-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 statut |
