aug. 13, 1981, 95 Stat. 225, related to unused loss deduction,
prior to repeal by Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct.
22, 1986, 100 Stat. 2405, effective for taxable years beginning
after Dec. 31, 1986.
A prior section 826 was renumbered section 835 of this title by
Pub. L. 99-514, title X, Sec. 1024(a)(3), Oct. 22, 1986, 100 Stat.
2405.
AMENDMENTS
1999 - Subsec. (b)(2). Pub. L. 106-170, Sec. 532(c)(3),
substituted "section 1221(a)(2)" for "section 1221(2)".
Subsec. (c)(3). Pub. L. 106-170, Sec. 532(c)(1)(D), substituted
"section 1221(a)" for "section 1221".
1996 - Subsec. (g). Pub. L. 104-191 added subsec. (g).
1988 - Subsec. (a)(6). Pub. L. 100-647, Sec. 1011(e)(5)(A), in
subpar. (A) substituted "eligible deferred compensation plan" for
"eligible State deferred compensation plan", and in subpar. (B),
inserted "or any organization (other than a governmental unit)
exempt from tax under this subtitle," after "foregoing," and
substituted "agency or instrumentality, or organization" for "or
agency or instrumentality".
Subsec. (f)(3). Pub. L. 100-647, Sec. 1010(k), added par. (3).
1986 - Subsec. (a)(3). Pub. L. 99-514, Sec. 1136(b), substituted
"(26), and (27)" for "and (26)".
Pub. L. 99-514, Sec. 1112(d)(4), substituted "(22), and (26)" for
"and (22)".
Pub. L. 99-514, Sec. 1106(d)(3)(C), inserted "(17)," after
"(16),".
Subsec. (a)(6)(A). Pub. L. 99-514, Sec. 1821(n), in amending
subpar. (A) generally, inserted "an eligible State deferred
compensation plan (within the meaning of section 457(b)), or".
Subsec. (e). Pub. L. 99-514, Sec. 1821(o), amended subsec. (e)
generally. Prior to amendment, subsec. (e) read as follows: "If an
election under section 1504(c)(2) is in effect with respect to an
affiliated group for the taxable year, all items of the members of
such group which are not life insurance companies shall not be
taken into account in determining the amount of the tentative LICTI
of members of such group which are life insurance companies."
1984 - Subsec. (b)(1)(A). Pub. L. 98-369, Sec. 1001(b)(10), (e),
substituted "6 months" for "1 year" in two places, applicable to
property acquired after June 22, 1984, and before Jan. 1, 1988. See
Effective Date of 1984 Amendment note below.
EFFECTIVE DATE OF 1999 AMENDMENT
Amendment by Pub. L. 106-170 applicable to any instrument held,
acquired, or entered into, any transaction entered into, and
supplies held or acquired on or after Dec. 17, 1999, see section
532(d) of Pub. L. 106-170, set out as a note under section 170 of
this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Section 332(b) of Pub. L. 104-191 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall take effect on January 1, 1997.
"(2) Issuance of rider not treated as material change. - For
purposes of applying sections 101(f), 7702, and 7702A of the
Internal Revenue Code of 1986 to any contract -
"(A) the issuance of a qualified accelerated death benefit
rider (as defined in section 818(g) of such Code (as added by
this Act)), and
"(B) the addition of any provision required to conform an
accelerated death benefit rider to the requirements of such
section 818(g),
shall not be treated as a modification or material change of such
contract."
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1011(e)(5)(B) of Pub. L. 100-647 provided that: "The
amendments made by this paragraph [amending this section] shall
apply to contracts issued after December 31, 1986."
Amendment by section 1010(k) of Pub. L. 100-647 effective, except
as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment
relates, see section 1019(a) of Pub. L. 100-647, set out as a note
under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1106(d)(3)(C) of Pub. L. 99-514 applicable
to benefits accruing in years beginning after Dec. 31, 1988, except
as otherwise provided, see section 1106(i)(5) of Pub. L. 99-514 set
out as a note under section 415 of this title.
Amendment by section 1112(d)(4) of Pub. L. 99-514 applicable to
plan years beginning after Dec. 31, 1988, with special rule
regarding collective bargaining agreements ratified before Mar. 1,
1986, and with provision for waiver of the excise tax on
reversions, see section 1112(e) of Pub. L. 99-514, set out as a
note under section 401 of this title.
Amendment by section 1821(n), (o) of Pub. L. 99-514 effective,
except as otherwise provided, as if included in the provisions of
the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to property acquired after
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub.
L. 98-369, set out as a note under section 166 of this title.
REGULATIONS
Secretary of the Treasury or his delegate to issue before Feb. 1,
1988, final regulations to carry out amendments made by section
1112 of Pub. L. 99-514, see section 1141 of Pub. L. 99-514, set out
as a note under section 401 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 72, 401, 848 of this
title.
-End-
-CITE-
26 USC PART II - OTHER INSURANCE COMPANIES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
PART II - OTHER INSURANCE COMPANIES
-MISC1-
Sec.
831. Tax on insurance companies other than life insurance
companies.
832. Insurance company taxable income.
833. Treatment of Blue Cross and Blue Shield organizations,
etc.
834. Determination of taxable investment income.
835. Election by reciprocal.
PRIOR PROVISIONS
A prior part II (Secs. 821 to 826) related to mutual insurance
companies other than life and certain marine insurance companies
and other than fire and flood insurance companies which operated on
the basis of perpetual policies or premium deposits, consisted of
sections 821-826, prior to repeal (except for sections 822 and 826
which were renumbered sections 834 and 835, respectively, by Pub.
L. 99-514, title X, Sec. 1024(a)(1)-(3), Oct. 22, 1986, 100 Stat.
2405. See Prior Provisions note set out under section 818 of this
title.
AMENDMENTS
1988 - Pub. L. 100-647, title I, Sec. 1010(f)(7), Nov. 10, 1988,
102 Stat. 3454, substituted "Tax on insurance companies other than
life insurance companies" for "Tax on insurance companies (other
than life or mutual), mutual marine insurance companies, and
certain mutual fire or flood insurance companies" in item 831.
1986 - Pub. L. 99-514, title X, Secs. 1012(b)(2), 1024(a)(2),
(c)(18), Oct. 22, 1986, 100 Stat. 2393, 2405, 2408, redesignated
part III (Sec. 831 et seq.) as II and added items 833, 834, and
835. Former part II (Sec. 821 et seq.) was repealed.
1962 - Pub. L. 87-834, Sec. 8(g)(4)(C), Oct. 16, 1962, 76 Stat.
999, substituted "and certain mutual fire or flood insurance
companies" for "and mutual fire insurance companies issuing
perpetual policies" in item 831.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 842, 844, 848, 864, 953 of
this title.
-End-
-CITE-
26 USC Sec. 831 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 831. Tax on insurance companies other than life insurance
companies
-STATUTE-
(a) General rule
Taxes computed as provided in section 11 shall be imposed for
each taxable year on the taxable income of every insurance company
other than a life insurance company.
(b) Alternative tax for certain small companies
(1) In general
In lieu of the tax otherwise applicable under subsection (a),
there is hereby imposed for each taxable year on the income of
every insurance company to which this subsection applies a tax
computed by multiplying the taxable investment income of such
company for such taxable year by the rates provided in section
11(b).
(2) Companies to which this subsection applies
(A) In general
This subsection shall apply to every insurance company other
than life (including interinsurers and reciprocal underwriters)
if -
(i) the net written premiums (or, if greater, direct
written premiums) for the taxable year exceed $350,000 but do
not exceed $1,200,000, and
(ii) such company elects the application of this subsection
for such taxable year.
The election under clause (ii) shall apply to the taxable year
for which made and for all subsequent taxable years for which
the requirements of clause (i) are met. Such an election, once
made, may be revoked only with the consent of the Secretary.
(B) Controlled group rules
(i) In general
For purposes of subparagraph (A), in determining whether
any company is described in clause (i) of subparagraph (A),
such company shall be treated as receiving during the taxable
year amounts described in such clause (i) which are received
during such year by all other companies which are members of
the same controlled group as the insurance company for which
the determination is being made.
(ii) Controlled group
For purposes of clause (i), the term "controlled group"
means any controlled group of corporations (as defined in
section 1563(a)); except that -
(I) "more than 50 percent" shall be substituted for "at
least 80 percent" each place it appears in section 1563(a),
and
(II) subsections (a)(4) and (b)(2)(D) of section 1563
shall not apply.
(3) Limitation on use of net operating losses
For purposes of this part, except as provided in section 844, a
net operating loss (as defined in section 172) shall not be
carried -
(A) to or from any taxable year for which the insurance
company is not subject to the tax imposed by subsection (a), or
(B) to any taxable year if, between the taxable year from
which such loss is being carried and such taxable year, there
is an intervening taxable year for which the insurance company
was not subject to the tax imposed by subsection (a).
(c) Cross references
(1) For alternative tax in case of capital gains, see section
1201(a).
(2) For taxation of foreign corporations carrying on an
insurance business within the United States, see section 842.
(3) For exemption from tax for certain insurance companies
other than life, see section 501(c)(15).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 264; Pub. L. 87-834, Sec.
8(e)(1), (f), (g)(4)(B), Oct. 16, 1962, 76 Stat. 997-999; Pub. L.
89-809, title I, Sec. 104(i)(6), Nov. 13, 1966, 80 Stat. 1562; Pub.
L. 94-455, title XIX, Secs. 1901(a)(107), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1782, 1834; Pub. L. 99-514, title X, Sec.
1024(a)(4), Oct. 22, 1986, 100 Stat. 2405; Pub. L. 100-647, title
I, Sec. 1010(f)(1), (9), Nov. 10, 1988, 102 Stat. 3454, 3455.)
-MISC1-
AMENDMENTS
1988 - Subsec. (b)(2)(A). Pub. L. 100-647, Sec. 1010(f)(1),
inserted at end "The election under clause (ii) shall apply to the
taxable year for which made and for all subsequent taxable years
for which the requirements of clause (i) are met. Such an election,
once made, may be revoked only with the consent of the Secretary."
Subsec. (b)(3). Pub. L. 100-647, Sec. 1010(f)(9), added par. (3).
1986 - Pub. L. 99-514 amended section generally, substituting
provisions imposing taxes on insurance companies other than life
insurance companies, with an alternative tax on certain small
companies, for provisions imposing taxes on insurance companies
(other than life or mutual), mutual marine insurance companies, and
certain mutual fire or flood insurance companies, with an election
for multiple line companies to be taxed on total income.
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(a)(107),
substituted "on the taxable income" for "or the taxable income".
Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary" wherever appearing.
1966 - Subsec. (b). Pub. L. 89-809, Sec. 104(i)(6)(A),
redesignated subsec. (c) as (b). Former subsec. (b), which excepted
foreign insurance companies other than life or mutual insurance
companies, foreign mutual marine insurance companies, and foreign
mutual fire insurance companies not carrying on an insurance
business within the United States and provided that they would be
taxable as other foreign corporations, was struck out.
Subsecs. (c), (d). Pub. L. 89-809, Sec. 104(i)(6)(B),
redesignated subsec. (d) as (c) and added item (2). Former subsec.
(c) redesignated (b).
1962 - Pub. L. 87-834, Sec. 8(g)(4)(B), substituted "and certain
mutual fire or flood insurance companies" for "and mutual fire
insurance companies issuing perpetual policies" in section
catchline.
Subsec. (a). Pub. L. 87-834, Sec. 8(e)(1), included flood
insurance companies, and substituted provisions authorizing
imposition of the tax on those companies whose principal business
is the issuance of policies for which the premium deposits are the
same, regardless of the length of the term for which the policies
are written, if the unabsorbed portion of such premium deposits not
required for losses, expenses, or establishment of reserves is
returned or credited to the policyholder on cancellation or
expiration of the policy for provisions which authorized imposition
of tax on those companies which issued policies for which the sole
premium charged is a single deposit which (except for such
deduction of underwriting costs as may be provided) is refundable
on cancellation or expiration of the policy.
Subsecs. (c), (d). Pub. L. 87-834, Sec. 8(f), added subsec. (c)
and redesignated former subsec. (c) as (d).
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1024(e) of Pub. L. 99-514 provided that: "The amendments
made by this section [amending this section and sections 501, 832,
834, 835, 841, 842, 844, 891, 1201, 1504, and 1563 of this title,
redesignating former sections 822 and 826 of this title as sections
834 and 835 of this title, respectively, and repealing sections
821, 823, 824, and 825 of this title] (and the provisions of
subsection (d) [set out below]) shall apply to taxable years
beginning after December 31, 1986."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(107) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
TRANSITIONAL RULES FOR 1984 AMENDMENT
Section 1024(d) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(f)(8), Nov. 10, 1988, 102 Stat. 3454, provided
that:
"(1) Treatment of amounts in protection against loss account. -
In the case of any insurance company which had a protection against
loss account for its last taxable year beginning before January 1,
1987, there shall be included in the gross income of such company
for any taxable year beginning after December 31, 1986, the amount
which would have been included in gross income for such taxable
year under section 824 of the Internal Revenue Code of 1954 [now
1986] (as in effect on the day before the date of the enactment of
this Act [Oct. 22, 1986]). For purposes of the preceding sentence,
no addition to such account shall be made for any taxable year
beginning after December 31, 1986. In the case of a company taxable
under section 831(b) of the Internal Revenue Code of 1986 (as
amended by subsection (a)), any amount included in gross income
under this paragraph shall be treated as gross investment income.
"(2) Transitional rule for unused loss carryover under section
825. - Any unused loss carryover under section 825 of the Internal
Revenue Code of 1954 (as in effect on the day before the date of
the enactment of this Act [Oct. 22, 1986]) which -
"(A) is from a taxable year beginning before January 1, 1987,
and
"(B) could have been carried under such section to a taxable
year beginning after December 31, 1986, but for the repeal made
by subsection (a)(1) [repealing sections 821 and 823 to 825 of
this title],
shall be included in the net operating loss deduction under section
832(c)(10) of such Code without regard to the limitations of
section 844(b) of such Code."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 501, 816, 832, 834,
835, 841, 847, 891, 904, 1201 of this title; title 15 section 6712.
-End-
-CITE-
26 USC Sec. 832 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 832. Insurance company taxable income
-STATUTE-
(a) Definition of taxable income
In the case of an insurance company subject to the tax imposed by
section 831, the term "taxable income" means the gross income as
defined in subsection (b)(1) less the deductions allowed by
subsection (c).
(b) Definitions
In the case of an insurance company subject to the tax imposed by
section 831 -
(1) Gross income
The term "gross income" means the sum of -
(A) the combined gross amount earned during the taxable year,
from investment income and from underwriting income as provided
in this subsection, computed on the basis of the underwriting
and investment exhibit of the annual statement approved by the
National Association of Insurance Commissioners,
(B) gain during the taxable year from the sale or other
disposition of property, and
(C) all other items constituting gross income under
subchapter B, except that, in the case of a mutual fire
insurance company exclusively issuing perpetual policies, the
amount of single deposit premiums paid to such company shall
not be included in gross income,
(D) in the case of a mutual fire or flood insurance company
whose principal business is the issuance of policies -
(i) for which the premium deposits are the same (regardless
of the length of the term for which the policies are
written), and
(ii) under which the unabsorbed portion of such premium
deposits not required for losses, expenses, or establishment
of reserves is returned or credited to the policyholder on
cancellation or expiration of the policy,
an amount equal to 2 percent of the premiums earned on
insurance contracts during the taxable year with respect to
such policies after deduction of premium deposits returned or
credited during the same taxable year, and
(E) in the case of a company which writes mortgage guaranty
insurance, the amount required by subsection (e)(5) to be
subtracted from the mortgage guaranty account.
(2) Investment income
The term "investment income" means the gross amount of income
earned during the taxable year from interest, dividends, and
rents, computed as follows: To all interest, dividends, and rents
received during the taxable year, add interest, dividends, and
rents due and accrued at the end of the taxable year, and deduct
all interest, dividends, and rents due and accrued at the end of
the preceding taxable year.
(3) Underwriting income
The term "underwriting income" means the premiums earned on
insurance contracts during the taxable year less losses incurred
and expenses incurred.
(4) Premiums earned
The term "premiums earned on insurance contracts during the
taxable year" means an amount computed as follows:
(A) From the amount of gross premiums written on insurance
contracts during the taxable year, deduct return premiums and
premiums paid for reinsurance.
(B) To the result so obtained, add 80 percent of the unearned
premiums on outstanding business at the end of the preceding
taxable year and deduct 80 percent of the unearned premiums on
outstanding business at the end of the taxable year.
(C) To the result so obtained, in the case of a taxable year
beginning after December 31, 1986, and before January 1, 1993,
add an amount equal to 3 1/3 percent of unearned premiums on
outstanding business at the end of the most recent taxable year
beginning before January 1, 1987.
For purposes of this subsection, unearned premiums shall include
life insurance reserves, as defined in section 816(b) but
determined as provided in section 807. For purposes of this
subsection, unearned premiums of mutual fire or flood insurance
companies described in paragraph (1)(D) means (with respect to
the policies described in paragraph (1)(D)) the amount of
unabsorbed premium deposits which the company would be obligated
to return to its policyholders at the close of the taxable year
if all of its policies were terminated at such time; and the
determination of such amount shall be based on the schedule of
unabsorbed premium deposit returns for each such company then in
effect. Premiums paid by the subscriber of a mutual flood
insurance company described in paragraph (1)(D) or issuing
exclusively perpetual policies shall be treated, for purposes of
computing the taxable income of such subscriber, in the same
manner as premiums paid by a policyholder to a mutual fire
insurance company described in subparagraph (C) or (D) of
paragraph (1).
(5) Losses incurred
(A) In general
The term "losses incurred" means losses incurred during the
taxable year on insurance contracts computed as follows:
(i) To losses paid during the taxable year, deduct salvage
and reinsurance recovered during the taxable year.
(ii) To the result so obtained, add all unpaid losses on
life insurance contracts plus all discounted unpaid losses
(as defined in section 846) outstanding at the end of the
taxable year and deduct all unpaid losses on life insurance
contracts plus all discounted unpaid losses outstanding at
the end of the preceding taxable year.
(iii) To the results so obtained, add estimated salvage and
reinsurance recoverable as of the end of the preceding
taxable year and deduct estimated salvage and reinsurance
recoverable as of the end of the taxable year.
The amount of estimated salvage recoverable shall be determined
on a discounted basis in accordance with procedures established
by the Secretary.
(B) Reduction of deduction
The amount which would (but for this subparagraph) be taken
into account under subparagraph (A) shall be reduced by an
amount equal to 15 percent of the sum of -
(i) tax-exempt interest received or accrued during such
taxable year,
(ii) the aggregate amount of deductions provided by
sections 243, 244, and 245 for -
(I) dividends (other than 100 percent dividends) received
during the taxable year, and
(II) 100 percent dividends received during the taxable
year to the extent attributable (directly or indirectly) to
prorated amounts, and
(iii) the increase for the taxable year in policy cash
values (within the meaning of section 805(a)(4)(F)) of life
insurance policies and annuity and endowment contracts to
which section 264(f) applies.
In the case of a 100 percent dividend paid by an insurance
company, the portion attributable to prorated amounts shall be
determined under subparagraph (E)(ii).
(C) Exception for investments made before August 8, 1986
(i) In general
Except as provided in clause (ii), subparagraph (B) shall
not apply to any dividend or interest received or accrued on
any stock or obligation acquired before August 8, 1986.
(ii) Special rule for 100 percent dividends
For purposes of clause (i), the portion of any 100 percent
dividend which is attributable to prorated amounts shall be
treated as received with respect to stock acquired on the
later of -
(I) the date the payor acquired the stock or obligation
to which the prorated amounts are attributable, or
(II) the 1st day on which the payor and payee were
members of the same affiliated group (as defined in section
243(b)(2)).
(D) Definitions
For purposes of this paragraph -
(i) Prorated amounts
The term "prorated amounts" means tax-exempt interest and
dividends with respect to which a deduction is allowable
under section 243, 244, or 245 (other than 100 percent
dividends).
(ii) 100 percent dividend
(I) In general
The term "100 percent dividend" means any dividend if the
percentage used for purposes of determining the deduction
allowable under section 243, 244, or 245(b) is 100 percent.
(II) Certain dividends received by foreign corporations
A dividend received by a foreign corporation from a
domestic corporation which would be a 100 percent dividend
if section 1504(b)(3) did not apply for purposes of
applying section 243(b)(2) shall be treated as a 100
percent dividend.
(E) Special rules for dividends subject to proration at
subsidiary level
(i) In general
In the case of any 100 percent dividend paid to an
insurance company to which this part applies by any insurance
company, the amount of the decrease in the deductions of the
payee company by reason of the portion of such dividend
attributable to prorated amounts shall be reduced (but not
below zero) by the amount of the decrease in the deductions
(or increase in income) of the payor company attributable to
the application of this section or section 805(a)(4)(A) to
such amounts.
(ii) Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the
portion of any dividend attributable to prorated amounts -
(I) any dividend by the paying corporation shall be
treated as paid first out of earnings and profits
attributable to prorated amounts (to the extent thereof),
and
(II) by determining the portion of earnings and profits
so attributable without any reduction for the tax imposed
by this chapter.
(6) Expenses incurred
The term "expenses incurred" means all expenses shown on the
annual statement approved by the National Association of
Insurance Commissioners, and shall be computed as follows: To all
expenses paid during the taxable year, add expenses unpaid at the
end of the taxable year and deduct expenses unpaid at the end of
the preceding taxable year. For purposes of this subchapter, the
term "expenses unpaid" shall not include any unpaid loss
adjustment expenses shown on the annual statement, but such
unpaid loss adjustment expenses shall be included in unpaid
losses. For the purpose of computing the taxable income subject
to the tax imposed by section 831, there shall be deducted from
expenses incurred (as defined in this paragraph) all expenses
incurred which are not allowed as deductions by subsection (c).
(7) Special rules for applying paragraph (4)
(A) Reduction not to apply to life insurance reserves
Subparagraph (B) of paragraph (4) shall be applied with
respect to insurance contracts described in section
816(b)(1)(B) by substituting "100 percent" for "80 percent"
each place it appears in such subparagraph (B), and
subparagraph (C) of paragraph (4) shall be applied by not
taking such contracts into account.
(B) Special treatment of premiums attributable to insuring
certain securities
In the case of premiums attributable to insurance against
default in the payment of principal or interest on securities
described in section 165(g)(2)(C) with maturities of more than
5 years -
(i) subparagraph (B) of paragraph (4) shall be applied by
substituting "90 percent" for "80 percent" each place it
appears, and
(ii) subparagraph (C) of paragraph (4) shall be applied by
substituting "1 2/3 percent" for "3 1/3 percent".
(C) Termination as insurance company taxable under section
831(a)
Except as provided in section 381(c)(22) (relating to
carryovers in certain corporate readjustments), if, for any
taxable year beginning before January 1, 1993, the taxpayer
ceases to be an insurance company taxable under section 831(a),
the aggregate adjustments which would be made under paragraph
(4)(C) for such taxable year and subsequent taxable years but
for such cessation shall be made for the taxable year preceding
such cessation year.
(D) Treatment of companies which become taxable under section
831(a)
(i) Exception to phase-in for companies which were not
taxable, etc., before 1987
Subparagraph (C) of paragraph (4) shall not apply to any
insurance company which, for each taxable year beginning
before January 1, 1987, was not subject to the tax imposed by
section 821(a) (!1) or 831(a) (as in effect on the day before
the date of the enactment of the Tax Reform Act of 1986) by
reason of being -
(I) subject to tax under section 821(c) (!1) (as so in
effect), or
(II) described in section 501(c) (as so in effect) and
exempt from tax under section 501(a).
(ii) Phase-in beginning at later date for companies not 1st
taxable under section 831(a) in 1987
In the case of an insurance company -
(I) which was not subject to the tax imposed by section
831(a) for its 1st taxable year beginning after December
31, 1986, by reason of being subject to tax under section
831(b), or described in section 501(c) and exempt from tax
under section 501(a), and
(II) which, for any taxable year beginning before January
1, 1987, was subject to the tax imposed by section 821(a)
(!1) or 831(a) (as in effect on the day before the date of
the enactment of the Tax Reform Act of 1986),
subparagraph (C) of paragraph (4) shall apply beginning with
the 1st taxable year beginning after December 31, 1986, for
which such company is subject to the tax imposed by section
831(a) and shall be applied by substituting the last day of
the preceding taxable year for "December 31, 1986" and the
1st day of the 7th succeeding taxable year for "January 1,
1993".
(E) Treatment of certain reciprocal insurers
In the case of a reciprocal (within the meaning of section
835(a)) which reports (as required by State law) on its annual
statement reserves on unearned premiums net of premium
acquisition expenses -
(i) subparagraph (B) of paragraph (4) shall be applied by
treating unearned premiums as including an amount equal to
such expenses, and
(ii) appropriate adjustments shall be made under
subparagraph (c) of paragraph (4) to reflect the amount by
which -
(I) such reserves at the close of the most recent taxable
year beginning before January 1, 1987, are greater or less
than,
(II) 80 percent of the sum of the amount under subclause
(I) plus such premium acquisition expenses,(!2)
(8) Special rules for applying paragraph (4) to title insurance
premiums
(A) In general
In the case of premiums attributable to title insurance -
(i) subparagraph (B) of paragraph (4) shall be applied by
substituting "the discounted unearned premiums" for "80
percent of the unearned premiums" each place it appears, and
(ii) subparagraph (C) of paragraph (4) shall not apply.
(B) Method of discounting
For purposes of subparagraph (A), the amount of the
discounted unearned premiums as of the end of any taxable year
shall be the present value of such premiums (as of such time
and separately with respect to premiums received in each
calendar year) determined by using -
(i) the amount of the undiscounted unearned premiums at
such time,
(ii) the applicable interest rate, and
(iii) the applicable statutory premium recognition pattern.
(C) Determination of applicable factors
In determining the amount of the discounted unearned premiums
as of the end of any taxable year -
(i) Undiscounted unearned premiums
The term "undiscounted unearned premiums" means the
unearned premiums shown in the yearly statement filed by the
taxpayer for the year ending with or within such taxable
year.
(ii) Applicable interest rate
The term "applicable interest rate" means the annual rate
determined under 846(c)(2) for the calendar year in which the
premiums are received.
(iii) Applicable statutory premium recognition pattern
The term "applicable statutory premium recognition pattern"
means the statutory premium recognition pattern -
(I) which is in effect for the calendar year in which the
premiums are received, and
(II) which is based on the statutory premium recognition
pattern which applies to premiums received by the taxpayer
in such calendar year.
For purposes of the preceding sentence, premiums received
during any calendar year shall be treated as received in the
middle of such year.
(c) Deductions allowed
In computing the taxable income of an insurance company subject
to the tax imposed by section 831, there shall be allowed as
deductions:
(1) all ordinary and necessary expenses incurred, as provided
in section 162 (relating to trade or business expenses);
(2) all interest, as provided in section 163;
(3) taxes, as provided in section 164;
(4) losses incurred, as defined in subsection (b)(5) of this
section;
(5) capital losses to the extent provided in subchapter P (sec.
1201 and following, relating to capital gains and losses) plus
losses from capital assets sold or exchanged in order to obtain
funds to meet abnormal insurance losses and to provide for the
payment of dividends and similar distributions to policyholders.
Capital assets shall be considered as sold or exchanged in order
to obtain funds to meet abnormal insurance losses and to provide
for the payment of dividends and similar distributions to
policyholders to the extent that the gross receipts from their
sale or exchange are not greater than the excess, if any, for the
taxable year of the sum of dividends and similar distributions
paid to policyholders in their capacity as such, losses paid, and
expenses paid over the sum of the items described in section
834(b) (other than paragraph (1)(D) thereof) and net premiums
received. In the application of section 1212 for purposes of this
section, the net capital loss for the taxable year shall be the
amount by which losses for such year from sales or exchanges of
capital assets exceeds the sum of the gains from such sales or
exchanges and whichever of the following amounts is the lesser:
(A) the taxable income (computed without regard to gains or
losses from sales or exchanges of capital assets; or
(B) losses from the sale or exchange of capital assets sold
or exchanged to obtain funds to meet abnormal insurance losses
and to provide for the payment of dividends and similar
distributions to policyholders;
(6) debts in the nature of agency balances and bills receivable
which become worthless within the taxable year;
(7) the amount of interest earned during the taxable year which
under section 103 is excluded from gross income;
(8) the depreciation deduction allowed by section 167 and the
deduction allowed by section 611 (relating to depletion);
(9) charitable, etc., contributions, as provided in section
170;
(10) deductions (other than those specified in this subsection)
as provided in part VI of subchapter B (sec. 161 and following,
relating to itemized deductions for individuals and corporations)
and in part I of subchapter D (sec. 401 and following, relating
to pension, profit-sharing, stock bonus plans, etc.);
(11) dividends and similar distributions paid or declared to
policyholders in their capacity as such, except in the case of a
mutual fire insurance company described in subsection (b)(1)(C).
For purposes of the preceding sentence, the term "dividends and
similar distributions" includes amounts returned or credited to
policyholders on cancellation or expiration of policies described
in subsection (b)(1)(D). For purposes of this paragraph, the term
"paid or declared" shall be construed according to the method of
accounting regularly employed in keeping the books of the
insurance company;
(12) the special deductions allowed by part VIII of subchapter
B (sec. 241 and following, relating to dividends received); and
(13) in the case of a company which writes mortgage guaranty
insurance, the deduction allowed by subsection (e).
(d) Double deductions
Nothing in this section shall permit the same item to be deducted
more than once.
(e) Special deduction and income account
In the case of taxable years beginning after December 31, 1966,
of a company which writes mortgage guaranty insurance -
(1) Additional deduction
There shall be allowed as a deduction for the taxable year, if
bonds are purchased as required by paragraph (2), the sum of -
(A) an amount representing the amount required by State law
or regulation to be set aside in a reserve for mortgage
guaranty insurance losses resulting from adverse economic
cycles; and
(B) an amount representing the aggregate of amounts so set
aside in such reserve for the 8 preceding taxable years to the
extent such amounts were not deducted under this paragraph in
such preceding taxable years,
except that the deduction allowable for the taxable year under
this paragraph shall not exceed the taxable income for the
taxable year computed without regard to this paragraph or to any
carryback of a net operating loss. For purposes of this
paragraph, the amount required by State law or regulation to be
so set aside in any taxable year shall not exceed 50 percent of
premiums earned on insurance contracts (as defined in subsection
(b)(4)) with respect to mortgage guaranty insurance for such
year. For purposes of this subsection, all amounts shall be taken
into account on a first-in-time basis. The computation and
deduction under this section of losses incurred (including losses
resulting from adverse economic cycles) shall not be affected by
the provisions of this subsection. For purposes of this
subsection, the terms "preceding taxable years" and "preceding
taxable year" shall not include taxable years which began before
January 1, 1967.
(2) Purchase of bonds
The deduction under paragraph (1) shall be allowed only to the
extent that tax and loss bonds are purchased in an amount equal
to the tax benefit attributable to such deduction, as determined
under regulations prescribed by the Secretary, on or before the
date that any taxes (determined without regard to this
subsection) due for the taxable year for which the deduction is
allowed are due to be paid. If a deduction would be allowed but
for the fact that tax and loss bonds were not timely purchased,
such deduction shall be allowed to the extent such purchases are
made within a reasonable time, as determined by the Secretary, if
all interest and penalties, computed as if this sentence did not
apply, are paid.
(3) Mortgage guaranty account
Each company which writes mortgage guaranty insurance shall,
for purposes of this part, establish and maintain a mortgage
guaranty account.
(4) Additions to account
There shall be added to the mortgage guaranty account for each
taxable year an amount equal to the amount allowed as a deduction
for the taxable year under paragraph (1).
(5) Subtractions from account and inclusion in gross income
After applying paragraph (4), there shall be subtracted for the
taxable year from the mortgage guaranty account and included in
gross income -
(A) the amount (if any) remaining which was added to the
account for the tenth preceding taxable year,
(B) the excess (if any) of the aggregate amount in the
mortgage guaranty account over the aggregate amount in the
reserve referred to in paragraph (1)(A). For purposes of
determining such excess, the aggregate amount in the mortgage
guaranty account shall be determined after applying
subparagraph (A), and the aggregate amount in the reserve
referred to in paragraph (1)(A) shall be determined by
disregarding any amounts remaining in such reserve added for
taxable years beginning before January 1, 1967,
(C) an amount (if any) equal to the net operating loss for
the taxable year computed without regard to this subparagraph,
and
(D) any amount improperly subtracted from the account under
subparagraph (A), (B), or (C) to the extent that tax and loss
bonds were redeemed with respect to such amount.
If a company liquidates or otherwise terminates its mortgage
guaranty insurance business and does not transfer or distribute
such business in an acquisition of assets referred to in section
381(a), the entire amount remaining in such account shall be
subtracted. Except in the case where a company transfers or
distributes its mortgage guaranty insurance in an acquisition of
assets referred to in section 381(a), if the company is not
subject to the tax imposed by section 831 for any taxable year,
the entire amount in the account at the close of the preceding
taxable year shall be subtracted from the account in such
preceding taxable year.
(6) Lease guaranty insurance; insurance of State and local
obligations
In the case of any taxable year beginning after December 31,
1970, the provisions of this subsection shall also apply in all
respects to a company which writes lease guaranty insurance or
insurance on obligations the interest on which is excludable from
gross income under section 103. In applying this subsection to
such a company, any reference to mortgage guaranty insurance
contained in this section shall be deemed to be a reference also
to lease guaranty insurance and to insurance on obligations the
interest on which is excludable from gross income under section
103; and in the case of insurance on obligations the interest on
which is excludable from gross income under section 103, the
references in paragraph (1) to "losses resulting from adverse
economic cycles" include losses from declining revenues related
to such obligations (as well as losses resulting from adverse
economic cycles), and the time specified in subparagraph (A) of
paragraph (5) shall be the twentieth preceding taxable year.
(f) Interinsurers
In the case of a mutual insurance company which is an
interinsurer or reciprocal underwriter -
(1) there shall be allowed as a deduction the increase for the
taxable year in savings credited to subscriber accounts, or
(2) there shall be included as an item of gross income the
decrease for the taxable year in savings credited to subscriber
accounts.
For purposes of the preceding sentence, the term "savings credited
to subscriber accounts" means such portion of the surplus as is
credited to the individual accounts of subscribers before the 16th
day of the 3rd month following the close of the taxable year, but
only if the company would be obligated to pay such amount promptly
to such subscriber if he terminated his contract at the close of
the company's taxable year. For purposes of determining his taxable
income, the subscriber shall treat any such savings credited to his
account as a dividend paid or declared.
(g) Dividends within group
In the case of an insurance company subject to tax under section
831(a) filing or required to file a consolidated return under
section 1501 with respect to any affiliated group for any taxable
year, any determination under this part with respect to any
dividend paid by one member of such group to another member of such
group shall be made as if such group were not filing a consolidated
return.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 264; Mar. 13, 1956, ch. 83, Sec.
3(b), 70 Stat. 48; Pub. L. 87-834, Sec. 8(e)(2)-(5), Oct. 16, 1962,
76 Stat. 997, 998; Pub. L. 88-272, title II, Sec. 228(c), Feb. 26,
1964, 78 Stat. 99; Pub. L. 89-809, title I, Sec. 104(i)(7), Nov.
13, 1966, 80 Stat. 1562; Pub. L. 90-240, Sec. 5(a)-(c), Jan. 2,
1968, 81 Stat. 776, 777; Pub. L. 93-483, Sec. 5, Oct. 26, 1974, 88
Stat. 1458; Pub. L. 94-455, title XIX, Secs. 1901(a)(108),
(b)(1)(T), (U), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1792,
1834; Pub. L. 97-248, title II, Sec. 234(b)(2)(A), Sept. 3, 1982,
96 Stat. 503; Pub. L. 98-369, div. A, title II, Sec. 211(b)(9),
July 18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Secs.
1021(a), (b), 1022(a), 1023(a), 1024(c)(1)-(6), Oct. 22, 1986, 100
Stat. 2395, 2397, 2399, 2406, 2407; Pub. L. 100-647, title I, Sec.
1010(c), (d)(1), (2), Nov. 10, 1988, 102 Stat. 3451-3453; Pub. L.
101-508, title XI, Secs. 11303(a), (b), 11305(a), Nov. 5, 1990, 104
Stat. 1388-450, 1388-451; Pub. L. 104-188, title I, Secs.
1702(h)(3), 1704(t)(45), Aug. 20, 1996, 110 Stat. 1873, 1889; Pub.
L. 105-34, title X, Sec. 1084(b)(4), Aug. 5, 1997, 111 Stat. 955.)
-REFTEXT-
REFERENCES IN TEXT
Section 821, referred to in subsec. (b)(7)(D), was repealed by
Pub. L. 99-514, title X, Sec. 1024(a)(1), Oct. 22, 1986, 100 Stat.
2405.
The date of the enactment of the Tax Reform Act of 1986, referred
to in subsec. (b)(7)(D), is the date of enactment of Pub. L.
99-514, which was approved Oct. 22, 1986.
-COD-
CODIFICATION
Another section 1084(b) of Pub. L. 105-34 amended sections 101
and 264 of this title.
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(5)(B)(iii). Pub. L. 105-34, which directed
amendment of subpar. (B) by adding cl. (iii) at the end, was
executed by adding cl. (iii) after cl. (ii) to reflect the probable
intent of Congress.
1996 - Subsec. (b)(5)(C)(ii)(II), (D)(ii)(II). Pub. L. 104-188,
Sec. 1702(h)(3), substituted "243(b)(2)" for "243(b)(5)".
Subsec. (b)(7)(A). Pub. L. 104-188, Sec. 1704(t)(45), provided
that section 11303(b)(1) of Pub. L. 101-508 shall be applied as if
"paragraph" appeared instead of "subparagraph" in the material
proposed to be stricken. See 1990 Amendment note below.
1990 - Subsec. (b)(4). Pub. L. 101-508, Sec. 11303(a),
substituted "section 807." for "section 807, pertaining to the
life, burial, or funeral insurance, or annuity business of an
insurance company subject to the tax imposed by section 831 and not
qualifying as a life insurance company under section 816." in first
sentence after subpar. (C).
Subsec. (b)(5)(A). Pub. L. 101-508, Sec. 11305(a), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: "The term 'losses incurred' means losses incurred during
the taxable year on insurance contracts, computed as follows:
"(i) To losses paid during the taxable year, add salvage and
reinsurance recoverable outstanding at the end of the preceding
taxable year and deduct salvage and reinsurance recoverable
outstanding at the end of the taxable year.
"(ii) To the result so obtained, add all unpaid losses on life
insurance contracts plus all discounted unpaid losses (as defined
in section 846) outstanding at the end of the taxable year and
deduct unpaid losses on life insurance contracts plus all
discounted unpaid losses outstanding at the end of the preceding
taxable year."
Subsec. (b)(7)(A). Pub. L. 101-508, Sec. 11303(b)(2), substituted
"such contracts into account" for "such amounts into account".
Pub. L. 101-508, Sec. 11303(b)(1), which directed the
substitution of "insurance contracts described in section
816(b)(1)(B)" for "amounts included in unearned premiums under the
2nd sentence of such subparagraph", was executed by making the
substitution for "amounts included in unearned premiums under the
2nd sentence of such paragraph". See 1996 Amendment note above.
1988 - Subsec. (b)(5)(B)(ii)(II). Pub. L. 100-647, Sec.
1010(d)(2), inserted "(directly or indirectly)" after
"attributable".
Subsec. (b)(7)(C). Pub. L. 100-647, Sec. 1010(c)(1), substituted
"insurance company taxable under section 831(a)" for "nonlife
insurance company" in heading and "section 831(a)" for "this part"
in text.
Subsec. (b)(7)(D), (E). Pub. L. 100-647, Sec. 1010(c)(2), added
subpars. (D) and (E).
Subsec. (e)(5)(A). Pub. L. 100-647, Sec. 1010(c)(3), struck out
"and" after "preceding taxable year,".
Subsec. (e)(5)(B). Pub. L. 100-647, Sec. 1010(c)(3), which
directed amendment of subpar. (B) by substituting a comma for the
period at end, could not be executed because there was no period at
end of subpar. (B).
Subsec. (g). Pub. L. 100-647, Sec. 1010(d)(1), added subsec. (g).
1986 - Subsec. (b)(1)(C). Pub. L. 99-514, Sec. 1024(c)(1),
substituted "exclusively issuing perpetual policies" for "described
in section 831(a)(3)(A)".
Subsec. (b)(1)(D). Pub. L. 99-514, Sec. 1024(c)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: "in the case of a mutual fire or flood insurance company
described in section 831(a)(3)(B), an amount equal to 2 percent of
the premiums earned on insurance contracts during the taxable year
with respect to policies described in section 831(a)(3)(B) after
deduction of premium deposits returned or credited during the same
taxable year, and".
Subsec. (b)(4). Pub. L. 99-514, Sec. 1024(c)(3), substituted
"paragraph (1)(D)" for "section 831(a)(3)(B)" in two places and
amended last sentence generally, substituting "described in
paragraph (1)(D) or issuing exclusively perpetual policies" for
"referred to in paragraph (3) of section 831(a)" and "described in
subparagraph (C) or (D) of paragraph (1)" for "referred to in such
paragraph (3)".
Subsec. (b)(4)(B), (C). Pub. L. 99-514, Sec. 1021(a), added
subpars. (B) and (C) and struck out former subpar. (B) which read
as follows: "To the result so obtained, add unearned premiums on
outstanding business at the end of the preceding taxable year and
deduct unearned premiums on outstanding business at the end of the
taxable year."
Subsec. (b)(5)(A). Pub. L. 99-514, Sec. 1022(a), in amending par.
(5) generally, designated existing provisions of par. (5) as
subpar. (A), inserted subpar. heading "In general", and
redesignated former subpars. (A) and (B) as cls. (i) and (ii).
Subsec. (b)(5)(A)(ii). Pub. L. 99-514, Sec. 1023(a)(1), amended
cl. (ii) generally, inserting "on life insurance contracts plus all
discounted unpaid losses (as defined in section 846)" and "on life
insurance contracts plus all discounted unpaid losses".
Subsec. (b)(5)(B) to (E). Pub. L. 99-514, Sec. 1022(a), in
amending par. (5) generally, added subpars. (B) to (E). Former
subpar. (B) redesignated (A)(ii).
Subsec. (b)(6). Pub. L. 99-514, Sec. 1023(a)(2), inserted second
sentence defining "expenses unpaid".
Subsec. (b)(7), (8). Pub. L. 99-514, Sec. 1021(b), added pars.
(7) and (8).
Subsec. (c)(5). Pub. L. 99-514, Sec. 1024(c)(4), substituted
"section 834(b)" for "section 822(b)".
Subsec. (c)(11). Pub. L. 99-514, Sec. 1024(c)(5), substituted
"subsection (b)(1)(C)" for "section 831(a)(3)(A)" and "subsection
(b)(1)(D)" for "section 831(a)(3)(B)".
Subsec. (f). Pub. L. 99-514, Sec. 1024(c)(6), added subsec. (f).
1984 - Subsec. (b)(4). Pub. L. 98-369, in provisions following
subpar. (B), substituted "section 816(b) but determined as provided
in section 807" and "section 816" for "section 801(b)" and "section
801", respectively.
1982 - Subsec. (e)(2). Pub. L. 97-248 struck out ", as if no
election to make installment payments under section 6152 is made"
after "due to be paid".
1976 - Subsec. (b)(1), (6). Pub. L. 94-455, Sec. 1901(a)(108),
substituted "Association" for "Convention".
Subsec. (c)(5)(A). Pub. L. 94-455, Sec. 1901(b)(1)(T), struck out
"or to the deductions provided in section 242 for partially
tax-exempt interest" after "exchanges of capital assets".
Subsec. (c)(12). Pub. L. 94-455, Sec. 1901(b)(1)(U), struck out
"partially tax-exempt interest and to" after "and following,
relating to".
Subsec. (e)(2). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out
"or his delegate" after "Secretary".
1974 - Subsec. (e)(6). Pub. L. 93-483 added par. (6).
1968 - Subsec. (b)(1)(E). Pub. L. 90-240, Sec. 5(a), added
subpar. (E).
Subsec. (c)(13). Pub. L. 90-240, Sec. 5(b), added par. (13).
Subsec. (e). Pub. L. 90-240, Sec. 5(c), added subsec. (e).
1966 - Subsec. (d). Pub. L. 89-809 redesignated subsec. (e) as
(d). Former subsec. (d), having reference to the taxable income of
foreign insurance companies other than life or mutual and foreign
mutual marine, was struck out.
Subsec. (e). Pub. L. 89-809 redesignated subsec. (e) as (d).
1964 - Subsec. (c)(10). Pub. L. 88-272 inserted reference to part
I of subchapter D.
1962 - Subsec. (b)(1)(C). Pub. L. 87-834, Sec. 8(e)(3), (5),
substituted "section 831(a)(3)(A)" for "section 831(a)".
Subsec. (b)(1)(D). Pub. L. 87-834, Sec. 8(e)(5), added subpar.
(D).
Subsec. (b)(4). Pub. L. 87-834, Sec. 8(e)(2), inserted provisions
defining unearned premiums of mutual fire or flood insurance
companies, and which require premiums paid by the subscriber of a
mutual flood insurance company to be treated, for purposes of
computing the taxable income of such subscriber, in the same manner
as premiums paid by a policyholder to a mutual fire insurance
company referred to in par. (3) of section 831(a) of this title.
Subsec. (c)(11). Pub. L. 87-834, Sec. 8(e)(4), substituted
"section 831(a)(3)(A)" for "section 831(a)", and inserted
definition of "dividends and similar distributions".
1956 - Subsec. (b)(4). Act Mar. 13, 1956, Sec. 3(b)(1),
substituted "section 801(b)" for "section 806".
Subsec. (c). Act Mar. 13, 1956, Sec. 3(b)(2), (3), substituted
"the items described in section 822(b) (other than paragraph (1)(D)
thereof) and net premiums received. In the application of section
1212" for "interest, dividends, rents, and net premiums received.
In the application of section 1211" in par. (5), and authorized the
deduction for depletion in par. (8).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to contracts issued after
June 8, 1997, in taxable years ending after such date, with special
provisions relating to changes in contracts to be treated as new
contracts, see section 1084(d) of Pub. L. 105-34, set out as a note
under section 101 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(h)(3) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11303(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [amending
this section] shall apply to taxable years beginning on or after
September 30, 1990.
"(2) Amendments treated as change in method of accounting. - In
the case of any taxpayer who is required by reason of the
amendments made by this section to change his method of computing
reserves -
"(A) such change shall be treated as a change in a method of
accounting,
"(B) such change shall be treated as initiated by the taxpayer,
"(C) such change shall be treated as having been made with the
consent of the Secretary, and
"(D) the net adjustments which are required by section 481 of
the Internal Revenue Code of 1986 to be taken into account by the
taxpayer shall be taken into account over a period not to exceed
4 taxable years beginning with the taxpayer's first taxable year
beginning on or after September 30, 1990.
"(3) Coordination with section 832(b)(4)(C). - The amendments
made by this section shall not affect the application of section
832(b)(4)(C) of the Internal Revenue Code of 1986."
Section 11305(c) of Pub. L. 101-508 provided that:
"(1) In general. - The amendments made by this section [amending
this section and section 846 of this title] shall apply to taxable
years beginning after December 31, 1989.
"(2) Amendments treated as change in method of accounting. -
"(A) In general. - In the case of any taxpayer who is required
by reason of the amendments made by this section to change his
method of computing losses incurred -
"(i) such change shall be treated as a change in a method of
accounting,
"(ii) such change shall be treated as initiated by the
taxpayer, and
"(iii) such change shall be treated as having been made with
the consent of the Secretary.
"(B) Adjustments. - In applying section 481 of the Internal
Revenue Code of 1986 with respect to the change referred to in
subparagraph (A) -
"(i) only 13 percent of the net amount of adjustments
(otherwise required by such section 481 to be taken into
account by the taxpayer) shall be taken into account, and
"(ii) the portion of such net adjustments which is required
to be taken into account by the taxpayer (after the application
of clause (i)) shall be taken into account over a period not to
exceed 4 taxable years beginning with the taxpayer's 1st
taxable year beginning after December 31, 1989.
"(3) Treatment of companies which took into account salvage
recoverable. - In the case of any insurance company which took into
account salvage recoverable in determining losses incurred for its
last taxable year beginning before January 1, 1990, 87 percent of
the discounted amount of estimated salvage recoverable as of the
close of such last taxable year shall be allowed as a deduction
ratably over its 1st 4 taxable years beginning after December 31,
1989.
"(4) Special rule for overestimates. - If for any taxable year
beginning after December 31, 1989 -
"(A) the amount of the section 481 adjustment which would have
been required without regard to paragraph (2) and any
discounting, exceeds
"(B) the sum of the amount of salvage recovered taken into
account under section 832(b)(5)(A)(i) for the taxable year and
any preceding taxable year beginning after December 31, 1989,
attributable to losses incurred with respect to any accident year
beginning before 1990 and the undiscounted amount of estimated
salvage recoverable as of the close of the taxable year on
account of such losses,
87 percent of such excess (adjusted for discounting used in
determining the amount of salvage recoverable as of the close of
the last taxable year of the taxpayer beginning before January 1,
1990) shall be included in gross income for such taxable year.
"(5) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1989, shall be increased by the amount of the section
481 adjustment which would have been required but for paragraph
(2). For purposes of applying sections 56, 902, 952(c)(1), and 960
of the Internal Revenue Code of 1986, earnings and profits of a
corporation shall be determined by applying the principles of
paragraph (2)(B)."
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1021(c) of Pub. L. 99-514 provided that:
"(1) In general. - The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1986.
"(2) Special transitional rule for title insurance companies. -
For the 1st taxable year beginning after December 31, 1986, in the
case of premiums attributable to title insurance -
"(A) In general. - The unearned premiums at the end of the
preceding taxable year as defined in paragraph (4) of section
832(b) [of the Internal Revenue Code of 1986] shall be determined
as if the amendments made by this section had applied to such
unearned premiums in the preceding taxable year and by using the
interest rate and premium recognition pattern applicable to years
ending in calendar year 1987.
"(B) Fresh start. - Except as provided in subparagraph (C), any
difference between -
"(i) the amount determined to be unearned premiums for the
year preceding the first taxable year of a title insurance
company beginning after December 31, 1986, determined without
regard to subparagraph (A), and
"(ii) such amount determined with regard to subparagraph (A),
shall not be taken into account for purposes of the Internal
Revenue Code of 1986.
"(C) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1986, shall be increased by the amount of the
difference determined under subparagraph (A) with respect to such
company."
Section 1022(b) of Pub. L. 99-514 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years beginning after December 31, 1986."
Amendment by section 1023(a) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, except as otherwise
provided, see section 1023(e) of Pub. L. 99-514, set out as an
Effective Date note under section 846 of this title.
Amendment by section 1024(c)(1)-(6) of Pub. L. 99-514 applicable
to taxable years beginning after Dec. 31, 1986, see section 1024(e)
of Pub. L. 99-514, set out as a note under section 831 of this
title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 234(e) of Pub. L. 97-248, set out
as a note under section 6655 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(108), (b)(1)(T), (U) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
EFFECTIVE DATE OF 1968 AMENDMENT
Section 5(e) of Pub. L. 90-240, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsections (a), (b), (c), and (d) [amending
this section and section 381 of this title] shall apply to taxable
years beginning after December 31, 1966, except that so much of
section 832(e)(2) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954] (as added by the amendment made by subsection (c)) as
provides for payment of interest and penalties for failure to make
a timely purchase of tax and loss bonds shall not apply with
respect to any period during which such bonds are not available for
purchase."
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1964 AMENDMENT
Section 228(d) of Pub. L. 88-272 provided that: "The amendment
made by subsection (a) [amending former section 809 of this title]
shall apply to taxable years beginning after December 31, 1961. The
amendment made by subsection (c) [amending this section] shall
apply to taxable years beginning after December 31, 1953, and
ending after August 16, 1954."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
DEDUCTION FROM EARNINGS AND PROFITS OF INSURANCE COMPANIES TO WHICH
SECTION 11305(C)(3) OF PUB. L. 101-508 APPLIES
Section 1702(c)(4) of Pub. L. 104-188 provided that: "The
earnings and profits of any insurance company to which section
11305(c)(3) of the Revenue Reconciliation Act of 1990 [Pub. L.
101-508, set out above] applies shall be determined without regard
to any deduction allowed under such section; except that, for
purposes of applying sections 56 and 902, and subpart F of part III
of subchapter N of chapter 1 of the Internal Revenue Code of 1986,
such deduction shall be taken into account."
ACQUISITION DATE OF CERTAIN STOCKS OR OBLIGATIONS FOR PURPOSES OF
SUBSECTION (B)(5)(C)(I)
Section 1010(d)(3) of Pub. L. 100-647 provided that: "For
purposes of section 832(b)(5)(C)(i) of the 1986 Code, any stock or
obligation acquired on or after August 8, 1986, by an insurance
company subject to the tax imposed by section 831 of the 1986 Code
(hereinafter in this paragraph referred to as the 'acquiring
company') from another insurance company so subject (hereinafter in
this paragraph referred to as the 'transferor company') shall be
treated as acquired on the date on which such stock or obligation
was acquired by the transferor company if -
"(A) the transferor company acquired such stock or obligation
before August 8, 1986, and
"(B) at all times after the date on which such stock or
obligation was acquired by the transferor company and before the
date of the acquisition by the acquiring company, the transferor
company and the acquiring company were members of the same
affiliated group filing a consolidated return.
For purposes of the preceding sentence, the date on which the stock
or obligation was acquired by the transferor company shall be
determined with regard to any prior application of the preceding
sentence. For purposes of this paragraph, if the acquiring
corporation or transferor corporation was a party to a
reorganization described in section 368(a)(1)(F) of the 1986 Code,
any reference to such corporation shall include a reference to any
predecessor thereof involved in such reorganization."
STUDY OF TREATMENT OF PROPERTY AND CASUALTY INSURANCE COMPANIES
Section 1025 of subtitle C (Secs. 1021-1025) of title X of Pub.
L. 99-514 directed Secretary of the Treasury or his delegate to
conduct a study of the treatment of policyholder dividends by
mutual property and casualty insurance companies, the treatment of
property and casualty insurance companies under the minimum tax,
and the operation and effect of, and revenue raised by, the
amendments made by this subtitle, and not later than Jan. 1, 1989
(due date extended to Jan. 1, 1992, by Pub. L. 101-508, title XI,
Sec. 11831(b), Nov. 5, 1990, 104 Stat. 1388-559), such Secretary to
submit to Committee on Ways and Means of House of Representatives,
Committee on Finance of Senate, and Joint Committee on Taxation,
the results of such study, together with such recommendations as he
determined to be appropriate.
PHYSICIANS' AND SURGEONS' MUTUAL PROTECTION AND INTERINDEMNITY
ARRANGEMENTS OR ASSOCIATIONS
Section 1031 of subtitle D of title X of Pub. L. 99-514, as
amended by Pub. L. 100-647, title I, Sec. 1010(g), Nov. 10, 1988,
102 Stat. 3455, provided that:
"(a) Certain Physicians' and Surgeons' Mutual Protection and
Interindemnity Arrangements or Associations. -
"(1) Treatment of arrangements or associations. -
"(A) Capital contributions. - There shall not be included in
the gross income of any eligible physicians' and surgeons'
mutual protection and interindemnity arrangement or association
any initial payment (whether made in a lump sum or a series of
substantially equal payments over a period of not more than 6
years) made during any taxable year to such arrangement or
association by a member joining such arrangement or association
which -
"(i) does not release such member from obligations to pay
current or future dues, assessments, or premiums; and
"(ii) is a condition precedent to receiving benefits of
membership.
Such initial payment shall be included in the gross income of
such arrangement or association for such taxable year if it is
reasonable to expect that such payment will be deductible
pursuant to paragraph (2) by any member of such arrangement or
association.
"(B) Return of contributions. -
"(i) In general. - The repayment to any member of any
amount of any payment excluded under subparagraph (A) shall
not be treated as policyholder dividend, and is not
deductible by the arrangement or association.
"(ii) Source of returns. - Except in the case of the
termination of a member's interest in the arrangement or
association, any amount distributed to any member shall be
treated as paid out of surplus in excess of amounts excluded
under subparagraph (A).
"(2) Deduction for members of eligible arrangements or
associations. -
"(A) Payment as trade or business expenses. - To the extent
not otherwise allowable under the Internal Revenue Code of
1986, any member of any eligible arrangement or association may
treat any initial payment referred to in paragraph (1) made
during a taxable year to such arrangement or association as an
ordinary and necessary expense incurred in connection with a
trade or business for purposes of the deduction allowable under
section 162, to the extent such payment does not exceed the
amount which would be payable to an independent insurance
company for similar annual insurance coverage (as determined by
the Secretary), and further reduced by any annual dues,
assessments, or premiums paid during such taxable year. Such
deduction shall not be allowable as to any initial payment
referred to in paragraph (1) made to an eligible arrangement or
association by any person who is a member of any other eligible
arrangement or association on or after the effective date of
the Tax Reform Act of 1986. Any excess amount not allowed as a
deduction for the taxable year in which such payment was made
pursuant to the limitation contained in the 1st sentence of
this subparagraph shall, subject to such limitation, be
allowable as a deduction in any of the 5 succeeding taxable
years, in order of time, to the extent not previously allowed
as a deduction under this sentence.
"(B) Refunds of initial payments. - Any amount attributable
to any initial payment referred to in paragraph (1) to such
arrangement or association described in paragraph (1) which is
later refunded for any reason shall be included in the gross
income of the recipient in the taxable year received, to the
extent a deduction for such payment was allowed. Any amount
refunded in excess of such payment shall be included in gross
income except to the extent otherwise excluded from income by
the Internal Revenue Code of 1986.
"(3) Eligible arrangements or associations. - The terms
'eligible physicans' [sic] and surgeons' mutual protection and
interindemnity arrangement or association' and 'eligible
arrangement or association' mean and are limited to any mutual
protection and interindemnity arrangement or association that
provides only medical malpractice liability protection for its
members or medical malpractice liability protection in
conjunction with protection against other liability claims
incurred in the course of, or related to, the professional
practice of a physician or surgeon and which -
"(A) was operative and was providing such protection, or had
received a permit for the offer and sale of memberships, under
the laws of any State before January 1, 1984,
"(B) is not subject to regulation by any State insurance
department,
"(C) has a right to make unlimited assessments against all
members to cover current claims and losses, and
"(D) is not a member of, nor subject to protection by, any
insurance guaranty plan or association of any State.
"(b) Effective Date. - The provisions of subsection (a) shall
apply to payments made to and receipts of physicians' and surgeons'
mutual protection and interindemnity arrangements or associations,
and refunds of payments by such arrangements or associations, after
the date of the enactment of this Act [Oct. 22, 1986], in taxable
years ending after such date."
TREATMENT AS UNEARNED PREMIUMS OF ADDITIONS TO RESERVES REQUIRED BY
STATE LAW OR REGULATIONS FOR MORTGAGE GUARANTY INSURANCE LOSSES
Section 5(g) of Pub. L. 90-240, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) In the case of taxable years beginning before 1967, a
company shall treat additions to a reserve, required by State law
or regulations for mortgage guaranty insurance losses resulting
from adverse economic cycles, as unearned premiums for purposes of
section 832(b)(4) of the Internal Revenue Code of 1986 [formerly
I.R.C. 1954], but the amount so treated as unearned premiums in a
taxable year shall not exceed 50 percent of premiums earned on
insurance contracts (as defined in section 832(b)(4) of such Code),
determined without regard to amounts added to the reserve, with
respect to mortgage guaranty insurance for such year. The amount of
unearned premiums at the close of 1966 shall be determined without
regard to the preceding sentence for the purpose of applying
section 832(b)(4) of such Code to 1967. Additions to such a reserve
shall not be treated as unearned premiums for any taxable year
beginning after 1966.
"(2) If a mortgage guaranty insurance company made additions to a
reserve which were so treated as unearned premiums described in
paragraph (1), such company, in taxable years beginning after 1966,
shall include in gross income (in addition to the items specified
in section 832(b)(1) of such Code) the sum of the following amounts
until there is included in gross income an amount equal to the
aggregate additions to the reserve described in paragraph (1) for
taxable years beginning before 1967:
"(A) an amount (if any) equal to the excess of losses incurred
(as defined in section 832(b)(5) of such Code) for the taxable
year over 35 percent of premiums earned on insurance contracts
during the taxable year (as defined in section 832(b)(4) of such
Code), determined without regard to amounts added to the reserve
referred to in paragraph (1), with respect to mortgage guaranty
insurance,
"(B) the amount (if any) remaining which was added to the
reserve for the tenth preceding taxable year, and
"(C) the excess (if any) of -
"(i) the aggregate of amounts so treated as unearned premiums
for all taxable years beginning before 1967 less the total of
the amounts included in gross income under this paragraph for
prior taxable years and the amounts included in gross income
under subparagraphs (A) and (B) for the taxable year, over
"(ii) the aggregate of the additions made for taxable years
beginning before 1967 which remain in the reserve at the close
of the taxable year.
Amounts shall be taken into account on a first-in-time basis. For
purposes of section 832(e) of such Code and this paragraph, if part
of the reserve is reduced under State law or regulation, such
reduction shall first apply to the extent of amounts added to the
reserve for taxable years beginning before 1967, and only then to
amounts added thereafter.
"(3) The provisions of this subsection shall apply to taxable
years beginning after December 31, 1956."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 543, 833, 841, 844, 861,
953, 954, 6511 of this title; title 31 section 3109.
-FOOTNOTE-
(!1) See References in Text note below.
(!2) So in original. The comma probably should be a period.
-End-
-CITE-
26 USC Sec. 833 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 833. Treatment of Blue Cross and Blue Shield organizations,
etc.
-STATUTE-
(a) General rule
In the case of any organization to which this section applies -
(1) Treated as stock company
Such organization shall be taxable under this part in the same
manner as if it were a stock insurance company.
(2) Special deduction allowed
The deduction determined under subsection (b) for any taxable
year shall be allowed.
(3) Reductions in unearned premium reserves not to apply
Subparagraph (B) of paragraph (4) of section 832(b) shall be
applied by substituting "100 percent" for "80 percent", and
subparagraph (C) of such paragraph (4) shall not apply.
(b) Amount of deduction
(1) In general
Except as provided in paragraph (2), the deduction determined
under this subsection for any taxable year is the excess (if any)
of -
(A) 25 percent of the sum of -
(i) the claims incurred during the taxable year and
liabilities incurred during the taxable year under cost-plus
contracts, and
(ii) the expenses incurred during the taxable year in
connection with the administration, adjustment, or settlement
of claims or in connection with the administration of
cost-plus contracts, over
(B) the adjusted surplus as of the beginning of the taxable
year.
(2) Limitation
The deduction determined under paragraph (1) for any taxable
year shall not exceed taxable income for such taxable year
(determined without regard to such deduction).
(3) Adjusted surplus
For purposes of this subsection -
(A) In general
The adjusted surplus as of the beginning of any taxable year
is an amount equal to the adjusted surplus as of the beginning
of the preceding taxable year -
(i) increased by the amount of any adjusted taxable income
for such preceding taxable year, or
(ii) decreased by the amount of any adjusted net operating
loss for such preceding taxable year.
(B) Special rule
The adjusted surplus as of the beginning of the
organization's 1st taxable year beginning after December 31,
1986, shall be its surplus as of such time. For purposes of the
preceding sentence and subsection (c)(3)(C), the term "surplus"
means the excess of the total assets over total liabilities as
shown on the annual statement.
(C) Adjusted taxable income
The term "adjusted taxable income" means taxable income
determined -
(i) without regard to the deduction determined under this
subsection,
(ii) without regard to any carryforward or carryback to
such taxable year, and
(iii) by increasing gross income by an amount equal to the
net exempt income for the taxable year.
(D) Adjusted net operating loss
The term "adjusted net operating loss" means the net
operating loss for any taxable year determined with the
adjustments set forth in subparagraph (C).
(E) Net exempt income
The term "net exempt income" means -
(i) any tax-exempt interest received or accrued during the
taxable year, reduced by any amount (not otherwise
deductible) which would have been allowable as a deduction
for the taxable year if such interest were not tax-exempt,
and
(ii) the aggregate amount allowed as a deduction for the
taxable year under sections 243, 244, and 245.
The amount determined under clause (ii) shall be reduced by the
amount of any decrease in deductions allowable for the taxable
year by reason of section 832(b)(5)(B) to the extent such
decrease is attributable to deductions under sections 243, 244,
and 245.
(4) Only health-related items taken into account
Any determination under this subsection shall be made by only
taking into account items attributable to the health-related
business of the taxpayer.
(c) Organizations to which section applies
(1) In general
This section shall apply to -
(A) any existing Blue Cross or Blue Shield organization, and
(B) any other organization meeting the requirements of
paragraph (3).
(2) Existing Blue Cross or Blue Shield organization
The term "existing Blue Cross or Blue Shield organization"
means any Blue Cross or Blue Shield organization if -
(A) such organization was in existence on August 16, 1986,
(B) such organization is determined to be exempt from tax for
its last taxable year beginning before January 1, 1987, and
(C) no material change has occurred in the operations of such
organization or in its structure after August 16, 1986, and
before the close of the taxable year.
To the extent permitted by the Secretary, any successor to an
organization meeting the requirements of the preceding sentence,
and any organization resulting from the merger or consolidation
of organizations each of which met such requirements, shall be
treated as an existing Blue Cross or Blue Shield organization.
(3) Other organizations
(A) In general
An organization meets the requirements of this paragraph for
any taxable year if -
(i) substantially all the activities of such organization
involve the providing of health insurance,
(ii) at least 10 percent of the health insurance provided
by such organization is provided to individuals and small
groups (not taking into account any medicare supplemental
coverage),
(iii) such organization provides continuous full-year open
enrollment (including conversions) for individuals and small
groups,
(iv) such organization's policies covering individuals
provide full coverage of pre-existing conditions of high-risk
individuals without a price differential (with a reasonable
waiting period), and coverage is provided without regard to
age, income, or employment status of individuals under age
65,
(v) at least 35 percent of its premiums are determined on a
community rated basis, and
(vi) no part of its net earnings inures to the benefit of
any private shareholder or individual.
(B) Small group defined
For purposes of subparagraph (A), the term "small group"
means the lesser of -
(i) 15 individuals, or
(ii) the number of individuals required for a small group
under applicable State law.
(C) Special rule for determining adjusted surplus
For purposes of subsection (b), the adjusted surplus of any
organization meeting the requirements of this paragraph as of
the beginning of the 1st taxable year for which it meets such
requirements shall be its surplus as of such time.
(4) Treatment as existing Blue Cross or Blue Shield organization
(A) In general
Paragraph (2) shall be applied to an organization described
in subparagraph (B) as if it were a Blue Cross or Blue Shield
organization.
(B) Applicable organization
An organization is described in this subparagraph if it -
(i) is organized under, and governed by, State laws which
are specifically and exclusively applicable to not-for-profit
health insurance or health service type organizations, and
(ii) is not a Blue Cross or Blue Shield organization or
health maintenance organization.
-SOURCE-
(Added Pub. L. 99-514, title X, Sec. 1012(b)(1), Oct. 22, 1986, 100
Stat. 2391; amended Pub. L. 104-191, title III, Sec. 351(a), Aug.
21, 1996, 110 Stat. 2071; Pub. L. 105-34, title XVI, Sec.
1604(d)(2)(A), Aug. 5, 1997, 111 Stat. 1098.)
-MISC1-
AMENDMENTS
1997 - Subsec. (b)(1)(A)(i). Pub. L. 105-34, Sec.
1604(d)(2)(A)(i), inserted "and liabilities incurred during the
taxable year under cost-plus contracts" before the comma.
Subsec. (b)(1)(A)(ii). Pub. L. 105-34, Sec. 1604(d)(2)(A)(ii),
inserted "or in connection with the administration of cost-plus
contracts" before the last comma.
1996 - Subsec. (c)(4). Pub. L. 104-191 added par. (4).
EFFECTIVE DATE OF 1997 AMENDMENT
Section 1604(d)(2)(B) of Pub. L. 105-34 provided that: "The
amendment made by subparagraph (A) [amending this section] shall
take effect as if included in the amendments made by section 1012
of the Tax Reform Act of 1986 [Pub. L. 99-514]."
EFFECTIVE DATE OF 1996 AMENDMENT
Section 351(b) of Pub. L. 104-191 provided that: "The amendment
made by this section [amending this section] shall apply to taxable
years ending after December 31, 1996."
EFFECTIVE DATE
Section 1012(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(b)(1), (2), Nov. 10, 1988, 102 Stat. 3451,
provided that:
"(1) In general. - The amendments made by this section [enacting
this section and amending section 501 of this title] shall apply to
taxable years beginning after December 31, 1986.
"(2) Study of fraternal beneficiary associations. - The Secretary
of the Treasury or his delegate shall conduct a study of
organizations described in section 501(c)(8) of the Internal
Revenue Code of 1986 and which received gross annual insurance
premiums in excess of $25,000,000 for the taxable years of such
organizations which ended during 1984. Not later than January 1,
1988, the Secretary of the Treasury shall submit to the Committee
on Ways and Means of the House of Representatives, the Committee on
Finance of the Senate, and the Joint Committee on Taxation the
results of such study, together with such recommendations as he
determines to be appropriate. The Secretary of the Treasury shall
have authority to require the furnishing of such information as may
be necessary to carry out the purposes of this paragraph.
"(3) Special rules for existing blue cross or blue shield
organizations. -
"(A) In general. - In the case of any existing Blue Cross or
Blue Shield organization (as defined in section 833(c)(2) of the
Internal Revenue Code of 1986 as added by this section) -
"(i) no adjustment shall be made under section 481 (or any
other provision) of such Code on account of a change in its
method of accounting for its 1st taxable year beginning after
December 31, 1986, and
"(ii) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year
shall be treated as equal to its fair market value as of such
day.
"(B) Treatment of certain distributions. - For purposes of
section 833(b)(3)(B), the surplus of any organization as of the
beginning of its 1st taxable year beginning after December 31,
1986, shall be increased by the amount of any distribution (other
than to policyholders) made by such organization after August 16,
1986, and before the beginning of such taxable year.
"(C) Reserve weakening after august 16, 1986. - Any reserve
weakening after August 16, 1986, by an existing Blue Cross or
Blue Shield organization shall be treated as occurring in such
organization's 1st taxable year beginning after December 31,
1986.
"(4) Other special rules. -
"(A) The amendments made by this section shall not apply with
respect to that portion of the business of Mutual of America
which is attributable to pension business.
"(B) The amendments made by this section shall not apply to
that portion of the business of the Teachers Insurance Annuity
Association-College Retirement Equities Fund which is
attributable to pension business.
"(C) The amendments made by this section shall not apply to -
"(i) the retirement fund of the YMCA,
"(ii) the Missouri Hospital Plan,
"(iii) administrative services performed by municipal
leagues, and
"(iv) dental benefit coverage provided by a Delta Dental
Plans Association organization through contracts with
independent professional service providers so long as the
provision of such coverage is the principal activity of such
organization.
"(D) For purposes of this paragraph, the term 'pension
business' means the administration of any plan described in
section 401(a) of the Internal Revenue Code of 1954 [now 1986]
which includes a trust exempt from tax under section 501(a), any
plan under which amounts are contributed by an individual's
employer for an annuity contract described in section 403(b) of
such Code, any individual retirement plan described in section
408 of such Code, and any eligible deferred compensation plan to
which section 457(a) of such Code applies."
[The due date for the report referred to in section 1012(c)(2) of
Pub. L. 99-514, set out above, extended to July 1, 1992, by Pub. L.
101-508, title XI, Sec. 11831(b), Nov. 5, 1990, 104 Stat.
1388-559.]
TERMINATION OF CERTAIN EXCEPTIONS FROM RULES RELATING TO EXEMPT
ORGANIZATIONS WHICH PROVIDE COMMERCIAL-TYPE INSURANCE
Pub. L. 105-277, div. J, title IV, Sec. 4003(g), Oct. 21, 1998,
112 Stat. 2681-910, provided that: "Rules similar to the rules of
section 1.1502-75(d)(5) of the Treasury Regulations shall apply
with respect to any organization described in section 1042(b) of
the 1997 Act [section 1042(b) of Pub. L. 105-34, set out below]."
Section 1042 of Pub. L. 105-34 provided that:
"(a) In General. - Subparagraphs (A) and (B) of section
1012(c)(4) of the Tax Reform Act of 1986 [Pub. L. 99-514, set out
as an Effective Date note above] shall not apply to any taxable
year beginning after December 31, 1997.
"(b) Special Rules. - In the case of an organization to which
section 501(m) of the Internal Revenue Code of 1986 applies solely
by reason of the amendment made by subsection (a) -
"(1) no adjustment shall be made under section 481 (or any
other provision) of such Code on account of a change in its
method of accounting for its first taxable year beginning after
December 31, 1997, and
"(2) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year shall
be treated as equal to its fair market value as of such day.
"(c) Reserve Weakening After June 8, 1997. - Any reserve
weakening after June 8, 1997, by an organization described in
subsection (b) shall be treated as occurring in such organization's
1st taxable year beginning after December 31, 1997.
"(d) Regulations. - The Secretary of the Treasury or his delegate
may prescribe rules for providing proper adjustments for
organizations described in subsection (b) with respect to short
taxable years which begin during 1998 by reason of section 843 of
the Internal Revenue Code of 1986."
RULES PROVIDING ADJUSTMENTS FOR CERTAIN TAXPAYERS AFFECTED BY
SECTION 1012 OF PUB. L. 99-514
Pub. L. 100-647, title I, Sec. 1010(b)(3), Nov. 10, 1988, 102
Stat. 3451, provided that: "The Secretary of the Treasury or his
delegate may prescribe rules providing proper adjustments for
taxpayers which become subject to subchapter L of chapter 1 of the
1986 Code by reason of the amendments made by section 1012 of the
Reform Act [Pub. L. 99-514, enacting this section and amending
section 501 of this title] with respect to short taxable years
which begin during 1987 by reason of section 843 of such Code."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 56 of this title.
-End-
-CITE-
26 USC Sec. 834 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 834. Determination of taxable investment income
-STATUTE-
(a) General rule
For purposes of section 831(b), the term "taxable investment
income" means the gross investment income, minus the deductions
provided in subsection (c).
(b) Gross investment income
For purposes of subsection (a), the term "gross investment
income" means the sum of the following:
(1) The gross amount of income during the taxable year from -
(A) interest, dividends, rents, and royalties,
(B) the entering into of any lease, mortgage, or other
instrument or agreement from which the insurance company
derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or
agreement described in subparagraph (B), and
(D) gains from sales or exchanges of capital assets to the
extent provided in subchapter P (sec. 1201 and following,
relating to capital gains and losses).
(2) The gross income during the taxable year from any trade or
business (other than an insurance business) carried on by the
insurance company, or by a partnership of which the insurance
company is a partner. In computing gross income under this
paragraph, there shall be excluded any item described in
paragraph (1).
(c) Deductions
In computing taxable investment income, the following deductions
shall be allowed:
(1) Tax-free interest
The amount of interest which under section 103 is excluded for
the taxable year from gross income.
(2) Investment expenses
Investment expenses paid or accrued during the taxable year. If
any general expenses are in part assigned to or included in the
investment expenses, the total deduction under this paragraph
shall not exceed one-fourth of 1 percent of the mean of the book
value of the invested assets held at the beginning and end of the
taxable year plus one-fourth of the amount by which taxable
investment income (computed without any deduction for investment
expenses allowed by this paragraph, for tax-free interest allowed
by paragraph (1), or for dividends received allowed by paragraph
(7)), exceeds 3 3/4 percent of the book value of the mean of the
invested assets held at the beginning and end of the taxable
year.
(3) Real estate expenses
Taxes (as provided in section 164), and other expenses, paid or
accrued during the taxable year exclusively on or with respect to
the real estate owned by the company. No deduction shall be
allowed under this paragraph for any amount paid out for new
buildings, or for permanent improvements or betterments made to
increase the value of any property.
(4) Depreciation
The depreciation deduction allowed by section 167.
(5) Interest paid or accrued
All interest paid or accrued within the taxable year on
indebtedness, except on indebtedness incurred or continued to
purchase or carry obligations the interest on which is wholly
exempt from taxation under this subtitle.
(6) Capital losses
Capital losses to the extent provided in subchapter P (sec.
1201 and following) plus losses from capital assets sold or
exchanged in order to obtain funds to meet abnormal insurance
losses and to provide for the payment of dividends and similar
distributions to policyholders. Capital assets shall be
considered as sold or exchanged in order to obtain funds to meet
abnormal insurance losses and to provide for the payment of
dividends and similar distributions to policyholders to the
extent that the gross receipts from their sale or exchange are
not greater than the excess, if any, for the taxable year of the
sum of dividends and similar distributions paid to policyholders,
losses paid, and expenses paid over the sum of the items
described in subsection (b) (other than paragraph (1)(D) thereof)
and net premiums received. In the application of section 1212 for
purposes of this section, the net capital loss for the taxable
year shall be the amount by which losses for such year from sales
or exchanges of capital assets exceeds the sum of the gains from
such sales or exchanges and whichever of the following amounts is
the lesser:
(A) the taxable investment income (computed without regard to
gains or losses from sales or exchanges of capital assets); or
(B) losses from the sale or exchange of capital assets sold
or exchanged to obtain funds to meet abnormal insurance losses
and to provide for the payment of dividends and similar
distributions to policyholders.
(7) Special deductions
The special deductions allowed by part VIII (except section
248) of subchapter B (sec. 241 and following, relating to
dividends received). In applying section 246(b) (relating to
limitation on aggregate amount of deductions for dividends
received) for purposes of this paragraph, the reference in such
section to "taxable income" shall be treated as a reference to
"taxable investment income".
(8) Trade or business deductions
The deductions allowed by this subtitle (without regard to this
part) which are attributable to any trade or business (other than
an insurance business) carried on by the insurance company, or by
a partnership of which the insurance company is a partner; except
that for purposes of this paragraph -
(A) any item, to the extent attributable to the carrying on
of the insurance business, shall not be taken into account, and
(B) the deduction for net operating losses provided in
section 172 shall not be allowed.
(9) Depletion
The deduction allowed by section 611 (relating to depletion).
(d) Other applicable rules
(1) Rental value of real estate
The deduction under subsection (c)(3) or (4) on account of any
real estate owned and occupied in whole or in part by a mutual
insurance company subject to the tax imposed by section 831 shall
be limited to an amount which bears the same ratio to such
deduction (computed without regard to this paragraph) as the
rental value of the space not so occupied bears to the rental
value of the entire property.
(2) Amortization of premium and accrual of discount
The gross amount of income during the taxable year from
interest and the deduction provided in subsection (c)(1) shall
each be decreased to reflect the appropriate amortization of
premium and increased to reflect the appropriate accrual of
discount attributable to the taxable year on bonds, notes,
debentures, or other evidences of indebtedness held by a mutual
insurance company subject to the tax imposed by section 831. Such
amortization and accrual shall be determined -
(A) in accordance with the method regularly employed by such
company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations
prescribed by the Secretary.
No accrual of discount shall be required under this paragraph on
any bond (as defined in section 171(d)) except in the case of
discount which is original issue discount (as defined in section
1273).
(3) Double deductions
Nothing in this part shall permit the same item to be deducted
more than once.
(e) Definitions
For purposes of this part -
(1) Net premiums
The term "net premiums" means gross premiums (including
deposits and assessments) written or received on insurance
contracts during the taxable year less return premiums and
premiums paid or incurred for reinsurance. Amounts returned where
the amount is not fixed in the insurance contract but depends on
the experience of the company or the discretion of the management
shall not be included in return premiums but shall be treated as
dividends to policyholders under paragraph (2).
(2) Dividends to policyholders
The term "dividends to policyholders" means dividends and
similar distributions paid or declared to policyholders. For
purposes of the preceding sentence, the term "paid or declared"
shall be construed according to the method regularly employed in
keeping the books of the insurance company.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 261, Sec. 822; Mar. 13, 1956,
ch. 83, Sec. 3(a)(3)-(8), 70 Stat. 47, 48; Pub. L. 87-834, Sec.
8(b), Oct. 16, 1962, 76 Stat. 991; Pub. L. 88-272, title II, Sec.
228(b)(2), Feb. 26, 1964, 78 Stat. 99; Pub. L. 89-809, title I,
Sec. 104(i)(5), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 94-455, title
XIX, Secs. 1901(a)(105), (b)(1)(P)-(S), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1782, 1792, 1834; renumbered Sec. 834 and amended
Pub. L. 99-514, title X, Sec. 1024(a)(3), (c)(7), (8), Oct. 22,
1986, 100 Stat. 2405, 2407.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514, Sec. 1024(a)(3), renumbered section 822 of
this title as this section.
Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(7), amended subsec. (a)
generally. Prior to amendment, subsec. (a), definitions, read as
follows: "For purposes of this part -
"(1) The term 'taxable investment income' means the gross
investment income, minus the deductions provided in subsection
(c).
"(2) The term 'investment loss' means the amount by which the
deductions provided in subsection (c) exceed the gross investment
income."
Subsec. (d). Pub. L. 99-514, Sec. 1024(c)(8), substituted
"section 831" for "section 821" in pars. (1) and (2), and inserted
"except in the case of discount which is original issue discount
(as defined in section 1273)" at end of last sentence in par.
1976 - Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(b)(1)(P), struck
out "partially tax-exempt interest and" before "dividends received
allowed by".
Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(a)(105)(A), struck out
"(other than obligations of the United States issued after
September 24, 1917, and originally subscribed for by the taxpayer)"
after "purchase or carry obligations".
Subsec. (c)(6)(A). Pub. L. 94-455, Sec. 1901(b)(1)(Q), struck out
"or to the deduction provided in section 242 for partially
tax-exempt interest" after "exchanges of capital assets".
Subsec. (c)(7). Pub. L. 94-455, Sec. 1901(b)(1)(R), struck out
"partially tax-exempt interest and to" after "and following,
relating to".
Subsec. (d)(2). Pub. L. 94-455, Secs. 1901(a)(105)(B), (b)(1)(S),
1906(b)(13)(A), struck out in subpar. (B) "or his delegate" after
"Secretary" and substituted in provisions preceding subpar. (A)
"and the deduction provided in subsection (c)(1)" for ", the
deduction provided in subsection (c)(1), and the deduction allowed
by section 242 (relating to partially tax-exempt interest)" and in
provisions following subpar. (B) "No accrual" for "For taxable
years beginning after December 31, 1962, no accrual".
1966 - Subsecs. (e), (f). Pub. L. 89-809 redesignated subsec. (f)
as (e). Former subsec. (e), dealing with foreign mutual insurance
companies other than life or marine, was struck out.
1964 - Subsec. (d)(2). Pub. L. 88-272 provided that for taxable
years beginning after Dec. 31, 1962, no accrual of discount shall
be required under par. (2) on any bond.
1962 - Pub. L. 87-834, Sec. 8(b)(1), substituted "Determination
of taxable investment income" for "Determination of mutual
insurance company taxable income" in section catchline.
Subsec. (a). Pub. L. 87-834, Sec. 8(b)(1), defined "taxable
investment income" and "investment loss" for purposes of this part,
and struck out provisions which defined "mutual insurance company
taxable income" for purposes of section 821 of this title, which
provisions are now contained in section 821(b) of this title.
Subsec. (c). Pub. L. 87-834, Sec. 8(b)(2), (3), substituted
"taxable investment income" for "mutual insurance company taxable
income" in opening provisions and in pars. (2) and (6)(A), and
inserted sentence in par. (7) providing that in applying section
246(b) (relating to limitations on aggregate amount of deductions
for dividends received) for purposes of par. (7), reference in such
section to "taxable income" shall be treated as a reference to
"taxable investment income".
Subsec. (e). Pub. L. 87-834, Sec. 8(b)(2), substituted "taxable
investment income" for "mutual insurance company taxable income".
Subsec. (f). Pub. L. 87-834, Sec. 8(b)(4), added subsec. (f).
Provisions of subsec. (f) were formerly contained in section 823 of
this title.
1956 - Subsec. (b). Act Mar. 13, 1956, Sec. 3(a)(3), principally
included royalties, and the income from a trade or business other
than the insurance business carried on by the insurance company in
"gross investment income".
Subsec. (c). Act Mar. 13, 1956, Sec. 3(a)(4), (5), (6), clarified
the deduction for real estate expenses in par. (3), substituted in
par. (6) "the sum of the items described in subsection (b) (other
than paragraph (1)(D) thereof) and net premiums received. In the
application of section 1212" for "the sum of interest, dividends,
rents, and net premiums received. In the application of section
1211", and inserted pars. (8) and (9).
Subsec. (d)(1). Act Mar. 13, 1956, Sec. 3(a)(7), substituted
"subsection (c)(3) or (4)" for "subsection (e)(3) or (4)".
Subsec. (e). Act Mar. 13, 1956, Sec. 3(a)(8), substituted "items
described in subsection (b) (other than paragraph (1)(D) thereof"
for "interest, dividends, rents,".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(105), (b)(1)(P)-(S) of Pub. L.
94-455 effective for taxable years beginning after Dec. 31, 1976,
see section 1901(d) of Pub. L. 94-455, set out as a note under
section 2 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note set out under section 316 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 832, 842 of this
title.
-End-
-CITE-
26 USC Sec. 835 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART II - OTHER INSURANCE COMPANIES
-HEAD-
Sec. 835. Election by reciprocal
-STATUTE-
(a) In general
Except as otherwise provided in this section, any mutual
insurance company which is an interinsurer or reciprocal
underwriter (hereinafter in this section referred to as a
"reciprocal") subject to the taxes imposed by section 831(a) may,
under regulations prescribed by the Secretary, elect to be subject
to the limitation provided in subsection (b). Such election shall
be effective for the taxable year for which made and for all
succeeding taxable years, and shall not be revoked except with the
consent of the Secretary.
(b) Limitation
The deduction for amounts paid or incurred in the taxable year to
the attorney-in-fact by a reciprocal making the election provided
in subsection (a) shall be limited to, but in no case increased by,
the deductions of the attorney-in-fact allocable, in accordance
with regulations prescribed by the Secretary, to the income
received by the attorney-in-fact from the reciprocal.
(c) Exception
An election may not be made by a reciprocal under subsection (a)
unless the attorney-in-fact of such reciprocal -
(1) is subject to the tax imposed by section 11;
(2) consents in such manner as the Secretary shall prescribe by
regulations to make available such information as may be required
during the period in which the election provided in subsection
(a) is in effect, under regulations prescribed by the Secretary;
(3) reports the income received from the reciprocal and the
deductions allocable thereto under the same method of accounting
under which the reciprocal reports deductions for amounts paid to
the attorney-in-fact; and
(4) files its return on the calendar year basis.
(d) Credit
Any reciprocal electing to be subject to the limitation provided
in subsection (b) shall be credited with so much of the tax paid by
the attorney-in-fact as is attributable, under regulations
prescribed by the Secretary, to the income received by the
attorney-in-fact from the reciprocal in such taxable year.
(e) Benefits of graduated rates denied
Any increase in the taxable income of a reciprocal attributable
to the limits provided in subsection (b) shall be taxed at the
highest rate of tax specified in section 11(b).
(f) Adjustment for refund
If for any taxable year an attorney-in-fact is allowed a credit
or refund for taxes paid with respect to which credit or refund to
the reciprocal resulted under subsection (d), the taxes of such
reciprocal for such taxable year shall be properly adjusted under
regulations prescribed by the Secretary.
(g) Taxes of attorney-in-fact unaffected
Nothing in this section shall increase or decrease the taxes
imposed by this chapter on the income of the attorney-in-fact.
-SOURCE-
(Added Pub. L. 87-834, Sec. 8(c), Oct. 16, 1962, 76 Stat. 996, Sec.
826; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct.
4, 1976, 90 Stat. 1834; Pub. L. 95-600, title III, Sec. 301(b)(10),
Nov. 6, 1978, 92 Stat. 2822; renumbered Sec. 835 and amended Pub.
L. 99-514, title X, Sec. 1024(a)(3), (c)(9), Oct. 22, 1986, 100
Stat. 2405, 2407; Pub. L. 100-647, title I, Sec. 1010(f)(2), (3),
Nov. 10, 1988, 102 Stat. 3454.)
-MISC1-
AMENDMENTS
1988 - Subsec. (a). Pub. L. 100-647, Sec. 1010(f)(2), substituted
"section 831(a)" for "section 821(a)".
Subsec. (f). Pub. L. 100-647, Sec. 1010(f)(3), substituted
"subsection (d)" for "subsection (e)".
1986 - Pub. L. 99-514, Sec. 1024(a)(3), renumbered section 826 of
this title as this section.
Subsec. (d). Pub. L. 99-514, Sec. 1024(c)(9)(A), redesignated
subsec. (e) as (d) and struck out former subsec. (d), special rule,
which read as follows: "In applying section 824(d)(1)(D), any
amount which was added to the protection against loss account by
reason of an election under this section shall be treated as having
been added by reason of section 824(a)(1)(A)."
Subsec. (e). Pub. L. 99-514, Sec. 1024(c)(9), redesignated
subsec. (f) as (e), substituted "Benefits of graduated rates" for
"Surtax exemption" in heading, and amended text generally. Prior to
amendment, text read as follows: "Any increase in taxable income of
a reciprocal attributable to the limitation provided in subsection
(b) shall be taxed without regard to the surtax exemption provided
in section 821(a)(2)." Former subsec. (e) redesignated (d).
Subsecs. (f) to (h). Pub. L. 99-514, Sec. 1024(c)(9)(A),
redesignated subsecs. (f) to (h) as (e) to (g), respectively.
1978 - Subsec. (c)(1). Pub. L. 95-600 substituted "the tax
imposed by section 11" for "the taxes imposed by section 11(b) and
(c)".
1976 - Subsecs. (a), (b), (c)(2), (e), (g). Pub. L. 94-455 struck
out "or his delegate" after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years beginning
after Dec. 31, 1978, see section 301(c) of Pub. L. 95-600, set out
as a note under section 11 of this title.
EFFECTIVE DATE
Section applicable with respect to taxable years beginning after
Dec. 31, 1962, see section 8(h) of Pub. L. 87-834, set out as an
Effective Date of 1962 Amendment note under section 501 of this
title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 832 of this title.
-End-
-CITE-
26 USC PART III - PROVISIONS OF GENERAL APPLICATION 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
PART III - PROVISIONS OF GENERAL APPLICATION
-MISC1-
Sec.
841. Credit for foreign taxes.
842. Foreign companies carrying on insurance business.
843. Annual accounting period.
844. Special loss carryover rules.
845. Certain reinsurance agreements.
846. Discounted unpaid losses defined.
847. Special estimated tax payments.
848. Capitalization of certain policy acquisition expenses.
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11301(c), Nov. 5, 1990,
104 Stat. 1388-449, added item 848.
1989 - Pub. L. 101-239, title VII, Sec. 7821(d)(1), Dec. 19,
1989, 103 Stat. 2424, substituted "companies" for "corporations" in
item 842.
1988 - Pub. L. 100-647, title VI, Sec. 6077(b), Nov. 10, 1988,
102 Stat. 3709, added item 847.
1986 - Pub. L. 99-514, title X, Secs. 1023(d), 1024(a)(2), Oct.
22, 1986, 100 Stat. 2404, 2405, redesignated part IV as III and
added item 846. Former part III redesignated II.
1984 - Pub. L. 98-369, div. A, title II, Sec. 212(b), July 18,
1984, 98 Stat. 758, added item 845.
1969 - Pub. L. 91-172, title IX, Sec. 907(c)(2)(A), Dec. 30,
1969, 83 Stat. 717, added item 844.
1966 - Pub. L. 89-809, title I, Sec. 104(i)(2), Nov. 13, 1966, 80
Stat. 1561, substituted "Foreign corporations carrying on insurance
business" for "Computation of gross income" in item 842.
1956 - Act Mar. 13, 1956, ch. 83, Sec. 4(b), 70 Stat. 49, added
item 843.
-End-
-CITE-
26 USC Sec. 841 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 841. Credit for foreign taxes
-STATUTE-
The taxes imposed by foreign countries or possessions of the
United States shall be allowed as a credit against the tax of a
domestic insurance company subject to the tax imposed by section
801 or 831, to the extent provided in the case of a domestic
corporation in section 901 (relating to foreign tax credit). For
purposes of the preceding sentence (and for purposes of applying
section 906 with respect to a foreign corporation subject to tax
under this subchapter), the term "taxable income" as used in
section 904 means -
(1) in the case of the tax imposed by section 801, the life
insurance company taxable income (as defined in section 801(b)),
and
(2) in the case of the tax imposed by section 831, the taxable
income (as defined in section 832(a)).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, Sec.
5(4), 70 Stat. 49; Pub. L. 86-69, Sec. 3(b), June 25, 1959, 73
Stat. 139; Pub. L. 87-834, Sec. 8(g)(1), Oct. 16, 1962, 76 Stat.
998; Pub. L. 89-809, title I, Sec. 104(i)(8), Nov. 13, 1966, 80
Stat. 1562; Pub. L. 98-369, div. A, title II, Sec. 211(b)(10), July
18, 1984, 98 Stat. 755; Pub. L. 99-514, title X, Sec. 1024(c)(10),
Oct. 22, 1986, 100 Stat. 2407.)
-MISC1-
AMENDMENTS
1986 - Pub. L. 99-514 substituted "section 801 or 831" for
"section 801, 821, or 831" in introductory provisions, redesignated
par. (3) as (2), and struck out former par. (2) which read as
follows: "in the case of the tax imposed by section 821(a), the
mutual insurance company taxable income (as defined in section
821(b)); and in the case of the tax imposed by section 821(c), the
taxable investment income (as defined in section 822(a)), and".
1984 - Pub. L. 98-369 substituted "section 801" for "section
802", wherever appearing, and "section 801(b)" for "section
802(b)".
1966 - Pub. L. 89-809 substituted "For purposes of the preceding
sentence (and for purposes of applying section 906 with respect to
a foreign corporation subject to tax under this subchapter), the
term 'taxable income' as used in section 904" for "For purposes of
the preceding sentence, the term 'taxable income' as used in
section 904".
1962 - Pub. L. 87-834 added par. (2) and redesignated former par.
(2) as (3).
1959 - Pub. L. 86-69 struck out reference to section 811 of this
title in first sentence, and substituted "section 802, the life
insurance company taxable income (as defined in section 802(b)),
and" for "section 802 or 811, the net investment income (as defined
in section 803(c))" in par. (1).
1956 - Act Mar. 13, 1956, inserted references to section 811.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable
years beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable with respect to taxable
years beginning after Dec. 31, 1962, see section 8(h) of Pub. L.
87-834, set out as a note under section 501 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
-End-
-CITE-
26 USC Sec. 842 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 842. Foreign companies carrying on insurance business
-STATUTE-
(a) Taxation under this subchapter
If a foreign company carrying on an insurance business within the
United States would qualify under part I or II of this subchapter
for the taxable year if (without regard to income not effectively
connected with the conduct of any trade or business within the
United States) it were a domestic corporation, such company shall
be taxable under such part on its income effectively connected with
its conduct of any trade or business within the United States. With
respect to the remainder of its income which is from sources within
the United States, such a foreign company shall be taxable as
provided in section 881.
(b) Minimum effectively connected net investment income
(1) In general
In the case of a foreign company taxable under part I or II of
this subchapter for the taxable year, its net investment income
for such year which is effectively connected with the conduct of
an insurance business within the United States shall be not less
than the product of -
(A) the required United States assets of such company, and
(B) the domestic investment yield applicable to such company
for such year.
(2) Required U.S. assets
(A) In general
For purposes of paragraph (1), the required United States
assets of any foreign company for any taxable year is an amount
equal to the product of -
(i) the mean of such foreign company's total insurance
liabilities on United States business, and
(ii) the domestic asset/liability percentage applicable to
such foreign company for such year.
(B) Total insurance liabilities
For purposes of this paragraph -
(i) Companies taxable under part I
In the case of a company taxable under part I, the term
"total insurance liabilities" means the sum of the total
reserves (as defined in section 816(c)) plus (to the extent
not included in total reserves) the items referred to in
paragraphs (3), (4), (5), and (6) of section 807(c).
(ii) Companies taxable under part II
In the case of a company taxable under part II, the term
"total insurance liabilities" means the sum of unearned
premiums and unpaid losses.
(C) Domestic asset/liability percentage
The domestic asset/liability percentage applicable for
purposes of subparagraph (A)(ii) to any foreign company for any
taxable year is a percentage determined by the Secretary on the
basis of a ratio -
(i) the numerator of which is the mean of the assets of
domestic insurance companies taxable under the same part of
this subchapter as such foreign company, and
(ii) the denominator of which is the mean of the total
insurance liabilities of the same companies.
(3) Domestic investment yield
The domestic investment yield applicable for purposes of
paragraph (1)(B) to any foreign company for any taxable year is
the percentage determined by the Secretary on the basis of a
ratio -
(A) the numerator of which is the net investment income of
domestic insurance companies taxable under the same part of
this subchapter as such foreign company, and
(B) the denominator of which is the mean of the assets of the
same companies.
(4) Election to use worldwide yield
(A) In general
If the foreign company makes an election under this
paragraph, such company's worldwide current investment yield
shall be taken into account in lieu of the domestic investment
yield for purposes of paragraph (1)(B).
(B) Worldwide current investment yield
For purposes of subparagraph (A), the term "worldwide current
investment yield" means the percentage obtained by dividing -
(i) the net investment income of the company from all
sources, by
(ii) the mean of all assets of the company (whether or not
held in the United States).
(C) Election
An election under this paragraph shall apply to the taxable
year for which made and all subsequent taxable years unless
revoked with the consent of the Secretary.
(5) Net investment income
For purposes of this subsection, the term "net investment
income" means -
(A) gross investment income (within the meaning of section
834(b)), reduced by
(B) expenses allocable to such income.
(c) Special rules for purposes of subsection (b)
(1) Coordination with small life insurance company deduction
In the case of a foreign company taxable under part I,
subsection (b) shall be applied before computing the small life
insurance company deduction.
(2) Reduction in section 881 taxes
(A) In general
The tax under section 881 (determined without regard to this
paragraph) shall be reduced (but not below zero) by an amount
which bears the same ratio to such tax as -
(i) the amount of the increase in effectively connected
income of the company resulting from subsection (b), bears to
(ii) the amount which would be subject to tax under section
881 if the amount taxable under such section were determined
without regard to sections 103 and 894.
(B) Limitation on reduction
The reduction under subparagraph (A) shall not exceed the
increase in taxes under part I or II (as the case may be) by
reason of the increase in effectively connected income of the
company resulting from subsection (b).
(3) Adjustment to limitation on deduction for policyholder
dividends in the case of foreign mutual life insurance
companies
For purposes of section 809, the equity base of any foreign
mutual life insurance company as of the close of any taxable year
shall be increased by the excess of -
(A) the required United States assets of the company
(determined under subsection (b)(2)), over
(B) the mean of the assets held in the United States during
the taxable year.
(4) Data used in determining domestic asset/liability percentages
and domestic investment yields
Each domestic asset/liability percentage, and each domestic
investment yield, for any taxable year shall be based on such
representative data with respect to domestic insurance companies
for the second preceding taxable year as the Secretary considers
appropriate.
(d) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including regulations -
(1) providing for the proper treatment of segregated asset
accounts,
(2) providing for proper adjustments in succeeding taxable
years where the company's actual net investment income for any
taxable year which is effectively connected with the conduct of
an insurance business within the United States exceeds the amount
required under subsection (b)(1),
(3) providing for the proper treatment of investments in
domestic subsidiaries, and
(4) which may provide that, in the case of companies taxable
under part II of this subchapter, determinations under subsection
(b) will be made separately for categories of such companies
established in such regulations.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, Sec.
5(5), 70 Stat. 49; Pub. L. 86-69, Sec. 3(f)(1), June 25, 1959, 73
Stat. 140; Pub. L. 89-809, title I, Sec. 104(i)(1), Nov. 13, 1966,
80 Stat. 1561; Pub. L. 99-514, title X, Sec. 1024(c)(11), Oct. 22,
1986, 100 Stat. 2408; Pub. L. 100-203, title X, Sec. 10242(a), Dec.
22, 1987, 101 Stat. 1330-420; Pub. L. 100-647, title II, Sec.
2004(q)(2), (3), Nov. 10, 1988, 102 Stat. 3609; Pub. L. 101-239,
title VII, Sec. 7821(d)(2), Dec. 19, 1989, 103 Stat. 2424.)
-MISC1-
AMENDMENTS
1989 - Subsec. (c)(4). Pub. L. 101-239 substituted "yields" for
"yeilds" in heading.
1988 - Subsec. (b)(3)(B). Pub. L. 100-647, Sec. 2004(q)(2)(A),
struck out "held for the production of such income" after "same
companies".
Subsec. (b)(4)(B)(ii). Pub. L. 100-647, Sec. 2004(q)(2)(B),
struck out "held for the production of investment income" after
"United States)".
Subsec. (d)(4). Pub. L. 100-647, Sec. 2004(q)(3), added par. (4).
1987 - Pub. L. 100-203 substituted "companies" for "corporations"
in section catchline and amended text generally. Prior to
amendment, text read as follows: "If a foreign corporation carrying
on an insurance business within the United States would qualify
under part I or II of this subchapter for the taxable year if
(without regard to income not effectively connected with the
conduct of any trade or business within the United States) it were
a domestic corporation, such corporation shall be taxable under
such part on its income effectively connected with its conduct of
any trade or business within the United States. With respect to the
remainder of its income, which is from sources within the United
States, such a foreign corporation shall be taxable as provided in
section 881."
1986 - Pub. L. 99-514 struck out reference to part III of this
subchapter.
1966 - Pub. L. 89-809 substituted provisions covering the
taxability of foreign corporations that are carrying on an
insurance business within the United States which would qualify
under part I, II, or III of this subchapter for the taxable year if
(without regard to income not effectively connected with the
conduct of any trade or business within the United States) it were
a domestic corporation for provisions that the gross income of
insurance companies subject to the tax imposed by section 802 or
831 shall not be determined in the manner provided in part I of
subchapter N (relating to determination of sources of income).
1959 - Pub. L. 86-69 struck out reference to section 811.
1956 - Act Mar. 13, 1956, inserted reference to section 811.
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective as if included in the
provision of the Revenue Act of 1987, Pub. L. 100-203, title X, to
which such amendment relates, see section 7823 of Pub. L. 101-239,
set out as a note under section 26 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provisions of the Revenue Act of
1987, Pub. L. 100-203, title X, to which such amendment relates,
see section 2004(u) of Pub. L. 100-647, set out as a note under
section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Amendment by Pub. L. 100-203 applicable to taxable years
beginning after Dec. 31, 1987, see section 10242(d) of Pub. L.
100-203, set out as a note under section 816 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out
as a note under section 831 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 with respect to taxable years
beginning after Dec. 31, 1966, see section 104(n) of Pub. L.
89-809, set out as a note under section 11 of this title.
EFFECTIVE DATE OF 1959 AMENDMENT
Amendment by Pub. L. 86-69 applicable only with respect to
taxable years beginning after Dec. 31, 1957, see section 4 of Pub.
L. 86-69, set out as a note under section 381 of this title.
EFFECTIVE DATE OF 1956 AMENDMENT
Amendment by act Mar. 13, 1956, applicable only to taxable years
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956,
set out as a note under section 316 of this title.
STUDY OF UNITED STATES REINSURANCE INDUSTRY
Section 1244 of Pub. L. 99-514 directed Secretary of the Treasury
or his delegate to conduct a study to determine whether United
States reinsurance corporations are placed at a significant
competitive disadvantage with foreign reinsurance corporations by
existing treaties between the United States and foreign countries,
and to report before Jan. 1, 1988, the results of such study to
Committee on Finance of United States Senate and Committee on Ways
and Means of House of Representatives.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 816, 831, 848, 885, 1442
of this title.
-End-
-CITE-
26 USC Sec. 843 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 843. Annual accounting period
-STATUTE-
For purposes of this subtitle, the annual accounting period for
each insurance company subject to a tax imposed by this subchapter
shall be the calendar year. Under regulations prescribed by the
Secretary, an insurance company which joins in the filing of a
consolidated return (or is required to so file) may adopt the
taxable year of the common parent corporation even though such year
is not a calendar year.
-SOURCE-
(Added Mar. 13, 1956, ch. 83, Sec. 4(a), 70 Stat. 48; amended Pub.
L. 94-455, title XV, Sec. 1507(b)(2), Oct. 4, 1976, 90 Stat. 1740.)
-MISC1-
AMENDMENTS
1976 - Pub. L. 94-455 inserted provision permitting an insurance
company which joins in the filing of a consolidated return to adopt
the taxable year of the common parent corporation even though such
year is not a calendar year.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by Pub. L. 94-455 applicable to taxable years beginning
after Dec. 31, 1980, see section 1507(c)(1) of Pub. L. 94-455, set
out as a note under section 1504 of this title.
EFFECTIVE DATE
Section applicable only to taxable years beginning after Dec. 31,
1954, see Effective Date of 1956 Amendment note set out under
section 316 of this title.
-End-
-CITE-
26 USC Sec. 844 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 844. Special loss carryover rules
-STATUTE-
(a) General rule
If an insurance company -
(1) is subject to the tax imposed by part I or II of this
subchapter for the taxable year, and
(2) was subject to the tax imposed by a different part of this
subchapter for a prior taxable year,
then any operations loss carryover under section 810 (or the
corresponding provisions of prior law) or net operating loss
carryover under section 172 (as the case may be) arising in such
prior taxable year shall be included in its operations loss
deduction under section 810(a) or net operating loss deduction
under section 832(c)(10), as the case may be.
(b) Limitation
The amount included under section 810(a) or 832(c)(10) (as the
case may be) by reason of the application of subsection (a) shall
not exceed the amount that would have constituted the loss
carryover under such section if for all relevant taxable years the
company had been subject to the tax imposed by the part referred to
in subsection (a)(1) rather than the part referred to in subsection
(a)(2). For purposes of applying the preceding sentence, section
810(b)(1)(C) (relating to additional years to which losses may be
carried by new life insurance companies) shall not apply.
(c) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section.
-SOURCE-
(Added Pub. L. 91-172, title IX, Sec. 907(c)(1), Dec. 30, 1969, 83
Stat. 716; amended Pub. L. 94-455, title XIX, Secs. 1901(b)(25),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1798, 1834; Pub. L. 98-369,
div. A, title II, Sec. 211(b)(11), July 18, 1984, 98 Stat. 755;
Pub. L. 99-514, title X, Sec. 1024(c)(12), title XVIII, Sec.
1899A(20), Oct. 22, 1986, 100 Stat. 2408, 2959; Pub. L. 101-239,
title VII, Sec. 7841(d)(16), Dec. 19, 1989, 103 Stat. 2429.)
-MISC1-
AMENDMENTS
1989 - Subsec. (a)(2). Pub. L. 101-239 substituted "a prior
taxable year" for "the taxable year".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(12), added
subsec. (a) and struck out former subsec. (a) which read as
follows: "If an insurance company -
"(1) is subject to the tax imposed by part I, II, or III of
this subchapter for the taxable year, and
"(2) was subject to the tax imposed by a different part of this
subchapter for a prior taxable year beginning after December 31,
1962,
then any operations loss carryover under section 810 (or the
corresponding provisions of prior law), unused loss carryover under
section 825, or net operating loss carryover under section 172, as
the case may be, arising in such prior taxable year shall be
included in its operations loss deduction under section 810(a),
unused loss deduction under section 825(a), or net operating loss
deduction under section 832(c)(10), as the case may be."
Pub. L. 99-514, Sec. 1899A(20), substituted "prior law), unused
loss" for "prior law),, unused loss" in concluding provisions.
Subsec. (b). Pub. L. 99-514, Sec. 1024(c)(12), added subsec. (b)
and struck out former subsec. (b) which read as follows: "The
amount included under section 810(a), 825(a), or 832(c)(10), as the
case may be, by reason of the application of subsection (a) shall
not exceed the amount that would have constituted the loss
carryover under such section if for all relevant taxable years such
company had been subject to the tax imposed by the part referred to
in subsection (a)(1) rather than the part referred to in subsection
(a)(2). For purposes of applying the preceding sentence -
"(1) in the case of a mutual insurance company which becomes a
stock insurance company, an amount equal to 25 percent of the
deduction under section 832(c)(11) (relating to dividends to
policyholders) shall not be allowed, and
"(2) section 810(b)(1)(C) (relating to additional years to
which losses may be carried by new life insurance companies)
shall not apply."
1984 - Subsec. (a). Pub. L. 98-369, Sec. 211(b)(11)(A),
substituted "section 810 (or the corresponding provisions of prior
law)," for "section 812" and "section 810(a)" for "section 812(a)"
in provisions following par. (2).
Subsec. (b). Pub. L. 98-369, Sec. 211(b)(11)(B), substituted
"section 810(a)" for "section 812(a)" in introductory provisions,
and "section 810(b)(1)(C)" for "section 812(b)(1)(C)" in par. (2).
1976 - Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(b)(25),
substituted "section 812(b)(1)(C)" for "section 812(b)(1)(A)(iii)".
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out "or
his delegate" after "Secretary".
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1024(c)(12) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1024(e) of
Pub. L. 99-514, set out as a note under section 831 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 applicable to taxable years beginning
after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as
an Effective Date note under section 801 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(25) of Pub. L. 94-455, effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
EFFECTIVE DATE
Section 907(d) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending sections 805 and 810 of this
title] shall apply to taxable years beginning after December 31,
1957. The amendments made by subsection (b) [amending section 815
of this title] shall apply to taxable years beginning after
December 31, 1968. The amendments made by subsection (c) [enacting
this section and amending sections 809, 823, and 825 of this title]
shall apply with respect to losses incurred in taxable years
beginning after December 31, 1962, but shall not affect any tax
liability for any taxable year beginning before January 1, 1967."
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or
title XVIII [Secs. 1800-1899A] of Pub. L. 99-514 require an
amendment to any plan, such plan amendment shall not be required to
be made before the first plan year beginning on or after Jan. 1,
1989, see section 1140 of Pub. L. 99-514, as amended, set out as a
note under section 401 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 805, 831 of this title.
-End-
-CITE-
26 USC Sec. 845 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 845. Certain reinsurance agreements
-STATUTE-
(a) Allocation in case of reinsurance agreement involving tax
avoidance or evasion
In the case of 2 or more related persons (within the meaning of
section 482) who are parties to a reinsurance agreement (or where
one of the parties to a reinsurance agreement is, with respect to
any contract covered by the agreement, in effect an agent of
another party to such agreement or a conduit between related
persons), the Secretary may -
(1) allocate between or among such persons income (whether
investment income, premium, or otherwise), deductions, assets,
reserves, credits, and other items related to such agreement,
(2) recharacterize any such items, or
(3) make any other adjustment,
if he determines that such allocation, recharacterization, or
adjustment is necessary to reflect the proper source and character
of the taxable income (or any item described in paragraph (1)
relating to such taxable income) of each such person.
(b) Reinsurance contract having significant tax avoidance effect
If the Secretary determines that any reinsurance contract has a
significant tax avoidance effect on any party to such contract, the
Secretary may make proper adjustments with respect to such party to
eliminate such tax avoidance effect (including treating such
contract with respect to such party as terminated on December 31 of
each year and reinstated on January 1 of the next year).
-SOURCE-
(Added Pub. L. 98-369, div. A, title II, Sec. 212(a), July 18,
1984, 98 Stat. 757.)
-MISC1-
EFFECTIVE DATE
Section 217(d) of title II of div. A of Pub. L. 98-369, as
amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095,
provided that:
"(1) Subsection (a) of section 845 of the Internal Revenue Code
of 1986 [formerly I.R.C. 1954] (as added by this title) shall apply
with respect to any risk reinsured on or after September 27, 1983.
"(2) Subsection (b) of section 845 of such Code (as so added)
shall apply with respect to risks reinsured after December 31,
1984."
-End-
-CITE-
26 USC Sec. 846 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 846. Discounted unpaid losses defined
-STATUTE-
(a) Discounted losses determined
(1) Separately computed for each accident year
The amount of the discounted unpaid losses as of the end of any
taxable year shall be the sum of the discounted unpaid losses (as
of such time) separately computed under this section with respect
to unpaid losses in each line of business attributable to each
accident year.
(2) Method of discounting
The amount of the discounted unpaid losses as of the end of any
taxable year attributable to any accident year shall be the
present value of such losses (as of such time) determined by
using -
(A) the amount of the undiscounted unpaid losses as of such
time,
(B) the applicable interest rate, and
(C) the applicable loss payment pattern.
(3) Limitation on amount of discounted losses
In no event shall the amount of the discounted unpaid losses
with respect to any line of business attributable to any accident
year exceed the aggregate amount of unpaid losses with respect to
such line of business for such accident year included on the
annual statement filed by the taxpayer for the year ending with
or within the taxable year.
(4) Determination of applicable factors
In determining the amount of the discounted unpaid losses
attributable to any accident year -
(A) the applicable interest rate shall be the interest rate
determined under subsection (c) for the calendar year with
which such accident year ends, and
(B) the applicable loss payment pattern shall be the loss
payment pattern determined under subsection (d) which is in
effect for the calendar year with which such accident year
ends.
(b) Determination of undiscounted unpaid losses
For purposes of this section -
(1) In general
Except as otherwise provided in this subsection, the term
"undiscounted unpaid losses" means the unpaid losses shown in the
annual statement filed by the taxpayer for the year ending with
or within the taxable year of the taxpayer.
(2) Adjustment if losses discounted on annual statement
If -
(A) the amount of unpaid losses shown in the annual statement
is determined on a discounted basis, and
(B) the extent to which the losses were discounted can be
determined on the basis of information disclosed on or with the
annual statement,
the amount of the unpaid losses shall be determined without
regard to any reduction attributable to such discounting.
(c) Rate of interest
(1) In general
For purposes of this section, the rate of interest determined
under this subsection shall be the annual rate determined by the
Secretary under paragraph (2).
(2) Determination of annual rate
(A) In general
The annual rate determined by the Secretary under this
paragraph for any calendar year shall be a rate equal to the
average of the applicable Federal mid-term rates (as defined in
section 1274(d) but based on annual compounding) effective as
of the beginning of each of the calendar months in the test
period.
(B) Test period
For purposes of subparagraph (A), the test period is the most
recent 60-calendar-month period ending before the beginning of
the calendar year for which the determination is made; except
that there shall be excluded from the test period any month
beginning before August 1, 1986.
(d) Loss payment pattern
(1) In general
For each determination year, the Secretary shall determine a
loss payment pattern for each line of business by reference to
the historical loss payment pattern applicable to such line of
business. Any loss payment pattern determined by the Secretary
shall apply to the accident year ending with the determination
year and to each of the 4 succeeding accident years.
(2) Method of determination
Determinations under paragraph (1) for any determination year
shall be made by the Secretary -
(A) by using the aggregate experience reported on the annual
statements of insurance companies,
(B) on the basis of the most recent published aggregate data
from such annual statements relating to loss payment patterns
available on the 1st day of the determination year,
(C) as if all losses paid or treated as paid during any year
are paid in the middle of such year, and
(D) in accordance with the computational rules prescribed in
paragraph (3).
(3) Computational rules
For purposes of this subsection -
(A) In general
Except as otherwise provided in this paragraph, the loss
payment pattern for any line of business shall be based on the
assumption that all losses are paid -
(i) during the accident year and the 3 calendar years
following the accident year, or
(ii) in the case of any line of business reported in the
schedule or schedules of the annual statement relating to
auto liability, other liability, medical malpractice,
workers' compensation, and multiple peril lines, during the
accident year and the 10 calendar years following the
accident year.
(B) Treatment of certain losses
Except as otherwise provided in this paragraph -
(i) in the case of any line of business not described in
subparagraph (A)(ii), losses paid after the 1st year
following the accident year shall be treated as paid equally
in the 2nd and 3rd year following the accident year, and
(ii) in the case of a line of business described in
subparagraph (A)(ii), losses paid after the close of the
period applicable under subparagraph (A)(ii) shall be treated
as paid in the last year of such period.
(C) Special rule for certain long-tail lines
In the case of any long-tail line of business -
(i) the period taken into account under subparagraph
(A)(ii) shall be extended (but not by more than 5 years) to
the extent required under clause (ii), and
(ii) the amount of losses which would have been treated as
paid in the 10th year after the accident year shall be
treated as paid in such 10th year and each subsequent year in
an amount equal to the amount of the losses treated as paid
in the 9th year after the accident year (or, if lesser, the
portion of the unpaid losses not theretofore taken into
account).
Notwithstanding clause (ii), to the extent such unpaid losses
have not been treated as paid before the last year of the
extension, they shall be treated as paid in such last year.
(D) Long-tail line of business
For purposes of subparagraph (C), the term "long-tail line of
business" means any line of business described in subparagraph
(A)(ii) if the amount of losses which (without regard to
subparagraph (C)) would be treated as paid in the 10th year
after the accident year exceeds the losses treated as paid in
the 9th year after the accident year.
(E) Special rule for international and reinsurance lines of
business
Except as otherwise provided by regulations, any
determination made under subsection (a) with respect to unpaid
losses relating to the international or reinsurance lines of
business shall be made using, in lieu of the loss payment
pattern applicable to the respective lines of business, a
pattern determined by the Secretary under paragraphs (1) and
(2) based on the combined losses for all lines of business
described in subparagraph (A)(ii).
(F) Adjustments if loss experience information available for
longer periods
The Secretary shall make appropriate adjustments in the
application of this paragraph if annual statement data with
respect to payment of losses is available for longer periods
after the accident year than the periods assumed under the
rules of this paragraph.
(G) Special rule for 9th year if negative or zero
If the amount of the losses treated as paid in the 9th year
after the accident year is zero or a negative amount,
subparagraphs (C)(ii) and (D) shall be applied by substituting
the average of the losses treated as paid in the 7th, 8th, and
9th years after the accident year for the losses treated as
paid in the 9th year after the accident year.
(4) Determination year
For purposes of this section, the term "determination year"
means calendar year 1987 and each 5th calendar year thereafter.
(e) Election to use company's historical payment pattern
(1) In general
The taxpayer may elect to apply subsection (a)(2)(C) with
respect to all lines of business by using a loss payment pattern
determined by reference to the taxpayer's loss payment pattern
for the most recent calendar year for which an annual statement
was filed before the beginning of the accident year. Any such
determination shall be made with the application of the rules of
paragraphs (2)(C) and (3) of subsection (d).
(2) Election
(A) In general
An election under paragraph (1) shall be made separately with
respect to each determination year under subsection (d).
(B) Period for which election in effect
Unless revoked with the consent of the Secretary, an election
under paragraph (1) with respect to any determination year
shall apply to accident years ending with the determination
year and to each of the 4 succeeding accident years.
(C) Time for making election
An election under paragraph (1) with respect to any
determination year shall be made on the taxpayer's return for
the taxable year in which (or with which) the determination
year ends.
(3) No election for international or reinsurance business
No election under this subsection shall apply to any
international or reinsurance line of business.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection including -
(A) regulations providing that a taxpayer may not make an
election under this subsection if such taxpayer does not have
sufficient historical experience for the line of business to
determine a loss payment pattern, and
(B) regulations to prevent the avoidance (through the use of
separate corporations or otherwise) of the requirement of this
subsection that an election under this subsection applies to
all lines of business of the taxpayer.
(f) Other definitions and special rules
For purposes of this section -
(1) Accident year
The term "accident year" means the calendar year in which the
incident occurs which gives rise to the related unpaid loss.
(2) Unpaid loss adjustment expenses
The term "unpaid losses" includes any unpaid loss adjustment
expenses shown on the annual statement.
(3) Annual statement
The term "annual statement" means the annual statement approved
by the National Association of Insurance Commissioners which the
taxpayer is required to file with insurance regulatory
authorities of a State.
(4) Line of business
The term "line of business" means a category for the reporting
of loss payment patterns determined on the basis of the annual
statement for fire and casualty insurance companies for the
calendar year ending with or within the taxable year, except that
the multiple peril lines shall be treated as a single line of
business.
(5) Multiple peril lines
The term "multiple peril lines" means the lines of business
relating to farmowners multiple peril, homeowners multiple peril,
commercial multiple peril, ocean marine, aircraft (all perils)
and boiler and machinery.
(6) Special rule for certain accident and health insurance lines
of business
Any determination under subsection (a) with respect to unpaid
losses relating to accident and health insurance lines of
businesses (other than credit disability insurance) shall be made
-
(A) in the case of unpaid losses relating to disability
income, by using the general rules prescribed under section
807(d) applicable to noncancellable accident and health
insurance contracts and using a mortality or morbidity table
reflecting the taxpayer's experience; except that -
(i) the prevailing State assumed interest rate shall be the
rate in effect for the year in which the loss occurred rather
than the year in which the contract was issued, and
(ii) the limitation of subsection (a)(3) shall apply in
lieu of the limitation of the last sentence of section
807(d)(1), and
(B) in all other cases, by using an assumption (in lieu of a
loss payment pattern) that unpaid losses are paid in the middle
of the year following the accident year.
(g) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section,
including -
(1) regulations providing proper treatment of allocated
reinsurance, and
(2) regulations providing appropriate adjustments in the
application of this section to a taxpayer having a taxable year
which is not the calendar year.
-SOURCE-
(Added Pub. L. 99-514, title X, Sec. 1023(c), Oct. 22, 1986, 100
Stat. 2399; amended Pub. L. 100-647, title I, Sec. 1010(e)(1), (2),
Nov. 10, 1988, 102 Stat. 3453; Pub. L. 101-508, title XI, Sec.
11305(b), Nov. 5, 1990, 104 Stat. 1388-451.)
-MISC1-
AMENDMENTS
1990 - Subsec. (g). Pub. L. 101-508 inserted "and" at end of par.
(1), redesignated par. (3) as (2), and struck out former par. (2)
which required regulations providing proper treatment of salvage
and reinsurance recoverable attributable to unpaid losses.
1988 - Subsec. (f)(6)(B). Pub. L. 100-647, Sec. 1010(e)(1),
substituted "paid in the middle of the year" for "paid during the
year".
Subsec. (g)(3). Pub. L. 100-647, Sec. 1010(e)(2), added par. (3).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1989, see section 11305(c)(1) of Pub. L.
101-508, set out as a note under section 832 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE
Section 1023(e) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1010(e)(3), Nov. 10, 1988, 102 Stat. 3453, provided
that:
"(1) In general. - The amendments made by this section [enacting
this section and amending sections 807 and 832 of this title] shall
apply to taxable years beginning after December 31, 1986.
"(2) Transitional rule. - For the first taxable year beginning
after December 31, 1986 -
"(A) the unpaid losses and the expenses unpaid (as defined in
paragraphs (5)(B) and (6) of section 832(b) of the Internal
Revenue Code of 1986) at the end of the preceding taxable year,
and
"(B) the unpaid losses as defined in sections 807(c)(2) and
805(a)(1) of such Code at the end of the preceding taxable year,
shall be determined as if the amendments made by this section had
applied to such unpaid losses and expenses unpaid in the preceding
taxable year and by using the interest rate and loss payment
patterns applicable to accident years ending with calendar year
1987. For subsequent taxable years, such amendments shall be
applied with respect to such unpaid losses and expenses unpaid by
using the interest rate and loss payment patterns applicable to
accident years ending with calendar year 1987.
"(3) Fresh start. -
"(A) In general. - Except as otherwise provided in this
paragraph, any difference between -
"(i) the amount determined to be the unpaid losses and
expenses unpaid for the year preceding the 1st taxable year of
an insurance company beginning after December 31, 1986,
determined without regard to paragraph (2), and
"(ii) such amount determined with regard to paragraph (2),
shall not be taken into account for purposes of the Internal
Revenue Code of 1986.
"(B) Reserve strengthening in years after 1985. - Subparagraph
(A) 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.
"(C) Effect on earnings and profits. - The earnings and profits
of any insurance company for its 1st taxable year beginning after
December 31, 1986, shall be increased by the amount of the
difference determined under subparagraph (A) with respect to such
company.
"(4) Application of fresh start to companies which become subject
to section 831(a) tax in later taxable year. - If -
"(A) an insurance company was not subject to tax under section
831(a) of the Internal Revenue Code of 1986 for its 1st taxable
year beginning after December 31, 1986, by reason of being -
"(i) subject to tax under section 831(b) of such Code, or
"(ii) described in section 501(c) of such Code and exempt
from tax under section 501(a) of such Code, and
"(B) such company becomes subject to tax under such section
831(a) for any later taxable year,
paragraph (2) and subparagraphs (A) and (C) of paragraph (3) shall
be applied by treating such later taxable year as its 1st taxable
year beginning after December 31, 1986, and by treating the
calendar year in which such later taxable year begins as 1987; and
paragraph (3)(B) shall not apply."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 807, 832, 847 of this
title.
-End-
-CITE-
26 USC Sec. 847 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 847. Special estimated tax payments
-STATUTE-
In the case of taxable years beginning after December 31, 1987,
of an insurance company required to discount unpaid losses (as
defined in section 846) -
(1) Additional deduction
There shall be allowed as a deduction for the taxable year, if
special estimated tax payments are made as required by paragraph
(2), an amount not to exceed the excess of -
(A) the amount of the undiscounted, unpaid losses (as defined
in section 846(b)) attributable to losses incurred in taxable
years beginning after December 31, 1986, over
(B) the amount of the related discounted, unpaid losses
determined under section 846,
to the extent such amount was not deducted under this paragraph
in a preceding taxable year. Section 6655 shall be applied to any
taxable year without regard to the deduction allowed under the
preceding sentence.
(2) Special estimated tax payments
The deduction under paragraph (1) shall be allowed only to the
extent that such deduction would result in a tax benefit for the
taxable year for which such deduction is allowed or any carryback
year and only to the extent that special estimated tax payments
are made in an amount equal to the tax benefit attributable to
such deduction on or before the due date (determined without
regard to extensions) for filing the return for the taxable year
for which the deduction is allowed. If a deduction would be
allowed but for the fact that special estimated tax payments were
not timely made, such deduction shall be allowed to the extent
such payments are made within a reasonable time, as determined by
the Secretary, if all interest and penalties, computed as if this
sentence did not apply, are paid. If amounts are included in
gross income under paragraph (5) or (6) for any taxable year and
an additional tax is due for such year (or any other year) as a
result of such inclusion, an amount of special estimated tax
payments equal to such additional tax shall be applied against
such additional tax. If, after any such payment is so applied,
there is an adjustment reducing the amount of such additional
tax, in lieu of any credit or refund for such reduction, a
special estimated tax payment shall be treated as made in an
amount equal to the amount otherwise allowable as a credit or
refund. To the extent that a special estimated tax payment is not
used to offset additional tax due for any of the first 15 taxable
years beginning after the year for which the payment was made,
such special estimated tax payment shall be treated as an
estimated tax payment made under section 6655 for the 16th year
after the year for which the payment was made.
(3) Special loss discount account
Each company which is allowed a deduction under paragraph (1)
shall, for purposes of this part, establish and maintain a
special loss discount account.
(4) Additions to special loss discount account
There shall be added to the special loss discount account for
each taxable year an amount equal to the amount allowed as a
deduction for the taxable year under paragraph (1).
(5) Subtractions from special loss discount account and inclusion
in gross income
After applying paragraph (4), there shall be subtracted for the
taxable year from the special loss discount account and included
in gross income:
(A) The excess (if any) of the amount in the special loss
discount account with respect to losses incurred in each
taxable year over the amount of the excess referred to in
paragraph (1) with respect to losses incurred in that year, and
(B) Any amount improperly subtracted from the special loss
discount account under subparagraph (A) to the extent special
estimated tax payments were used with respect to such amount.
To the extent that any amount added to the special loss discount
account is not subtracted from such account before the 15th year
after the year for which the amount was so added, such amount
shall be subtracted from such account for such 15th year and
included in gross income for such 15th year.
(6) Rules in the case of liquidation or termination of taxpayer's
insurance business
(A) In general
If a company liquidates or otherwise terminates its insurance
business and does not transfer or distribute such business in
an acquisition of assets referred to in section 381(a), the
entire amount remaining in such special loss discount account
shall be subtracted and included in gross income. Except in the
case where a company transfers or distributes its insurance
business in an acquisition of assets, referred to in section
381(a), if the company is not subject to the tax imposed by
section 801 or section 831 for any taxable year, the entire
amount in the account at the close of the preceding taxable
year shall be subtracted from the account in such preceding
taxable year and included in gross income.
(B) Elimination of balance of payments
In any case to which subparagraph (A) applies, any special
estimated tax payment remaining after the credit attributable
to the inclusion under subparagraph (A) shall be voided.
(7) Modification of the amount of special estimated tax payments
in the event of subsequent marginal rate reduction or increase
In the event of a reduction in any tax rate provided under
section 11 for any tax year after the enactment of this section,
the Secretary shall prescribe regulations providing for a
reduction in the amount of any special estimated tax payments
made for years before the effective date of such section 11 rate
reductions. Such reduction in the amount of such payments shall
reduce the amount of such payments to the amount that they would
have been if the special deduction permitted under paragraph (1)
had occurred during a year that the lower marginal rate under
section 11 applied. Similar rules shall be applied in the event
of a marginal rate increase.
(8) Tax benefit determination
The tax benefit attributable to the deduction under paragraph
(1) shall be determined under regulations prescribed by the
Secretary, by taking into account tax benefits that would arise
from the carryback of any net operating loss for the year, as
well as current year tax benefits. Tax benefits for the current
year and carryback years shall include those that would arise
from the filing of a consolidated return with another insurance
company required to determine discounted, unpaid losses under
section 846 without regard to the limitations on consolidation
contained in section 1503(c). The limitations on consolidation
contained in section 1503(c) shall not apply to the deduction
allowed under paragraph (1).
(9) Effect on earnings and profits
In determining the earnings and profits -
(A) any special estimated tax payment made for any taxable
year shall be treated as a payment of income tax imposed by
this title for such taxable year, and
(B) any deduction or inclusion under this section shall not
be taken into account.
Nothing in the preceding sentence shall be construed to affect
the application of section 56(g) (relating to adjustments based
on adjusted current earnings).
(10) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations -
(A) providing for the separate application of this section
with respect to each accident year,
(B) such adjustments in the application of this section as
may be necessary to take into account the tax imposed by
section 55, and
(C) providing for the application of this section in cases
where the deduction allowed under paragraph (1) for any taxable
year is less than the excess referred to in paragraph (1) for
such year.
-SOURCE-
(Added Pub. L. 100-647, title VI, Sec. 6077(a), Nov. 10, 1988, 102
Stat. 3707; amended Pub. L. 101-239, title VII, Sec. 7816(n), Dec.
19, 1989, 103 Stat. 2422.)
-REFTEXT-
REFERENCES IN TEXT
Enactment of this section, referred to in par. (7), means
enactment of Pub. L. 100-647, which enacted this section and was
approved Nov. 10, 1988.
-MISC1-
AMENDMENTS
1989 - Par. (1). Pub. L. 101-239, Sec. 7816(n)(1), substituted
"special estimated tax" for "separate estimated tax" in
introductory provisions and inserted "in taxable years beginning"
after "attributable to losses incurred" in subpar. (A).
Par. (2). Pub. L. 101-239, Sec. 7816(n)(2), amended first
sentence generally. Prior to amendment, first sentence read as
follows: "The deduction under paragraph (1) shall be allowed only
to the extent that special estimated tax payments are made in an
amount equal to the tax benefit attributable to such deduction, on
or before the date that any taxes (determined without regard to
this section) for the taxable year for which the deduction is
allowed are due to be paid."
Par. (5). Pub. L. 101-239, Sec. 7816(n)(3), inserted at end "To
the extent that any amount added to the special loss discount
account is not subtracted from such account before the 15th year
after the year for which the amount was so added, such amount shall
be subtracted from such account for such 15th year and included in
gross income for such 15th year."
Par. (8). Pub. L. 101-239, Sec. 7816(n)(6), inserted at end "The
limitations on consolidation contained in section 1503(c) shall not
apply to the deduction allowed under paragraph (1)."
Par. (9). Pub. L. 101-239, Sec. 7816(n)(5), added par. (9).
Former par. (9) redesignated (10).
Pub. L. 101-239, Sec. 7816(n)(4), added subpar. (C).
Par. (10). Pub. L. 101-239, Sec. 7816(n)(5), redesignated par.
(9) as (10).
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101-239 effective, except as otherwise
provided, as if included in the provision of the Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such
amendment relates, see section 7817 of Pub. L. 101-239, set out as
a note under section 1 of this title.
EFFECTIVE DATE
Section 6077(c) of Pub. L. 100-647 provided that: "The amendments
made by this section [enacting this section] shall apply to taxable
years beginning after December 31, 1987."
-End-
-CITE-
26 USC Sec. 848 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART III - PROVISIONS OF GENERAL APPLICATION
-HEAD-
Sec. 848. Capitalization of certain policy acquisition expenses
-STATUTE-
(a) General rule
In the case of an insurance company -
(1) specified policy acquisition expenses for any taxable year
shall be capitalized, and
(2) such expenses shall be allowed as a deduction ratably over
the 120-month period beginning with the first month in the second
half of such taxable year.
(b) 5-year amortization for first $5,000,000 of specified policy
acquisition expenses
(1) In general
Paragraph (2) of subsection (a) shall be applied with respect
to so much of the specified policy acquisition expenses of an
insurance company for any taxable year as does not exceed
$5,000,000 by substituting "60-month" for "120-month".
(2) Phase-out
If the specified policy acquisition expenses of an insurance
company exceed $10,000,000 for any taxable year, the $5,000,000
amount under paragraph (1) shall be reduced (but not below zero)
by the amount of such excess.
(3) Special rule for members of controlled group
In the case of any controlled group -
(A) all insurance companies which are members of such group
shall be treated as 1 company for purposes of this subsection,
and
(B) the amount to which paragraph (1) applies shall be
allocated among such companies in such manner as the Secretary
may prescribe.
For purposes of the preceding sentence, the term "controlled
group" means any controlled group of corporations as defined in
section 1563(a); except that subsections (a)(4) and (b)(2)(D) of
section 1563 shall not apply, and subsection (b)(2)(C) of section
1563 shall not apply to the extent it excludes a foreign
corporation to which section 842 applies.
(4) Exception for acquisition expenses attributable to certain
reinsurance contracts
Paragraph (1) shall not apply to any specified policy
acquisition expenses for any taxable year which are attributable
to premiums or other consideration under any reinsurance
contract.
(c) Specified policy acquisition expenses
For purposes of this section -
(1) In general
The term "specified policy acquisition expenses" means, with
respect to any taxable year, so much of the general deductions
for such taxable year as does not exceed the sum of -
(A) 1.75 percent of the net premiums for such taxable year on
specified insurance contracts which are annuity contracts,
(B) 2.05 percent of the net premiums for such taxable year on
specified insurance contracts which are group life insurance
contracts, and
(C) 7.7 percent of the net premiums for such taxable year on
specified insurance contracts not described in subparagraph (A)
or (B).
(2) General deductions
The term "general deductions" means the deductions provided in
part VI of subchapter B (sec. 161 and following, relating to
itemized deductions) and in part I of subchapter D (sec. 401 and
following, relating to pension, profit sharing, stock bonus
plans, etc.).
(d) Net premiums
For purposes of this section -
(1) In general
The term "net premiums" means, with respect to any category of
specified insurance contracts set forth in subsection (c)(1), the
excess (if any) of -
(A) the gross amount of premiums and other consideration on
such contracts, over
(B) return premiums on such contracts and premiums and other
consideration incurred for reinsurance of such contracts.
The rules of section 803(b) shall apply for purposes of the
preceding sentence.
(2) Amounts determined on accrual basis
In the case of an insurance company subject to tax under part
II of this subchapter, all computations entering into
determinations of net premiums for any taxable year shall be made
in the manner required under section 811(a) for life insurance
companies.
(3) Treatment of certain policyholder dividends and similar
amounts
Net premiums shall be determined without regard to section
808(e) and without regard to other similar amounts treated as
paid to, and returned by, the policyholder.
(4) Special rules for reinsurance
(A) Premiums and other consideration incurred for reinsurance
shall be taken into account under paragraph (1)(B) only to the
extent such premiums and other consideration are includible in
the gross income of an insurance company taxable under this
subchapter or are subject to tax under this chapter by reason of
subpart F of part III of subchapter N.
(B) The Secretary shall prescribe such regulations as may be
necessary to ensure that premiums and other consideration with
respect to reinsurance are treated consistently by the ceding
company and the reinsurer.
(e) Classification of contracts
For purposes of this section -
(1) Specified insurance contract
(A) In general
Except as otherwise provided in this paragraph, the term
"specified insurance contract" means any life insurance,
annuity, or noncancellable accident and health insurance
contract (or any combination thereof).
(B) Exceptions
The term "specified insurance contract" shall not include -
(i) any pension plan contract (as defined in section
818(a)),
(ii) any flight insurance or similar contract,
(iii) any qualified foreign contract (as defined in section
807(e)(4) without regard to paragraph (5) of this
subsection),
(iv) any contract which is an Archer MSA (as defined in
section 220(d)), and
(v) any contract which is a health savings account (as
defined in section 223(d)).
(2) Group life insurance contract
The term "group life insurance contract" means any life
insurance contract -
(A) which covers a group of individuals defined by reference
to employment relationship, membership in an organization, or
similar factor,
(B) the premiums for which are determined on a group basis,
and
(C) the proceeds of which are payable to (or for the benefit
of) persons other than the employer of the insured, an
organization to which the insured belongs, or other similar
person.
(3) Treatment of annuity contracts combined with noncancellable
accident and health insurance
Any annuity contract combined with noncancellable accident and
health insurance shall be treated as a noncancellable accident
and health insurance contract and not as an annuity contract.
(4) Treatment of guaranteed renewable contracts
The rules of section 816(e) shall apply for purposes of this
section.
(5) Treatment of reinsurance contract
A contract which reinsures another contract shall be treated in
the same manner as the reinsured contract.
(f) Special rule where negative net premiums
(1) In general
If for any taxable year there is a negative capitalization
amount with respect to any category of specified insurance
contracts set forth in subsection (c)(1) -
(A) the amount otherwise required to be capitalized under
this section for such taxable year with respect to any other
category of specified insurance contracts shall be reduced (but
not below zero) by such negative capitalization amount, and
(B) such negative capitalization amount (to the extent not
taken into account under subparagraph (A)) -
(i) shall reduce (but not below zero) the unamortized
balance (as of the beginning of such taxable year) of the
amounts previously capitalized under subsection (a)
(beginning with the amount capitalized for the most recent
taxable year), and
(ii) to the extent taken into account as such a reduction,
shall be allowed as a deduction for such taxable year.
(2) Negative capitalization amount
For purposes of paragraph (1), the term "negative
capitalization amount" means, with respect to any category of
specified insurance contracts, the percentage (applicable under
subsection (c)(1) to such category) of the amount (if any) by
which -
(A) the amount determined under subparagraph (B) of
subsection (d)(1) with respect to such category, exceeds
(B) the amount determined under subparagraph (A) of
subsection (d)(1) with respect to such category.
(g) Treatment of certain ceding commissions
Nothing in any provision of law (other than this section or
section 197) shall require the capitalization of any ceding
commission incurred on or after September 30, 1990, under any
contract which reinsures a specified insurance contract.
(h) Secretarial authority to adjust capitalization amounts
(1) In general
Except as provided in paragraph (2), the Secretary may provide
that a type of insurance contract will be treated as a separate
category for purposes of this section (and prescribe a percentage
applicable to such category) if the Secretary determines that the
deferral of acquisition expenses for such type of contract which
would otherwise result under this section is substantially
greater than the deferral of acquisition expenses which would
have resulted if actual acquisition expenses (including indirect
expenses) and the actual useful life for such type of contract
had been used.
(2) Adjustment to other contracts
If the Secretary exercises his authority with respect to any
type of contract under paragraph (1), the Secretary shall adjust
the percentage which would otherwise have applied under
subsection (c)(1) to the category which includes such type of
contract so that the exercise of such authority does not result
in a decrease in the amount of revenue received under this
chapter by reason of this section for any fiscal year.
(i) Treatment of qualified foreign contracts under adjusted current
earnings preference
For purposes of determining adjusted current earnings under
section 56(g), acquisition expenses with respect to contracts
described in clause (iii) of subsection (e)(1)(B) shall be
capitalized and amortized in accordance with the treatment
generally required under generally accepted accounting principles
as if this subsection applied to such contracts for all taxable
years.
(j) Transitional rule
In the case of any taxable year which includes September 30,
1990, the amount taken into account as the net premiums (or
negative capitalization amount) with respect to any category of
specified insurance contracts shall be the amount which bears the
same ratio to the amount which (but for this subsection) would be
so taken into account as the number of days in such taxable year on
or after September 30, 1990, bears to the total number of days in
such taxable year.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11301(a), Nov. 5, 1990, 104
Stat. 1388-445; amended Pub. L. 103-66, title XIII, Sec. 13261(d),
Aug. 10, 1993, 107 Stat. 539; Pub. L. 104-191, title III, Sec.
301(h), Aug. 21, 1996, 110 Stat. 2052; Pub. L. 106-554, Sec.
1(a)(7) [title II, Sec. 202(a)(5), (b)(10)], Dec. 21, 2000, 114
Stat. 2763, 2763A-628, 2763A-629; Pub. L. 108-173, title XII, Sec.
1201(h), Dec. 8, 2003, 117 Stat. 2479.)
-MISC1-
AMENDMENTS
2003 - Subsec. (e)(1)(B)(v). Pub. L. 108-173 added cl. (v).
2000 - Subsec. (e)(1)(B)(iv). Pub. L. 106-554, Sec. 1(a)(7)
[title II, Sec. 202(b)(10)], substituted "an Archer MSA" for "a
Archer MSA".
Pub. L. 106-554, Sec. 1(a)(7) [title II, Sec. 202(a)(5)],
substituted "Archer MSA" for "medical savings account".
1996 - Subsec. (e)(1)(B)(iv). Pub. L. 104-191 added cl. (iv).
1993 - Subsec. (g). Pub. L. 103-66 substituted "this section or
section 197" for "this section".
EFFECTIVE DATE OF 2003 AMENDMENT
Amendment by Pub. L. 108-173 applicable to taxable years
beginning after Dec. 31, 2003, see section 1201(k) of Pub. L.
108-173, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-191 applicable to taxable years
beginning after Dec. 31, 1996, see section 301(j) of Pub. L.
104-191, set out as a note under section 62 of this title.
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66 applicable, except as otherwise
provided, with respect to property acquired after Aug. 10, 1993,
see section 13261(g) of Pub. L. 103-66, set out as an Effective
Date note under section 197 of this title.
EFFECTIVE DATE
Section 11301(d)(1) of Pub. L. 101-508 provided that: "The
amendments made by subsections (a) and (c) [enacting this section]
shall apply to taxable years ending on or after September 30, 1990.
Any capitalization required by reason of such amendments shall not
be treated as a change in method of accounting for purposes of the
Internal Revenue Code of 1986."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 197, 264 of this title.
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