-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.

-End-
 
' >






about irs efile - about us - terms of use - privacy - contact us - irs tax code - state tax links - Tax Glossary

© 2012 RETURN-TAX.COM All Rights Reserved.