Subchapter L—Insurance Companies
Editorial Notes
Amendments
1988—
1962—
PART I—LIFE INSURANCE COMPANIES
Subpart A—Tax Imposed
§801. Tax imposed
(a) Tax imposed
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.
(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.
(Added
Editorial Notes
Prior Provisions
A prior section 801, added
Another prior section 801, acts Aug. 16, 1954, ch. 736,
A prior section 802, added
Another prior section 802, acts Aug. 16, 1954, ch. 736,
Amendments
2017—Subsec. (a).
Subsec. (a)(2)(C).
Subsec. (c).
1986—Subsec. (a)(2)(C).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13001(b)(2)(G) of
Amendment by section 13512(b)(3) of
Effective Date of 1986 Amendment
Amendment by
Effective Date
Phased Inclusion of Remaining Balance of Policyholders Surplus Accounts
"(1) life insurance company taxable income for such year (within the meaning of such section 801 but not less than zero), plus
"(2) 1/8 of such balance."
Treatment of Certain Workers' Compensation Funds
"(a)
"(b)
"(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
"(1)
"(2)
Waiver of Interest on Certain Underpayments of Tax
Scope of Section 255 of the Tax Equity and Fiscal Responsibility Act of 1982
Treatment of Certain Self-Insured Workers' Compensation Funds
"(1)
"(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)
"(3)
"(4)
Reserves Computed on New Basis; Fresh Start
"(a)
"(1)
"(2)
"(3)
"(b)
"(1)
"(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)
"(A)
"(B)
"(i)
"(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)
"(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)
"(3)
"(A)
"(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)
"(C) 10-
"(D)
"(E)
"(4)
"(A)
"(B)
"(C)
"(i)
"(I) which made an election under such section 818(c
"(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)
"(iii)
"(5)
"(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 [former] 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
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)
"(1)
"(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 [former] section 809(b)(4)(B)(i) of the Internal Revenue Code of 1986).
"(2)
"(A)
"(i) a qualified life insurance company makes an election under paragraph (1), and
"(ii) the tentative LICTI (within the meaning of [former] 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)
"(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)
"(4)
"(5)
"(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
Treatment of Reinsurance Agreements Required by National Association of Insurance Commissioners
Reports to Congress on Revenue, Segment Balance, Etc.
"(a)
"(1) the aggregate amount of revenue received under part I of subchapter L of
"(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 [
"(3) the reasons for any difference between such aggregate revenues and anticipated revenues.
"(b)
"(1)
"(2)
"(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)
"(A)
"(B)
"(c)
Subpart B—Life Insurance Gross Income
§803. Life insurance gross income
(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.
(Added
Editorial Notes
Prior Provisions
A prior section 803, acts Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
Subpart C—Life Insurance Deductions
Editorial Notes
Amendments
2017—
2004—
1986—
§804. Life insurance deductions
For purposes of this part, the term "life insurance deductions" means the general deductions provided in section 805.
(Added
Editorial Notes
Prior Provisions
A prior section 804, added
Another prior section 804, acts Aug. 16, 1954, ch. 736,
Amendments
2017—
"(1) the general deductions provided in section 805, and
"(2) the small life insurance company deduction (if any) determined under section 806(a)."
1986—Pars. (2), (3).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
§805. General deductions
(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 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) 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 deduction allowed under section 172,
(ii) the deductions allowed by sections 243(a)(1) and 245, and
(iii) 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 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 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) Repealed. Pub. L. 115–97, title I, §13511(b)(5), Dec. 22, 2017, 131 Stat. 2142 ]
(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) any net operating loss carryback to the taxable year under section 172, and
(iv) 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) Dividends received deduction
Except as provided in subsection (a)(4), the deductions for dividends received provided by sections 243 and 245 shall not be allowed.
(Added
Editorial Notes
Codification
Another section 1084(b) of
Prior Provisions
A prior section 805, added
Another prior section 805, acts Aug. 16, 1954, ch. 736,
Amendments
2017—Subsec. (a)(4)(B)(i).
Subsec. (a)(4)(B)(ii).
Subsec. (a)(4)(B)(iii), (iv).
Subsec. (a)(5).
Subsec. (b)(2)(A)(iii).
Subsec. (b)(2)(A)(iv).
Subsec. (b)(2)(A)(v).
Subsec. (b)(4), (5).
2014—Subsec. (a)(4)(A).
Subsec. (a)(4)(B).
Subsec. (a)(4)(C)(i), (D)(i).
Subsec. (b)(5).
1997—Subsec. (a)(4)(C)(ii).
Subsec. (a)(4)(D)(iii).
Subsec. (a)(4)(F).
1996—Subsec. (a)(4)(E).
1987—Subsec. (a)(4)(B).
1986—Subsec. (a)(4)(B).
Subsec. (a)(4)(B)(i).
Subsec. (a)(4)(C) to (E).
Subsec. (b)(2).
Subsec. (b)(2)(A)(iii).
Subsec. (b)(3) to (6).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13511(a), (b)(4)–(6) of
Amendment by section 13512(b)(5), (6) of
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 611(a)(5) of
Amendment by section 805(c)(6) of
Amendment by section 1011(b)(4) of
Amendment by section 1821(p) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§806. Repealed. Pub. L. 115–97, title I, §13512(a), Dec. 22, 2017, 131 Stat. 2142 ]
Section, added
A prior section 806, added
Another prior section 806, act Aug. 16, 1954, ch. 736,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 2017, see section 13512(c) of
§807. Rules for certain reserves
(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 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,
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 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, 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 is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. 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) Determination of reserve
(A) In general
For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of—
(i) the net surrender value of such contract, or
(ii) 92.81 percent of the reserve determined under paragraph (2).
(B) Variable contracts
For purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of—
(i) the greater of—
(I) the net surrender value of such contract, or
(II) the portion of the reserve that is separately accounted for under section 817, plus
(ii) 92.81 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i).
(C) Statutory cap
In no event shall the reserves determined under subparagraphs (A) or (B) 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 paragraph (4)).
(D) No double counting
In no event shall any amount or item be taken into account more than once in determining any reserve under this subchapter.
(2) Amount of reserve
The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using the tax reserve method applicable to such contract.
(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, the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined.
(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 the reserve is determined), 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 the reserve is determined for 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 applicable to the contract and in effect as of the date the reserve is determined.
(ii) CARVM
The term "CARVM" means the Commissioners' Annuities Reserve Valuation Method prescribed by the National Association of Insurance Commissioners which is applicable to the contract and in effect as of the date the reserve is determined.
(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) Statutory reserves
The term "statutory reserves" means the aggregate amount set forth in the annual statement with respect to items described in section 807(c). Such term shall not include any reserve attributable to a deferred and uncollected premium if the establishment of such reserve is not permitted under section 811(c).
(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) Qualified 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 shall be computed separately as though such benefit were under a separate contract.
(B) Qualified supplemental benefit
For purposes of this paragraph, the term "qualified supplemental benefit" means any supplemental benefit described in subparagraph (C) 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.
(C) 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).
(3) 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.
(4) 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.
(5) 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 (B), 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) 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).
(6) Reporting rules
The Secretary shall require reporting (at such time and in such manner as the Secretary shall prescribe) with respect to the opening balance and closing balance of reserves and with respect to the method of computing reserves for purposes of determining income.
(f) Adjustment for change in computing reserves
(1) Treatment as change in method of accounting
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—
(A) the amount of the item at the close of the taxable year, computed on the new basis, and
(B) 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 section 481 as adjustments attributable to a change in method of accounting initiated by the taxpayer and made with the consent of the Secretary.
(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.
(Added
Editorial Notes
Codification
Another section 1084(b) of
Prior Provisions
A prior section 807, act Aug. 16, 1954, ch. 736,
Amendments
2018—Subsec. (e)(5)(A)(i).
2017—Subsec. (c).
Subsec. (d)(1), (2).
"(1)
"(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 paragraph (6)).
"(2)
"(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."
Subsec. (d)(3)(A)(iii).
Subsec. (d)(3)(A)(iv)(I).
Subsec. (d)(3)(A)(iv)(II).
Subsec. (d)(3)(B).
Subsec. (d)(4) to (6).
Subsec. (e)(2).
Subsec. (e)(3), (4).
Subsec. (e)(5).
Subsec. (e)(6).
Subsec. (e)(7).
Subsec. (f)(1).
2014—Subsec. (e)(7)(B), (C).
2004—Subsecs. (a)(2)(B), (b)(1)(B).
Subsec. (d)(1).
Subsec. (d)(6).
1997—Subsec. (a)(2)(B).
Subsec. (b)(1)(B).
1996—Subsec. (d)(3)(A)(iii).
Subsec. (d)(3)(B)(ii).
1990—Subsec. (e)(7).
1987—Subsec. (c).
Subsec. (d)(2)(B).
Subsec. (d)(4).
1986—Subsec. (c).
Subsec. (d)(5)(C).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
"(1)
"(2)
"(3)
"(A)
"(i) the reserve determined under section 807(d) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) with respect to any contract as of the close of the year preceding the first taxable year beginning after December 31, 2017, differs from
"(ii) the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2),
then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) shall be taken into account under the method provided in subparagraph (B).
"(B)
"(i) If the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) or 832(c)(4) of such Code, as applicable.
"(ii) If the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) or 832(b)(1)(C) of such Code, as applicable."
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2004 Amendment
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1990 Amendment
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Amendment by section 1023(b) of
Amendment by section 1821(a), (s) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Treatment of Certain Assessment Life Insurance Companies
"(1)
"(A) in use since 1965, and
"(B) developed on the basis of the experience of assessment life insurance companies in the State in which such assessment life insurance company is domiciled.
"(2)
"(A) has been in existence since 1965, and
"(B) operates under
for purposes of part I of subchapter L of
"(3)
Special Rule for Companies Using Net Level Reserve Method for Noncancellable Accident and Health Insurance Contracts
"(1) such company—
"(A) was using the net level reserve method to compute at least 99 percent of its statutory reserves on such contracts as of December 31, 1982, and
"(B) received more than half its total direct premiums in 1982 from directly-written noncancellable accident and health insurance,
"(2) after December 31, 1983, and through such taxable year, such company has continuously used the net level reserve method for computing at least 99 percent of its tax and statutory reserves on such contracts, and
"(3) for any such contract for which the company does not use the net level reserve method, such company uses the same method for computing tax reserves as such company uses for computing its statutory reserves."
§808. Policyholder dividends deduction
(a) Policyholder dividend defined
For purposes of this part, the term "policyholder dividend" means any dividend or similar distribution to policyholders in their capacity as such.
(b) Certain amounts included
For purposes of this part, the term "policyholder dividend" includes—
(1) any amount paid or credited (including as an increase in benefits) where the amount is not fixed in the contract but depends on the experience of the company or the discretion of the management,
(2) excess interest,
(3) premium adjustments, and
(4) experience-rated refunds.
(c) Amount of deduction
The deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year.
(d) Definitions
For purposes of this section—
(1) Excess interest
The term "excess interest" means any amount in the nature of interest—
(A) paid or credited to a policyholder in his capacity as such, and
(B) in excess of interest determined at the prevailing State assumed rate for such contract.
(2) Premium adjustment
The term "premium adjustment" means any reduction in the premium under an insurance or annuity contract which (but for the reduction) would have been required to be paid under the contract.
(3) Experience-rated refund
The term "experience-rated refund" means any refund or credit based on the experience of the contract or group involved.
(e) Treatment of policyholder dividends
For purposes of this part, any policyholder dividend which—
(1) increases the cash surrender value of the contract or other benefits payable under the contract, or
(2) reduces the premium otherwise required to be paid,
shall be treated as paid to the policyholder and returned by the policyholder to the company as a premium.
(f) Coordination of 1984 fresh-start adjustment with acceleration of policyholder dividends deduction through change in business practice
(1) In general
The amount determined under paragraph (1) of subsection (c) for the year of change shall (before any reduction under paragraph (2) of subsection (c)) be reduced by so much of the accelerated policyholder dividends deduction for such year as does not exceed the 1984 fresh-start adjustment for policyholder dividends (to the extent such adjustment was not previously taken into account under this subsection).
(2) Year of change
For purposes of this subsection, the term "year of change" means the taxable year in which the change in business practices which results in the accelerated policyholder dividends deduction takes effect.
(3) Accelerated policyholder dividends deduction defined
For purposes of this subsection, the term "accelerated policyholder dividends deduction" means the amount which (but for this subsection) would be determined for the taxable year under paragraph (1) of subsection (c) but which would have been determined (under such paragraph) for a later taxable year under the business practices of the taxpayer as in effect at the close of the preceding taxable year.
(4) 1984 fresh-start adjustment for policyholder dividends
For purposes of this subsection, the term "1984 fresh-start adjustment for policyholder dividends" means the amounts held as of December 31, 1983, by the taxpayer as reserves for dividends to policyholders under section 811(b) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) other than for dividends which accrued before January 1, 1984. Such amounts shall be properly reduced to reflect the amount of previously nondeductible policyholder dividends (as determined under section 809(f) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984).
(5) Separate application with respect to lines of business
This subsection shall be applied separately with respect to each line of business of the taxpayer.
(6) Subsection not to apply to mere change in dividend amount
This subsection shall not apply to a mere change in the amount of policyholder dividends.
(7) Subsection not to apply to policies issued after December 31, 1983
(A) In general
This subsection shall not apply to any policyholder dividend paid or accrued with respect to a policy issued after December 31, 1983.
(B) Exchanges of substantially similar policies
For purposes of subparagraph (A), any policy issued after December 31, 1983, in exchange for a substantially similar policy issued on or before such date shall be treated as issued before January 1, 1984. A similar rule shall apply in the case of a series of exchanges.
(8) Subsection to apply to policies provided under employee benefit plans
This subsection shall not apply to any policyholder dividend paid or accrued with respect to a group policy issued in connection with a plan to provide welfare benefits to employees (within the meaning of section 419(e)(2)).
(g) Prevailing State assumed interest rate
For purposes of this subchapter—
(1) 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.
(2) 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.
(Added
Editorial Notes
References in Text
The date of enactment of the Tax Reform Act of 1984, referred to in subsec. (f)(4), is the date of enactment of
Amendments
2017—Subsec. (g).
2004—Subsec. (c).
"(1)
"(2)
1986—Subsec. (d)(1)(B).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§809. Repealed. Pub. L. 108–218, title II, §205(a), Apr. 10, 2004, 118 Stat. 610 ]
Section, added
A prior section 809, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 2004, see section 205(c) of
[§810. Repealed. Pub. L. 115–97, title I, §13511(b)(1), Dec. 22, 2017, 131 Stat. 2142 ]
Section, added
A prior section 810, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to losses arising in taxable years beginning after Dec. 31, 2017, see section 13511(c) of
Subpart D—Accounting, Allocation, and Foreign Provisions
Editorial Notes
Amendments
2017—
1987—
1 Section catchline amended by
§811. Accounting provisions
(a) Method of accounting
All computations entering into the determination of the taxes imposed by this part shall be made—
(1) under an accrual method of accounting, or
(2) to the extent permitted under regulations prescribed by the Secretary, under a combination of an accrual method of accounting with any other method permitted by this chapter (other than the cash receipts and disbursements method).
To the extent not inconsistent with the preceding sentence or any other provision of this part, all such computations shall be made in a manner consistent with the manner required for purposes of the annual statement approved by the National Association of Insurance Commissioners.
(b) Amortization of premium and accrual of discount
(1) In general
The appropriate items of income, deductions, and adjustments under this part shall be adjusted to reflect the appropriate amortization of premium and the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a life insurance company. Such amortization and accrual shall be determined—
(A) in accordance with the method regularly employed by such company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations prescribed by the Secretary.
(2) Special rules
(A) Amortization of bond premium
In the case of any bond (as defined in section 171(d)), the amount of bond premium, and the amortizable bond premium for the taxable year, shall be determined under section 171(b) as if the election set forth in section 171(c) had been made.
(B) Convertible evidence of indebtedness
In no case shall the amount of premium on a convertible evidence of indebtedness include any amount attributable to the conversion features of the evidence of indebtedness.
(3) Exception
No accrual of discount shall be required under paragraph (1) on any bond (as defined in section 171(d)), except in the case of discount which is—
(A) interest to which section 103 applies, or
(B) original issue discount (as defined in section 1273).
(c) No double counting
Nothing in this part shall permit—
(1) a reserve to be established for any item unless the gross amount of premiums and other consideration attributable to such item are required to be included in life insurance gross income,
(2) the same item to be counted more than once for reserve purposes, or
(3) any item to be deducted (either directly or as an increase in reserves) more than once.
(d) Method of computing reserves on contract where interest is guaranteed beyond end of taxable year
For purposes of this part (other than section 816), amounts in the nature of interest to be paid or credited under any contract for any period which is computed at a rate which—
(1) exceeds the interest rate in effect under section 808(g) for the contract for such period, and
(2) is guaranteed beyond the end of the taxable year on which the reserves are being computed,
shall be taken into account in computing the reserves with respect to such contract as if such interest were guaranteed only up to the end of the taxable year.
(e) Short taxable years
If any return of a corporation made under this part is for a period of less than the entire calendar year (referred to in this subsection as "short period"), then section 443 shall not apply in respect to such period, but life insurance company taxable income shall be determined, under regulations prescribed by the Secretary, on an annual basis by a ratable daily projection of the appropriate figures for the short period.
(Added and amended
Editorial Notes
Prior Provisions
A prior section 811, added
Another prior section 811, act Aug. 16, 1954, ch. 736, §811, as added Mar. 13, 1956, ch. 83, §2,
Amendments
2017—Subsec. (d)(1).
1988—Subsec. (d)(1).
1984—Subsec. (b)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 42(a)(8) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
§812. Definition of company's share and policyholder's share
(a) Company's share
For purposes of section 805(a)(4), the term "company's share" means, with respect to any taxable year beginning after December 31, 2017, 70 percent.
(b) Policyholder's share
For purposes of section 807, the term "policyholder's share" means, with respect to any taxable year beginning after December 31, 2017, 30 percent.
(Added
Editorial Notes
Codification
Another section 1084(b) of
Prior Provisions
A prior section 812, added
Another prior section 812, act Aug. 16, 1954, ch. 736, §812, as added Mar. 13, 1956, ch. 83, §2,
Amendments
2017—
2014—Subsec. (e)(2)(A).
2004—Subsec. (b)(3)(A).
1997—Subsec. (d)(1)(D).
1996—Subsec. (g).
1988—Subsec. (b)(2).
Subsec. (e).
1987—Subsec. (b)(2).
1986—Subsec. (b)(2).
Subsec. (b)(3)(B).
Subsec. (c).
Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 1602(b)(1) of
Effective Date of 1988 Amendment
Amendment by section 2004(p)(2) of
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§813. Repealed. Pub. L. 100–203, title X, §10242(c)(1), Dec. 22, 1987, 101 Stat. 1330–423 ]
Section, added
A prior section 813, act Aug. 16, 1954, ch. 736, §813, as added Mar. 13, 1956, ch. 83, §2,
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 1987, see section 10242(d) of
§814. Contiguous country branches of domestic life insurance companies
(a) Exclusion of items
In the case of a domestic mutual insurance company which—
(1) is a life insurance company,
(2) has a contiguous country life insurance branch, and
(3) makes the election provided by subsection (g) with respect to such branch,
there shall be excluded from each item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c).
(b) Contiguous country life insurance branch
For purposes of this section, the term contiguous country life insurance branch means a branch which—
(1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous to the United States,
(2) has its principal place of business in such contiguous country, and
(3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company.
For purposes of this section, the term "insurance contract" means any life, health, accident, or annuity contract or reinsurance contract or any contract relating thereto.
(c) Separate accounting required
Any taxpayer which makes the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made—
(1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and
(2) in all other cases, in accordance with regulations prescribed by the Secretary.
(d) Recognition of gain on assets in branch account
If the aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect at their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence.
(e) Transactions between contiguous country branch and domestic life insurance company
(1) Reimbursement for home office services, etc.
Any payment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for in such separate account shall be taken into account by the domestic life insurance company in the same manner as if such payment, transfer, reimbursement, credit, or allowance had been received from a separate person.
(2) Repatriation of income
(A) In general
Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the income of the domestic life insurance company.
(B) Limitation
The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which—
(i) the aggregate decrease in the tentative LICTI of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds
(ii) the amount of additions to tentative LICTI pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years.
(C) Transitional rule
For purposes of this paragraph, in the case of a prior taxable year beginning before January 1, 1984, the term "tentative LICTI" means life insurance company taxable income determined under this part (as in effect for such year) without regard to this paragraph.
(f) Other rules
(1) Treatment of foreign taxes
No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part III of subchapter N (relating to foreign tax credit) or allowable as a deduction.
(2) United States source income allocable to contiguous country branch
For purposes of sections 881, 882, and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country.
(g) Election
A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof) with respect to which such election is made, and such election and any approved revocation thereof shall be made in the manner provided by the Secretary.
(h) Special rule for domestic stock life insurance companies
At the election of a domestic stock life insurance company which has a contiguous country life insurance branch described in subsection (b) (without regard to the mutual requirement in subsection (b)(3)), the assets of such branch may be transferred to a foreign corporation organized under the laws of the contiguous country without the application of section 367. Subsection (a) shall apply to the stock of such foreign corporation as if such domestic company were a mutual company and as if the stock were an item described in subsection (c). Subsection (e)(2) shall apply to amounts transferred or credited to such domestic company as if such domestic company and such foreign corporation constituted one domestic mutual life insurance company. The insurance contracts which may be transferred pursuant to this subsection shall include only those which are similar to the types of insurance contracts issued by a mutual life insurance company. Notwithstanding the first sentence of this subsection, if the aggregate fair market value of the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account exceeds the aggregate adjusted basis of such assets for purposes of determining gain, the domestic life insurance company shall be deemed to have sold all such assets on the first day of the taxable year for which the election under this subsection applies and the net gain shall be recognized to the domestic life insurance company on the deemed sale, but not in excess of the proportion of such net gain which equals the proportion which the aggregate fair market value of such assets which are transferred pursuant to this subsection is of the aggregate fair market value of all such assets.
(Added
Editorial Notes
Amendments
2017—Subsec. (f)(1).
1997—Subsec. (h).
Statutory Notes and Related Subsidiaries
New Section 814 Treated as Continuation of Section 819A
"(1) any election under section 819A of such Code (as in effect on the day before the date of the enactment of this Act [July 18, 1984]) shall be treated as an election under such section 814, and
"(2) any reference to a provision of such section 814 shall be treated as including a reference to the corresponding provision of such section 819A."
Effective Date of 2017 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
[§815. Repealed. Pub. L. 115–97, title I, §13514(a), Dec. 22, 2017, 131 Stat. 2143 ]
Section, added
A prior section 815, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years beginning after Dec. 31, 2017, see section 13514(c) of
Subpart E—Definitions and Special Rules
Editorial Notes
Amendments
1996—
§816. Life insurance company defined
(a) Life insurance company defined
For purposes of this subtitle, the term "life insurance company" means an insurance company which is engaged in the business of issuing life insurance and annuity contracts (either separately or combined with accident and health insurance), or noncancellable contracts of health and accident insurance, if—
(1) its life insurance reserves (as defined in subsection (b)), plus
(2) unearned premiums, and unpaid losses (whether or not ascertained), on noncancellable life, accident, or health policies not included in life insurance reserves,
comprise more than 50 percent of its total reserves (as defined in subsection (c)). For purposes of the preceding sentence, the term "insurance company" means any company more than half of the business of which during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies.
(b) Life insurance reserves defined
(1) In general
For purposes of this part, the term "life insurance reserves" means amounts—
(A) which are computed or estimated on the basis of recognized mortality or morbidity tables and assumed rates of interest, and
(B) which are set aside to mature or liquidate, either by payment or reinsurance, future unaccrued claims arising from life insurance, annuity, and noncancellable accident and health insurance contracts (including life insurance or annuity contracts combined with noncancellable accident and health insurance) involving, at the time with respect to which the reserve is computed, life, accident, or health contingencies.
(2) Reserves must be required by law
Except—
(A) in the case of policies covering life, accident, and health insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, and
(B) as provided in paragraph (3),
in addition to the requirements set forth in paragraph (1), life insurance reserves must be required by law.
(3) Assessment companies
In the case of an assessment life insurance company or association, the term "life insurance reserves" includes—
(A) sums actually deposited by such company or association with State officers pursuant to law as guaranty or reserve funds, and
(B) any funds maintained, under the charter or articles of incorporation or association (or bylaws approved by a State insurance commissioner) of such company or association, exclusively for the payment of claims arising under certificates of membership or policies issued on the assessment plan and not subject to any other use.
(4) Amount of reserves
For purposes of this subsection, subsection (a), and subsection (c), the amount of any reserve (or portion thereof) for any taxable year shall be the mean of such reserve (or portion thereof) at the beginning and end of the taxable year.
(c) Total reserves defined
For purposes of subsection (a), the term "total reserves" means—
(1) life insurance reserves,
(2) unearned premiums, and unpaid losses (whether or not ascertained), not included in life insurance reserves, and
(3) all other insurance reserves required by law.
(d) Adjustments in reserves for policy loans
For purposes only of determining under subsection (a) whether or not an insurance company is a life insurance company, the life insurance reserves, and the total reserves, shall each be reduced by an amount equal to the mean of the aggregates, at the beginning and end of the taxable year, of the policy loans outstanding with respect to contracts for which life insurance reserves are maintained.
(e) Guaranteed renewable contracts
For purposes of this part, guaranteed renewable life, accident, and health insurance shall be treated in the same manner as noncancellable life, accident, and health insurance.
(f) Amounts not involving life, accident, or health contingencies
For purposes only of determining under subsection (a) whether or not an insurance company is a life insurance company, amounts set aside and held at interest to satisfy obligations under contracts which do not contain permanent guarantees with respect to life, accident, or health contingencies shall not be included in reserves described in paragraph (1) or (3) of subsection (c).
(g) Burial and funeral benefit insurance companies
A burial or funeral benefit insurance company engaged directly in the manufacture of funeral supplies or the performance of funeral services shall not be taxable under this part but shall be taxable under section 831.
(h) Treatment of deficiency reserves
For purposes of this section and section 842(b)(2)(B)(i), the terms "life insurance reserves" and "total reserves" shall not include deficiency reserves.
(Added
Editorial Notes
Prior Provisions
A prior section 816, act Aug. 16, 1954, ch. 736, §816, as added Mar. 13, 1956, ch. 83, §2,
Amendments
1988—Subsec. (g).
Subsec. (h).
1987—Subsec. (h).
1986—Subsec. (h).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by section 1010(f)(6) of
Amendment by section 2004(q)(1) of
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Amendment by
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Special Election To Treat Individual Noncancellable Accident and Health Contracts as Cancellable
"(1)
"(2)
"(3)
"(4)
"(A) on the return of the taxpayer for its first taxable year beginning after December 31, 1983, and
"(B) in such manner as the Secretary of the Treasury or his delegate may prescribe."
[
["(2)
["(3)
§817. Treatment of variable contracts
(a) Increases and decreases in reserves
For purposes of subsections (a) and (b) of section 807, the sum of the items described in section 807(c) taken into account as of the close of the taxable year with respect to any variable contract shall, under regulations prescribed by the Secretary, be adjusted—
(1) by subtracting therefrom an amount equal to the sum of the amounts added from time to time (for the taxable year) to the reserves separately accounted for in accordance with subsection (c) by reason of appreciation in value of assets (whether or not the assets have been disposed of), and
(2) by adding thereto an amount equal to the sum of the amounts subtracted from time to time (for the taxable year) from such reserves by reason of depreciation in value of assets (whether or not the assets have been disposed of).
The deduction allowable for items described in paragraphs (1) and (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence.
(b) Adjustment to basis of assets held in segregated asset account
In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be—
(1) increased by the amount of any appreciation in value, and
(2) decreased by the amount of any depreciation in value,
to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts.
(c) Separate accounting
For purposes of this part, a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made—
(1) in accordance with the method regularly employed by such company, if such method is reasonable, and
(2) in all other cases, in accordance with regulations prescribed by the Secretary.
(d) Variable contract defined
For purposes of this part, the term "variable contract" means a contract—
(1) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company,
(2) which—
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) provides for funding of insurance on retired lives as described in section 807(c)(6), and
(3) under which—
(A) in the case of an annuity contract, the amounts paid in, or the amount paid out, reflect the investment return and the market value of the segregated asset account,
(B) in the case of a life insurance contract, the amount of the death benefit (or the period of coverage) is adjusted on the basis of the investment return and the market value of the segregated asset account, or
(C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.
If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such cessation. Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company's general account.
(e) Pension plan contracts treated as paying annuity
A pension plan contract which is not a life, accident, or health, property, casualty, or liability insurance contract shall be treated as a contract which provides for the payments of annuities for purposes of subsection (d).
(f) Other special rules
(1) Life insurance reserves
For purposes of subsection (b)(1)(A) of section 816, the reflection of the investment return and the market value of the segregated asset account shall be considered an assumed rate of interest.
(2) Additional separate computations
Under regulations prescribed by the Secretary, such additional separate computations shall be made, with respect to the items separately accounted for in accordance with subsection (c), as may be necessary to carry out the purposes of this section and this part.
(g) Variable annuity contracts treated as annuity contracts
For purposes of this part, the term "annuity contract" includes a contract which provides for the payment of a variable annuity computed on the basis of—
(1) recognized mortality tables, and
(2)(A) the investment experience of a segregated asset account, or
(B) the company-wide investment experience of the company.
Paragraph (2)(B) shall not apply to any company which issues contracts which are not variable contracts.
(h) Treatment of certain nondiversified contracts
(1) In general
For purposes of subchapter L, section 72 (relating to annuities), and section 7702(a) (relating to definition of life insurance contract), a variable contract (other than a pension plan contract) which is otherwise described in this section and which is based on a segregated asset account shall not be treated as an annuity, endowment, or life insurance contract for any period (and any subsequent period) for which the investments made by such account are not, in accordance with regulations prescribed by the Secretary, adequately diversified.
(2) Safe harbor for diversification
A segregated asset account shall be treated as meeting the requirements of paragraph (1) for any quarter of a taxable year if as of the close of such quarter—
(A) it meets the requirements of section 851(b)(3), and
(B) no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(3)(A)(i).
(3) Special rule for investments in United States obligations
To the extent that any segregated asset account with respect to a variable life insurance contract is invested in securities issued by the United States Treasury, the investments made by such account shall be treated as adequately diversified for purposes of paragraph (1).
(4) Look-through in certain cases
For purposes of this subsection, if all of the beneficial interests in a regulated investment company or in a trust are held by 1 or more—
(A) insurance companies (or affiliated companies) in their general account or in segregated asset accounts, or
(B) fund managers (or affiliated companies) in connection with the creation or management of the regulated investment company or trust,
the diversification requirements of paragraph (1) shall be applied by taking into account the assets held by such regulated investment company or trust.
(5) Independent investment advisors permitted
Nothing in this subsection shall be construed as prohibiting the use of independent investment advisors.
(6) Government securities funds
In determining whether a segregated asset account is adequately diversified for purposes of paragraph (1), each United States Government agency or instrumentality shall be treated as a separate issuer.
(Added
Editorial Notes
Prior Provisions
A prior section 817, added
Another prior section 817, act Aug. 16, 1954, ch. 736, §817, as added Mar. 13, 1956, ch. 83, §2,
Amendments
2004—Subsec. (c).
1997—Subsec. (h)(2)(A).
Subsec. (h)(2)(B).
1996—Subsec. (d)(2)(C).
Subsec. (d)(3)(C).
1988—Subsec. (h)(6).
1986—Subsec. (d).
Subsec. (h)(1).
Subsec. (h)(3) to (5).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
"(A) to contracts issued after December 31, 1986, and
"(B) to contracts issued before January 1, 1987, if such contract was treated as a variable contract on the taxpayer's return."
Amendment by section 1821(m) of
Effective Date
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
Delay in Effective Date for Diversification Requirements With Respect to Accounts for Certain Immediate Annuities
"(1) such contract provides for the payment of an immediate annuity (as defined in section 72(u)(4) of the 1986 Code),
"(2) such contract was outstanding on September 12, 1986, and
"(3) the segregated asset account on which such contract is based was, on September 12, 1986, wholly invested in deposits insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation."
Insurance-Dedicated Exchange-Traded Funds
"(a)
"(b)
"(c)
"(1)
"(A) that is registered with the Securities and Exchange Commission as an open-end investment company or a unit investment trust;
"(B) the shares of which can be purchased or redeemed directly from the fund only by an authorized participant; and
"(C) the shares of which are traded throughout the day on a national stock exchange at market prices that may or may not be the same as the net asset value of the shares.
"(2)
"(A) purchasing the shares for its own investment purposes rather than for the exclusive purpose of creating and redeeming such shares on behalf of third parties; and
"(B) selling the shares to third parties who are not market makers or otherwise described in Treas. Reg. section 1.817–5(f) (1) and (3).
"(3)
"(d)
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§817A. Special rules for modified guaranteed contracts
(a) Computation of reserves
In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.
(b) Segregated assets under modified guaranteed contracts marked to market
(1) In general
In the case of any life insurance company, for purposes of this subtitle—
(A) Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.
(B) If any segregated asset is held by such company as of the close of any taxable year—
(i) such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and
(ii) any such gain or loss shall be taken into account for such taxable year.
Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph.
(2) Segregated asset
For purposes of paragraph (1), the term "segregated asset" means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.
(c) Special rule in computing life insurance reserves
For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.
(d) Modified guaranteed contract defined
For purposes of this section, the term "modified guaranteed contract" means a contract not described in section 817—
(1) all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,
(2) which—
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,
(3) for which reserves are valued at market for annual statement purposes, and
(4) which provides for a net surrender value or a policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such portion shall be treated for purposes of this section as a separate contract.
(e) Regulations
The Secretary may prescribe regulations—
(1) to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
(2) to determine the interest rates applicable under sections 807(c)(3) and 807(d)(2)(B) with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),
(3) to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,
(4) to provide appropriate treatment of transfers of assets to and from the segregated account, and
(5) as may be necessary or appropriate to carry out the purposes of this section.
(Added
Editorial Notes
Amendments
2017—Subsec. (e)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A) such changes shall be treated as a change in method of accounting initiated by the taxpayer,
"(B) such changes shall be treated as made with the consent of the Secretary, and
"(C) the adjustments required by reason of section 481 of the Internal Revenue Code of 1986, shall be taken into account as ordinary income by the taxpayer for the taxpayer's first taxable year beginning after December 31, 1995.
"(3)
"(A)
"(i)
"(I) the amount of life insurance reserves as of the close of the prior taxable year, over
"(II) the amount of such reserves as of the beginning of such first taxable year,
to the extent such excess is attributable to subsection (a) of such section 817A. Notwithstanding the preceding sentence, the adjusted basis of each segregated asset shall be determined as if all such losses were recognized.
"(ii)
"(B)
"(i)
"(ii)
"(iii)
"(I) the fair market value of the asset as of the beginning of the first taxable year of the taxpayer beginning after December 31, 1995, over
"(II) the adjusted basis of such asset as of such time."
§818. Other definitions and special rules
(a) Pension plan contracts
For purposes of this part, the term "pension plan contract" means any contract—
(1) entered into with trusts which (as of the time the contracts were entered into) were deemed to be trusts described in section 401(a) and exempt from tax under section 501(a) (or trusts exempt from tax under section 165 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws);
(2) entered into under plans which (as of the time the contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939;
(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (17), (19), (20), (22), (26), and (27) of section 401(a);
(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) was an organization described in section 501(c)(3) which was exempt from tax under section 501(a) (or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws), or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing;
(5) entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b); or
(6) purchased by—
(A) a governmental plan (within the meaning of section 414(d)) or an eligible deferred compensation plan (within the meaning of section 457(b)), or
(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, or any organization (other than a governmental unit) exempt from tax under this subtitle, for use in satisfying an obligation of such government, political subdivision, agency or instrumentality, or organization to provide a benefit under a plan described in subparagraph (A).
(b) Treatment of capital gains and losses, etc.
In the case of a life insurance company—
(1) in applying section 1231(a), the term "property used in the trade or business" shall be treated as including only—
(A) property used in carrying on an insurance business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in carrying on an insurance business, held for more than 1 year, which is not described in section 1231(b)(1)(A), (B), or (C), and
(B) property described in section 1231(b)(2), and
(2) in applying section 1221(a)(2), the reference to property used in trade or business shall be treated as including only property used in carrying on an insurance business.
(c) Gain on property held on December 31, 1958 and certain substituted property acquired after 1958
(1) Property held on December 31, 1958
In the case of property held by the taxpayer on December 31, 1958, if—
(A) the fair market value of such property on such date exceeds the adjusted basis for determining gain as of such date, and
(B) the taxpayer has been a life insurance company at all times on and after December 31, 1958,
the gain on the sale or other disposition of such property shall be treated as an amount (not less than zero) equal to the amount by which the gain (determined without regard to this subsection) exceeds the difference between the fair market value on December 31, 1958, and the adjusted basis for determining gain as of such date.
(2) Certain property acquired after December 31, 1958
In the case of property acquired after December 31, 1958, and having a substituted basis (within the meaning of section 1016(b))—
(A) for purposes of paragraph (1), such property shall be deemed held continuously by the taxpayer since the beginning of the holding period thereof, determined with reference to section 1223,
(B) the fair market value and adjusted basis referred to in paragraph (1) shall be that of that property for which the holding period taken into account includes December 31, 1958,
(C) paragraph (1) shall apply only if the property or properties the holding periods of which are taken into account were held only by life insurance companies after December 31, 1958, during the holding periods so taken into account,
(D) the difference between the fair market value and adjusted basis referred to in paragraph (1) shall be reduced (to not less than zero) by the excess of (i) the gain that would have been recognized but for this subsection on all prior sales or dispositions after December 31, 1958, of properties referred to in subparagraph (C), over (ii) the gain which was recognized on such sales or other dispositions, and
(E) the basis of such property shall be determined as if the gain which would have been recognized but for this subsection were recognized gain.
(3) Property defined
For purposes of paragraphs (1) and (2), the term "property" does not include insurance and annuity contracts and property described in paragraph (1) of section 1221(a).
(d) Insurance or annuity contract includes contracts supplementary thereto
For purposes of this part, the term "insurance or annuity contract" includes any contract supplementary thereto.
(e) Special rules for consolidated returns
(1) Items of companies other than life insurance companies
If an election under section 1504(c)(2) is in effect with respect to an affiliated group for the taxable year, all items of the members of such group which are not life insurance companies shall not be taken into account in determining the amount of the tentative LICTI of members of such group which are life insurance companies.
(2) Dividends within group
In the case of a life insurance company filing or required to file a consolidated return under section 1501 with respect to any affiliated group for any taxable year, any determination under this part with respect to any dividend paid by one member of such group to another member of such group shall be made as if such group was not filing a consolidated return.
(f) Allocation of certain items for purposes of foreign tax credit, etc.
(1) In general
Under regulations, in applying sections 861, 862, and 863 to a life insurance company, the deduction for policyholder dividends (determined under section 808(c)), reserve adjustments under subsections (a) and (b) of section 807, and death benefits and other amounts described in section 805(a)(1) shall be treated as items which cannot definitely be allocated to an item or class of gross income.
(2) Election of alternative allocation
(A) In general
On or before September 15, 1985, any life insurance company may elect to treat items described in paragraph (1) as properly apportioned or allocated among items of gross income to the extent (and in the manner) prescribed in regulations.
(B) Election irrevocable
Any election under subparagraph (A), once made, may be revoked only with the consent of the Secretary.
(3) Items described in section 807(c) treated as not interest for source rules, etc.
For purposes of part I of subchapter N, items described in any paragraph of section 807(c) shall be treated as amounts which are not interest.
(g) Qualified accelerated death benefit riders treated as life insurance
For purposes of this part—
(1) In general
Any reference to a life insurance contract shall be treated as including a reference to a qualified accelerated death benefit rider on such contract.
(2) Qualified accelerated death benefit riders
For purposes of this subsection, the term "qualified accelerated death benefit rider" means any rider on a life insurance contract if the only payments under the rider are payments meeting the requirements of section 101(g).
(3) Exception for long-term care riders
Paragraph (1) shall not apply to any rider which is treated as a long-term care insurance contract under section 7702B.
(Added and amended
Editorial Notes
References in Text
Section 165 of the Internal Revenue Code of 1939, referred to in subsec. (a)(1), (2), was classified to section 165 of former Title 26, Internal Revenue Code. Section 101 of the Internal Revenue Code of 1939, referred to in subsec. (a)(4) was classified to section 101 of former Title 26, Internal Revenue Code. Sections 101 and 165 were repealed by
Prior Provisions
A prior section 818, added
Another prior section 818, act Aug. 16, 1954, ch. 736, §818, as added Mar. 13, 1956, ch. 83, §2,
A prior section 819, added
A prior section 819A, added
A prior section 820, added
A prior section 821, acts Aug. 16, 1954, ch. 736,
A prior section 822 was renumbered
A prior section 823, added
Another prior section 823, act Aug. 16, 1954, ch. 736,
A prior section 824, added
A prior section 825, added
A prior section 826 was renumbered
Amendments
1999—Subsec. (b)(2).
Subsec. (c)(3).
1996—Subsec. (g).
1988—Subsec. (a)(6).
Subsec. (f)(3).
1986—Subsec. (a)(3).
Subsec. (a)(6)(A).
Subsec. (e).
1984—Subsec. (b)(1)(A).
Statutory Notes and Related Subsidiaries
Effective Date of 1999 Amendment
Amendment by
Effective Date of 1996 Amendment
"(1)
"(2)
"(A) the issuance of a qualified accelerated death benefit rider (as defined in section 818(g) of such Code (as added by this Act)), and
"(B) the addition of any provision required to conform an accelerated death benefit rider to the requirements of such section 818(g),
shall not be treated as a modification or material change of such contract."
Effective Date of 1988 Amendment
Amendment by section 1010(k) of
Effective Date of 1986 Amendment
Amendment by section 1106(d)(3)(C) of
Amendment by section 1112(d)(4) of
Amendment by section 1821(n), (o) of
Effective Date of 1984 Amendment
Amendment by
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1112 of
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 [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
PART II—OTHER INSURANCE COMPANIES
Editorial Notes
Prior Provisions
A prior part II (§§821 to 826) related to mutual insurance companies other than life and certain marine insurance companies and other than fire and flood insurance companies which operated on the basis of perpetual policies or premium deposits, consisted of sections 821–826, prior to repeal (except for sections 822 and 826 which were renumbered sections 834 and 835, respectively, by
Amendments
1988—
1986—
1962—
§831. Tax on insurance companies other than life insurance companies
(a) General rule
Taxes computed as provided in section 11 shall be imposed for each taxable year on the taxable income of every insurance company other than a life insurance company.
(b) Alternative tax for certain small companies
(1) In general
In lieu of the tax otherwise applicable under subsection (a), there is hereby imposed for each taxable year on the income of every insurance company to which this subsection applies a tax computed by multiplying the taxable investment income of such company for such taxable year by the rates provided in section 11(b).
(2) Companies to which this subsection applies
(A) In general
This subsection shall apply to every insurance company other than life if—
(i) the net written premiums (or, if greater, direct written premiums) for the taxable year do not exceed $2,200,000,
(ii) such company meets the diversification requirements of subparagraph (B), and
(iii) such company elects the application of this subsection for such taxable year.
The election under clause (iii) shall apply to the taxable year for which made and for all subsequent taxable years for which the requirements of clauses (i) and (ii) are met. Such an election, once made, may be revoked only with the consent of the Secretary.
(B) Diversification requirements
(i) In general
An insurance company meets the requirements of this subparagraph if—
(I) no more than 20 percent of the net written premiums (or, if greater, direct written premiums) of such company for the taxable year is attributable to any one policyholder, or
(II) such insurance company does not meet the requirement of subclause (I) and no person who holds (directly or indirectly) an interest in such insurance company is a specified holder who holds (directly or indirectly) aggregate interests in such insurance company which constitute a percentage of the entire interests in such insurance company which is more than a de minimis percentage higher than the percentage of interests in the relevant specified assets with respect to such insurance company held (directly or indirectly) by such specified holder.
(ii) Aggregation of certain spousal interests
For purposes of clause (i)(II), any interest in the insurance company referred to in such clause which is held (directly or indirectly) by an individual who is a spouse of the specified holder, and who is a citizen of the United States, shall be treated as held by the specified holder.
(iii) Specified holder
For purposes of this subparagraph, the term "specified holder" means, with respect to any insurance company, any individual who holds (directly or indirectly) an interest in such insurance company and who—
(I) is a lineal descendent (including by adoption) of an individual who holds an interest (directly or indirectly) in the specified assets with respect to such insurance company or of such individual's spouse,
(II) is a spouse of any lineal descendent described in subclause (I), or
(III) is not a citizen of the United States and is a spouse of an individual who holds an interest (directly or indirectly) in the specified assets with respect to such insurance company.
(iv) Definitions
For purposes of this subparagraph—
(I) Relevant specified assets
The term "relevant specified assets" means, with respect to any specified holder with respect to any insurance company, the aggregate amount of the specified assets, with respect to such insurance company, any interest in which is held (directly or indirectly) by any spouse or specified relation of such specified holder. Such term shall not include any specified asset solely by reason of an interest in such asset which was acquired by such spouse or specified relation by bequest, devise, or inheritance from a decedent during the taxable year of the insurance company or the preceding taxable year. For purposes of this subclause, the term "specified relation" means any individual with respect to whom the specified holder bears a relationship described in subclause (I) or (II) of clause (iii).
(II) Specified assets
The term "specified assets" means, with respect to any insurance company, the trades or businesses, rights, or assets with respect to which the net written premiums (or direct written premiums) of such insurance company are paid.
(III) Indirect interest
An indirect interest includes any interest held through a trust, estate, partnership, or corporation.
(IV) De minimis
Except as otherwise provided by the Secretary in regulations or other guidance, 2 percentage points or less shall be treated as de minimis.
(C) Controlled group rules
(i) In general
For purposes of this paragraph—
(I) in determining whether any company is described in clause (i) of subparagraph (A), such company shall be treated as receiving during the taxable year amounts described in such clause (i) which are received during such year by all other companies which are members of the same controlled group as the insurance company for which the determination is being made, and
(II) in determining the attribution of premiums to any policyholder under subparagraph (B)(i), all policyholders which are related (within the meaning of section 267(b) or 707(b)) or are members of the same controlled group shall be treated as one policyholder.
(ii) Controlled group
For purposes of clause (i), the term "controlled group" means any controlled group of corporations (as defined in section 1563(a)); except that—
(I) "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears in section 1563(a), and
(II) subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply.
(D) Look-through of reinsurance and fronting arrangements
In the case of reinsurance or any fronting, intermediary, or similar arrangement, the term "policyholder" means each policyholder of the underlying direct written insurance with respect to such reinsurance or arrangement.
(E) Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2015, the dollar amount set forth in subparagraph (A)(i) shall be increased by an amount equal to—
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting "calendar year 2013" for "calendar year 2016" in subparagraph (A)(ii) thereof.
If the amount as adjusted under the preceding sentence is not a multiple of $50,000, such amount shall be rounded to the next lowest multiple of $50,000.
(3) Limitation on use of net operating losses
For purposes of this part, a net operating loss (as defined in section 172) shall not be carried—
(A) to or from any taxable year for which the insurance company is not subject to the tax imposed by subsection (a), or
(B) to any taxable year if, between the taxable year from which such loss is being carried and such taxable year, there is an intervening taxable year for which the insurance company was not subject to the tax imposed by subsection (a).
(c) Insurance company defined
For purposes of this section, the term "insurance company" has the meaning given to such term by section 816(a).
(d) Reporting
Every insurance company for which an election is in effect under subsection (b) for any taxable year shall furnish to the Secretary at such time and in such manner as the Secretary shall prescribe such information for such taxable year as the Secretary shall require with respect to the requirements of subsection (b)(2)(A)(ii).
(e) Cross references
(1) For taxation of foreign corporations carrying on an insurance business within the United States, see section 842.
(2) For exemption from tax for certain insurance companies other than life, see section 501(c)(15).
(Aug. 16, 1954, ch. 736,
Inflation Adjusted Items for Certain Years
For inflation adjustment of certain items in this section, see Revenue Procedures listed in a table under
Editorial Notes
Amendments
2018—Subsec. (b)(2)(B)(i)(II).
Subsec. (b)(2)(B)(ii), (iii).
Subsec. (b)(2)(B)(iv).
Subsec. (b)(2)(B)(iv)(I).
Subsec. (b)(2)(D), (E).
Subsec. (c).
2017—Subsec. (b)(2)(D)(ii).
Subsec. (b)(3).
Subsec. (e).
2015—Subsec. (b)(2)(A).
Subsec. (b)(2)(B), (C).
Subsec. (b)(2)(C)(i).
Subsec. (b)(2)(D).
Subsecs. (d), (e).
2004—Subsec. (b)(2)(A)(i).
Subsecs. (c), (d).
1988—Subsec. (b)(2)(A).
Subsec. (b)(3).
1986—
1976—Subsec. (a).
Subsec. (b).
1966—Subsec. (b).
Subsecs. (c), (d).
1962—
Subsec. (a).
Subsecs. (c), (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2018 Amendment
Amendment by section 101(r) of
Effective Date of 2017 Amendment
Amendment by section 11002(d)(1)(AA) of
Amendment by section 13001(b)(2)(H) of
Amendment by section 13511(b)(2)(B) of
Effective Date of 2015 Amendment
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Effective Date of 1976 Amendment
Amendment by section 1901(a)(107) of
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Transitional Rules for 1984 Amendment
"(1)
"(2)
"(A) is from a taxable year beginning before January 1, 1987, and
"(B) could have been carried under such section to a taxable year beginning after December 31, 1986, but for the repeal made by subsection (a)(1) [repealing
shall be included in the net operating loss deduction under section 832(c)(10) of such Code without regard to the limitations of [former] section 844(b) of such Code."
§832. Insurance company taxable income
(a) Definition of taxable income
In the case of an insurance company subject to the tax imposed by section 831, the term "taxable income" means the gross income as defined in subsection (b)(1) less the deductions allowed by subsection (c).
(b) Definitions
In the case of an insurance company subject to the tax imposed by section 831—
(1) Gross income
The term "gross income" means the sum of—
(A) the combined gross amount earned during the taxable year, from investment income and from underwriting income as provided in this subsection, computed on the basis of the underwriting and investment exhibit of the annual statement approved by the National Association of Insurance Commissioners,
(B) gain during the taxable year from the sale or other disposition of property,
(C) all other items constituting gross income under subchapter B, except that, in the case of a mutual fire insurance company exclusively issuing perpetual policies, the amount of single deposit premiums paid to such company shall not be included in gross income,
(D) in the case of a mutual fire or flood insurance company whose principal business is the issuance of policies—
(i) for which the premium deposits are the same (regardless of the length of the term for which the policies are written), and
(ii) under which the unabsorbed portion of such premium deposits not required for losses, expenses, or establishment of reserves is returned or credited to the policyholder on cancellation or expiration of the policy,
an amount equal to 2 percent of the premiums earned on insurance contracts during the taxable year with respect to such policies after deduction of premium deposits returned or credited during the same taxable year, and
(E) in the case of a company which writes mortgage guaranty insurance, the amount required by subsection (e)(5) to be subtracted from the mortgage guaranty account.
(2) Investment income
The term "investment income" means the gross amount of income earned during the taxable year from interest, dividends, and rents, computed as follows: To all interest, dividends, and rents received during the taxable year, add interest, dividends, and rents due and accrued at the end of the taxable year, and deduct all interest, dividends, and rents due and accrued at the end of the preceding taxable year.
(3) Underwriting income
The term "underwriting income" means the premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred.
(4) Premiums earned
The term "premiums earned on insurance contracts during the taxable year" means an amount computed as follows:
(A) From the amount of gross premiums written on insurance contracts during the taxable year, deduct return premiums and premiums paid for reinsurance.
(B) To the result so obtained, add 80 percent of the unearned premiums on outstanding business at the end of the preceding taxable year and deduct 80 percent of the unearned premiums on outstanding business at the end of the taxable year.
(C) To the result so obtained, in the case of a taxable year beginning after December 31, 1986, and before January 1, 1993, add an amount equal to 31/3 percent of unearned premiums on outstanding business at the end of the most recent taxable year beginning before January 1, 1987.
For purposes of this subsection, unearned premiums shall include life insurance reserves, as defined in section 816(b) but determined as provided in section 807. For purposes of this subsection, unearned premiums of mutual fire or flood insurance companies described in paragraph (1)(D) means (with respect to the policies described in paragraph (1)(D)) the amount of unabsorbed premium deposits which the company would be obligated to return to its policyholders at the close of the taxable year if all of its policies were terminated at such time; and the determination of such amount shall be based on the schedule of unabsorbed premium deposit returns for each such company then in effect. Premiums paid by the subscriber of a mutual flood insurance company described in paragraph (1)(D) or issuing exclusively perpetual policies shall be treated, for purposes of computing the taxable income of such subscriber, in the same manner as premiums paid by a policyholder to a mutual fire insurance company described in subparagraph (C) or (D) of paragraph (1).
(5) Losses incurred
(A) In general
The term "losses incurred" means losses incurred during the taxable year on insurance contracts computed as follows:
(i) To losses paid during the taxable year, deduct salvage and reinsurance recovered during the taxable year.
(ii) To the result so obtained, add all unpaid losses on life insurance contracts plus all discounted unpaid losses (as defined in section 846) outstanding at the end of the taxable year and deduct all unpaid losses on life insurance contracts plus all discounted unpaid losses outstanding at the end of the preceding taxable year.
(iii) To the results so obtained, add estimated salvage and reinsurance recoverable as of the end of the preceding taxable year and deduct estimated salvage and reinsurance recoverable as of the end of the taxable year.
The amount of estimated salvage recoverable shall be determined on a discounted basis in accordance with procedures established by the Secretary.
(B) Reduction of deduction
The amount which would (but for this subparagraph) be taken into account under subparagraph (A) shall be reduced by an amount equal to the applicable percentage of the sum of—
(i) tax-exempt interest received or accrued during such taxable year,
(ii) the aggregate amount of deductions provided by sections 243 and 245 for—
(I) dividends (other than 100 percent dividends) received during the taxable year, and
(II) 100 percent dividends received during the taxable year to the extent attributable (directly or indirectly) to prorated amounts, and
(iii) the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies.
In the case of a 100 percent dividend paid by an insurance company, the portion attributable to prorated amounts shall be determined under subparagraph (E)(ii). For purposes of this subparagraph, the applicable percentage is 5.25 percent divided by the highest rate in effect under section 11(b).
(C) Exception for investments made before August 8, 1986
(i) In general
Except as provided in clause (ii), subparagraph (B) shall not apply to any dividend or interest received or accrued on any stock or obligation acquired before August 8, 1986.
(ii) Special rule for 100 percent dividends
For purposes of clause (i), the portion of any 100 percent dividend which is attributable to prorated amounts shall be treated as received with respect to stock acquired on the later of—
(I) the date the payor acquired the stock or obligation to which the prorated amounts are attributable, or
(II) the 1st day on which the payor and payee were members of the same affiliated group (as defined in section 243(b)(2)).
(D) Definitions
For purposes of this paragraph—
(i) Prorated amounts
The term "prorated amounts" means tax-exempt interest and dividends with respect to which a deduction is allowable under section 243 or 245 (other than 100 percent dividends).
(ii) 100 percent dividend
(I) In general
The term "100 percent dividend" means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 245(b) is 100 percent.
(II) Certain dividends received by foreign corporations
A dividend received by a foreign corporation from a domestic corporation which would be a 100 percent dividend if section 1504(b)(3) did not apply for purposes of applying section 243(b)(2) shall be treated as a 100 percent dividend.
(E) Special rules for dividends subject to proration at subsidiary level
(i) In general
In the case of any 100 percent dividend paid to an insurance company to which this part applies by any insurance company, the amount of the decrease in the deductions of the payee company by reason of the portion of such dividend attributable to prorated amounts shall be reduced (but not below zero) by the amount of the decrease in the deductions (or increase in income) of the payor company attributable to the application of this section or section 805(a)(4)(A) to such amounts.
(ii) Portion of dividend attributable to prorated amounts
For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts—
(I) any dividend by the paying corporation shall be treated as paid first out of earnings and profits attributable to prorated amounts (to the extent thereof), and
(II) by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter.
(6) Expenses incurred
The term "expenses incurred" means all expenses shown on the annual statement approved by the National Association of Insurance Commissioners, and shall be computed as follows: To all expenses paid during the taxable year, add expenses unpaid at the end of the taxable year and deduct expenses unpaid at the end of the preceding taxable year. For purposes of this subchapter, the term "expenses unpaid" shall not include any unpaid loss adjustment expenses shown on the annual statement, but such unpaid loss adjustment expenses shall be included in unpaid losses. For the purpose of computing the taxable income subject to the tax imposed by section 831, there shall be deducted from expenses incurred (as defined in this paragraph) all expenses incurred which are not allowed as deductions by subsection (c).
(7) Special rules for applying paragraph (4)
(A) Reduction not to apply to life insurance reserves
Subparagraph (B) of paragraph (4) shall be applied with respect to insurance contracts described in section 816(b)(1)(B) by substituting "100 percent" for "80 percent" each place it appears in such subparagraph (B), and subparagraph (C) of paragraph (4) shall be applied by not taking such contracts into account.
(B) Special treatment of premiums attributable to insuring certain securities
In the case of premiums attributable to insurance against default in the payment of principal or interest on securities described in section 165(g)(2)(C) with maturities of more than 5 years—
(i) subparagraph (B) of paragraph (4) shall be applied by substituting "90 percent" for "80 percent" each place it appears, and
(ii) subparagraph (C) of paragraph (4) shall be applied by substituting "12/3 percent" for "31/3 percent".
(C) Termination as insurance company taxable under section 831(a)
Except as provided in section 381(c)(22) (relating to carryovers in certain corporate readjustments), if, for any taxable year beginning before January 1, 1993, the taxpayer ceases to be an insurance company taxable under section 831(a), the aggregate adjustments which would be made under paragraph (4)(C) for such taxable year and subsequent taxable years but for such cessation shall be made for the taxable year preceding such cessation year.
(D) Treatment of companies which become taxable under section 831(a)
(i) Exception to phase-in for companies which were not taxable, etc., before 1987
Subparagraph (C) of paragraph (4) shall not apply to any insurance company which, for each taxable year beginning before January 1, 1987, was not subject to the tax imposed by section 821(a) 1 or 831(a) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) by reason of being—
(I) subject to tax under section 821(c) 1 (as so in effect), or
(II) described in section 501(c) (as so in effect) and exempt from tax under section 501(a).
(ii) Phase-in beginning at later date for companies not 1st taxable under section 831(a) in 1987
In the case of an insurance company—
(I) which was not subject to the tax imposed by section 831(a) for its 1st taxable year beginning after December 31, 1986, by reason of being subject to tax under section 831(b), or described in section 501(c) and exempt from tax under section 501(a), and
(II) which, for any taxable year beginning before January 1, 1987, was subject to the tax imposed by section 821(a) 1 or 831(a) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986),
subparagraph (C) of paragraph (4) shall apply beginning with the 1st taxable year beginning after December 31, 1986, for which such company is subject to the tax imposed by section 831(a) and shall be applied by substituting the last day of the preceding taxable year for "December 31, 1986" and the 1st day of the 7th succeeding taxable year for "January 1, 1993".
(E) Treatment of certain reciprocal insurers
In the case of a reciprocal (within the meaning of section 835(a)) which reports (as required by State law) on its annual statement reserves on unearned premiums net of premium acquisition expenses—
(i) subparagraph (B) of paragraph (4) shall be applied by treating unearned premiums as including an amount equal to such expenses, and
(ii) appropriate adjustments shall be made under subparagraph (c) of paragraph (4) to reflect the amount by which—
(I) such reserves at the close of the most recent taxable year beginning before January 1, 1987, are greater or less than,
(II) 80 percent of the sum of the amount under subclause (I) plus such premium acquisition expenses.
(8) Special rules for applying paragraph (4) to title insurance premiums
(A) In general
In the case of premiums attributable to title insurance—
(i) subparagraph (B) of paragraph (4) shall be applied by substituting "the discounted unearned premiums" for "80 percent of the unearned premiums" each place it appears, and
(ii) subparagraph (C) of paragraph (4) shall not apply.
(B) Method of discounting
For purposes of subparagraph (A), the amount of the discounted unearned premiums as of the end of any taxable year shall be the present value of such premiums (as of such time and separately with respect to premiums received in each calendar year) determined by using—
(i) the amount of the undiscounted unearned premiums at such time,
(ii) the applicable interest rate, and
(iii) the applicable statutory premium recognition pattern.
(C) Determination of applicable factors
In determining the amount of the discounted unearned premiums as of the end of any taxable year—
(i) Undiscounted unearned premiums
The term "undiscounted unearned premiums" means the unearned premiums shown in the yearly statement filed by the taxpayer for the year ending with or within such taxable year.
(ii) Applicable interest rate
The term "applicable interest rate" means the annual rate determined under 846(c)(2) for the calendar year in which the premiums are received.
(iii) Applicable statutory premium recognition pattern
The term "applicable statutory premium recognition pattern" means the statutory premium recognition pattern—
(I) which is in effect for the calendar year in which the premiums are received, and
(II) which is based on the statutory premium recognition pattern which applies to premiums received by the taxpayer in such calendar year.
For purposes of the preceding sentence, premiums received during any calendar year shall be treated as received in the middle of such year.
(c) Deductions allowed
In computing the taxable income of an insurance company subject to the tax imposed by section 831, there shall be allowed as deductions:
(1) all ordinary and necessary expenses incurred, as provided in section 162 (relating to trade or business expenses);
(2) all interest, as provided in section 163;
(3) taxes, as provided in section 164;
(4) losses incurred, as defined in subsection (b)(5) of this section;
(5) capital losses to the extent provided in subchapter P (relating to capital gains and losses) plus losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders. Capital assets shall be considered as sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders to the extent that the gross receipts from their sale or exchange are not greater than the excess, if any, for the taxable year of the sum of dividends and similar distributions paid to policyholders in their capacity as such, losses paid, and expenses paid over the sum of the items described in section 834(b) (other than paragraph (1)(D) thereof) and net premiums received. In the application of section 1212 for purposes of this section, the net capital loss for the taxable year shall be the amount by which losses for such year from sales or exchanges of capital assets exceeds the sum of the gains from such sales or exchanges and whichever of the following amounts is the lesser:
(A) the taxable income (computed without regard to gains or losses from sales or exchanges of capital assets); or
(B) losses from the sale or exchange of capital assets sold or exchanged to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders;
(6) debts in the nature of agency balances and bills receivable which become worthless within the taxable year;
(7) the amount of interest earned during the taxable year which under section 103 is excluded from gross income;
(8) the depreciation deduction allowed by section 167 and the deduction allowed by section 611 (relating to depletion);
(9) charitable, etc., contributions, as provided in section 170;
(10) deductions (other than those specified in this subsection) as provided in part VI of subchapter B (sec. 161 and following, relating to itemized deductions for individuals and corporations) and in part I of subchapter D (sec. 401 and following, relating to pension, profit-sharing, stock bonus plans, etc.);
(11) dividends and similar distributions paid or declared to policyholders in their capacity as such, except in the case of a mutual fire insurance company described in subsection (b)(1)(C). For purposes of the preceding sentence, the term "dividends and similar distributions" includes amounts returned or credited to policyholders on cancellation or expiration of policies described in subsection (b)(1)(D). For purposes of this paragraph, the term "paid or declared" shall be construed according to the method of accounting regularly employed in keeping the books of the insurance company;
(12) the special deductions allowed by part VIII of subchapter B (sec. 241 and following, relating to dividends received); and
(13) in the case of a company which writes mortgage guaranty insurance, the deduction allowed by subsection (e).
(d) Double deductions
Nothing in this section shall permit the same item to be deducted more than once.
(e) Special deduction and income account
In the case of a company which writes mortgage guaranty insurance—
(1) Additional deduction
There shall be allowed as a deduction for the taxable year, if bonds are purchased as required by paragraph (2), the sum of—
(A) an amount representing the amount required by State law or regulation to be set aside in a reserve for mortgage guaranty insurance losses resulting from adverse economic cycles; and
(B) an amount representing the aggregate of amounts so set aside in such reserve for the 8 preceding taxable years to the extent such amounts were not deducted under this paragraph in such preceding taxable years,
except that the deduction allowable for the taxable year under this paragraph shall not exceed the taxable income for the taxable year computed without regard to this paragraph or to any carryback of a net operating loss. For purposes of this paragraph, the amount required by State law or regulation to be so set aside in any taxable year shall not exceed 50 percent of premiums earned on insurance contracts (as defined in subsection (b)(4)) with respect to mortgage guaranty insurance for such year. For purposes of this subsection, all amounts shall be taken into account on a first-in-time basis. The computation and deduction under this section of losses incurred (including losses resulting from adverse economic cycles) shall not be affected by the provisions of this subsection. For purposes of this subsection, the terms "preceding taxable years" and "preceding taxable year" shall not include taxable years which began before January 1, 1967.
(2) Purchase of bonds
The deduction under paragraph (1) shall be allowed only to the extent that tax and loss bonds are purchased in an amount equal to the tax benefit attributable to such deduction, as determined under regulations prescribed by the Secretary, on or before the date that any taxes (determined without regard to this subsection) due for the taxable year for which the deduction is allowed are due to be paid. If a deduction would be allowed but for the fact that tax and loss bonds were not timely purchased, such deduction shall be allowed to the extent such purchases are made within a reasonable time, as determined by the Secretary, if all interest and penalties, computed as if this sentence did not apply, are paid.
(3) Mortgage guaranty account
Each company which writes mortgage guaranty insurance shall, for purposes of this part, establish and maintain a mortgage guaranty account.
(4) Additions to account
There shall be added to the mortgage guaranty account for each taxable year an amount equal to the amount allowed as a deduction for the taxable year under paragraph (1).
(5) Subtractions from account and inclusion in gross income
After applying paragraph (4), there shall be subtracted for the taxable year from the mortgage guaranty account and included in gross income—
(A) the amount (if any) remaining which was added to the account for the tenth preceding taxable year,
(B) the excess (if any) of the aggregate amount in the mortgage guaranty account over the aggregate amount in the reserve referred to in paragraph (1)(A). For purposes of determining such excess, the aggregate amount in the mortgage guaranty account shall be determined after applying subparagraph (A), and the aggregate amount in the reserve referred to in paragraph (1)(A) shall be determined by disregarding any amounts remaining in such reserve added for taxable years beginning before January 1, 1967,
(C) an amount (if any) equal to the net operating loss for the taxable year computed without regard to this subparagraph, and
(D) any amount improperly subtracted from the account under subparagraph (A), (B), or (C) to the extent that tax and loss bonds were redeemed with respect to such amount.
If a company liquidates or otherwise terminates its mortgage guaranty insurance business and does not transfer or distribute such business in an acquisition of assets referred to in section 381(a), the entire amount remaining in such account shall be subtracted. Except in the case where a company transfers or distributes its mortgage guaranty insurance in an acquisition of assets referred to in section 381(a), if the company is not subject to the tax imposed by section 831 for any taxable year, the entire amount in the account at the close of the preceding taxable year shall be subtracted from the account in such preceding taxable year.
(6) Lease guaranty insurance; insurance of State and local obligations
The provisions of this subsection shall also apply in all respects to a company which writes lease guaranty insurance or insurance on obligations the interest on which is excludable from gross income under section 103. In applying this subsection to such a company, any reference to mortgage guaranty insurance contained in this section shall be deemed to be a reference also to lease guaranty insurance and to insurance on obligations the interest on which is excludable from gross income under section 103; and in the case of insurance on obligations the interest on which is excludable from gross income under section 103, the references in paragraph (1) to "losses resulting from adverse economic cycles" include losses from declining revenues related to such obligations (as well as losses resulting from adverse economic cycles), and the time specified in subparagraph (A) of paragraph (5) shall be the twentieth preceding taxable year.
(f) Interinsurers
In the case of a mutual insurance company which is an interinsurer or reciprocal underwriter—
(1) there shall be allowed as a deduction the increase for the taxable year in savings credited to subscriber accounts, or
(2) there shall be included as an item of gross income the decrease for the taxable year in savings credited to subscriber accounts.
For purposes of the preceding sentence, the term "savings credited to subscriber accounts" means such portion of the surplus as is credited to the individual accounts of subscribers before the 16th day of the 3rd month following the close of the taxable year, but only if the company would be obligated to pay such amount promptly to such subscriber if he terminated his contract at the close of the company's taxable year. For purposes of determining his taxable income, the subscriber shall treat any such savings credited to his account as a dividend paid or declared.
(g) Dividends within group
In the case of an insurance company subject to tax under section 831(a) filing or required to file a consolidated return under section 1501 with respect to any affiliated group for any taxable year, any determination under this part with respect to any dividend paid by one member of such group to another member of such group shall be made as if such group were not filing a consolidated return.
(Aug. 16, 1954, ch. 736,
Editorial Notes
References in Text
Section 821, referred to in subsec. (b)(7)(D), was repealed by
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (b)(7)(D), is the date of enactment of
Codification
Another section 1084(b) of
Amendments
2018—Subsec. (b)(7)(E)(ii)(II).
2017—Subsec. (b)(5)(B).
Subsec. (c)(5).
2014—Subsec. (b)(5)(B)(ii), (D)(i), (ii)(I).
Subsec. (e).
Subsec. (e)(6).
1997—Subsec. (b)(5)(B)(iii).
1996—Subsec. (b)(5)(C)(ii)(II), (D)(ii)(II).
Subsec. (b)(7)(A).
1990—Subsec. (b)(4).
Subsec. (b)(5)(A).
"(i) To losses paid during the taxable year, add salvage and reinsurance recoverable outstanding at the end of the preceding taxable year and deduct salvage and reinsurance recoverable outstanding at the end of the taxable year.
"(ii) To the result so obtained, add all unpaid losses on life insurance contracts plus all discounted unpaid losses (as defined in section 846) outstanding at the end of the taxable year and deduct unpaid losses on life insurance contracts plus all discounted unpaid losses outstanding at the end of the preceding taxable year."
Subsec. (b)(7)(A).
1988—Subsec. (b)(5)(B)(ii)(II).
Subsec. (b)(7)(C).
Subsec. (b)(7)(D), (E).
Subsec. (e)(5)(A).
Subsec. (e)(5)(B).
Subsec. (g).
1986—Subsec. (b)(1)(C).
Subsec. (b)(1)(D).
Subsec. (b)(4).
Subsec. (b)(4)(B), (C).
Subsec. (b)(5)(A).
Subsec. (b)(5)(A)(ii).
Subsec. (b)(5)(B) to (E).
Subsec. (b)(6).
Subsec. (b)(7), (8).
Subsec. (c)(5).
Subsec. (c)(11).
Subsec. (f).
1984—Subsec. (b)(4).
1982—Subsec. (e)(2).
1976—Subsec. (b)(1), (6).
Subsec. (c)(5)(A).
Subsec. (c)(12).
Subsec. (e)(2).
1974—Subsec. (e)(6).
1968—Subsec. (b)(1)(E).
Subsec. (c)(13).
Subsec. (e).
1966—Subsec. (d).
Subsec. (e).
1964—Subsec. (c)(10).
1962—Subsec. (b)(1)(C).
Subsec. (b)(1)(D).
Subsec. (b)(4).
Subsec. (c)(11).
1956—Subsec. (b)(4). Act Mar. 13, 1956, §3(b)(1), substituted "section 801(b)" for "section 806".
Subsec. (c). Act Mar. 13, 1956, §3(b)(2), (3), substituted "the items described in section 822(b) (other than paragraph (1)(D) thereof) and net premiums received. In the application of section 1212" for "interest, dividends, rents, and net premiums received. In the application of section 1211" in par. (5), and authorized the deduction for depletion in par. (8).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13001(b)(2)(I) of
Effective Date of 2014 Amendment
Amendment by section (a)(41)(G) of
Except as otherwise provided in section 221(a) of
Effective Date of 1997 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by section 1702(h)(3) of
Effective Date of 1990 Amendment
"(1)
"(2)
"(A) such change shall be treated as a change in a method of accounting,
"(B) such change shall be treated as initiated by the taxpayer,
"(C) such change shall be treated as having been made with the consent of the Secretary, and
"(D) the net adjustments which are required by section 481 of the Internal Revenue Code of 1986 to be taken into account by the taxpayer shall be taken into account over a period not to exceed 4 taxable years beginning with the taxpayer's first taxable year beginning on or after September 30, 1990.
"(3)
"(1)
"(2)
"(A)
"(i) such change shall be treated as a change in a method of accounting,
"(ii) such change shall be treated as initiated by the taxpayer, and
"(iii) such change shall be treated as having been made with the consent of the Secretary.
"(B)
"(i) only 13 percent of the net amount of adjustments (otherwise required by such section 481 to be taken into account by the taxpayer) shall be taken into account, and
"(ii) the portion of such net adjustments which is required to be taken into account by the taxpayer (after the application of clause (i)) shall be taken into account over a period not to exceed 4 taxable years beginning with the taxpayer's 1st taxable year beginning after December 31, 1989.
"(3)
"(4)
"(A) the amount of the section 481 adjustment which would have been required without regard to paragraph (2) and any discounting, exceeds
"(B) the sum of the amount of salvage recovered taken into account under section 832(b)(5)(A)(i) for the taxable year and any preceding taxable year beginning after December 31, 1989, attributable to losses incurred with respect to any accident year beginning before 1990 and the undiscounted amount of estimated salvage recoverable as of the close of the taxable year on account of such losses,
87 percent of such excess (adjusted for discounting used in determining the amount of salvage recoverable as of the close of the last taxable year of the taxpayer beginning before January 1, 1990) shall be included in gross income for such taxable year.
"(5)
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
"(1)
"(2)
"(A)
"(B)
"(i) the amount determined to be unearned premiums for the year preceding the first taxable year of a title insurance company beginning after December 31, 1986, determined without regard to subparagraph (A), and
"(ii) such amount determined with regard to subparagraph (A),
shall not be taken into account for purposes of the Internal Revenue Code of 1986.
"(C)
Amendment by section 1023(a) of
Amendment by section 1024(c)(1)–(6) of
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(108), (b)(1)(T), (U) of
Effective Date of 1968 Amendment
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1964 Amendment
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1956 Amendment
Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under
Deduction From Earnings and Profits of Insurance Companies to Which Section 11305(c)(3) of Pub. L. 101–508 Applies
Acquisition Date of Certain Stocks or Obligations for Purposes of Subsection (b)(5)(C)(i)
"(A) the transferor company acquired such stock or obligation before August 8, 1986, and
"(B) at all times after the date on which such stock or obligation was acquired by the transferor company and before the date of the acquisition by the acquiring company, the transferor company and the acquiring company were members of the same affiliated group filing a consolidated return.
For purposes of the preceding sentence, the date on which the stock or obligation was acquired by the transferor company shall be determined with regard to any prior application of the preceding sentence. For purposes of this paragraph, if the acquiring corporation or transferor corporation was a party to a reorganization described in section 368(a)(1)(F) of the 1986 Code, any reference to such corporation shall include a reference to any predecessor thereof involved in such reorganization."
Study of Treatment of Property and Casualty Insurance Companies
Physicians' and Surgeons' Mutual Protection and Interindemnity Arrangements or Associations
"(a)
"(1)
"(A)
"(i) does not release such member from obligations to pay current or future dues, assessments, or premiums; and
"(ii) is a condition precedent to receiving benefits of membership.
Such initial payment shall be included in the gross income of such arrangement or association for such taxable year if it is reasonable to expect that such payment will be deductible pursuant to paragraph (2) by any member of such arrangement or association.
"(B)
"(i)
"(ii)
"(2)
"(A)
"(B)
"(3)
"(A) was operative and was providing such protection, or had received a permit for the offer and sale of memberships, under the laws of any State before January 1, 1984,
"(B) is not subject to regulation by any State insurance department,
"(C) has a right to make unlimited assessments against all members to cover current claims and losses, and
"(D) is not a member of, nor subject to protection by, any insurance guaranty plan or association of any State.
"(b)
Treatment as Unearned Premiums of Additions to Reserves Required by State Law or Regulations for Mortgage Guaranty Insurance Losses
"(1) In the case of taxable years beginning before 1967, a company shall treat additions to a reserve, required by State law or regulations for mortgage guaranty insurance losses resulting from adverse economic cycles, as unearned premiums for purposes of section 832(b)(4) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], but the amount so treated as unearned premiums in a taxable year shall not exceed 50 percent of premiums earned on insurance contracts (as defined in section 832(b)(4) of such Code), determined without regard to amounts added to the reserve, with respect to mortgage guaranty insurance for such year. The amount of unearned premiums at the close of 1966 shall be determined without regard to the preceding sentence for the purpose of applying section 832(b)(4) of such Code to 1967. Additions to such a reserve shall not be treated as unearned premiums for any taxable year beginning after 1966.
"(2) If a mortgage guaranty insurance company made additions to a reserve which were so treated as unearned premiums described in paragraph (1), such company, in taxable years beginning after 1966, shall include in gross income (in addition to the items specified in section 832(b)(1) of such Code) the sum of the following amounts until there is included in gross income an amount equal to the aggregate additions to the reserve described in paragraph (1) for taxable years beginning before 1967:
"(A) an amount (if any) equal to the excess of losses incurred (as defined in section 832(b)(5) of such Code) for the taxable year over 35 percent of premiums earned on insurance contracts during the taxable year (as defined in section 832(b)(4) of such Code), determined without regard to amounts added to the reserve referred to in paragraph (1), with respect to mortgage guaranty insurance,
"(B) the amount (if any) remaining which was added to the reserve for the tenth preceding taxable year, and
"(C) the excess (if any) of—
"(i) the aggregate of amounts so treated as unearned premiums for all taxable years beginning before 1967 less the total of the amounts included in gross income under this paragraph for prior taxable years and the amounts included in gross income under subparagraphs (A) and (B) for the taxable year, over
"(ii) the aggregate of the additions made for taxable years beginning before 1967 which remain in the reserve at the close of the taxable year.
Amounts shall be taken into account on a first-in-time basis. For purposes of section 832(e) of such Code and this paragraph, if part of the reserve is reduced under State law or regulation, such reduction shall first apply to the extent of amounts added to the reserve for taxable years beginning before 1967, and only then to amounts added thereafter.
"(3) The provisions of this subsection shall apply to taxable years beginning after December 31, 1956."
1 See References in Text note below.
§833. Treatment of Blue Cross and Blue Shield organizations, etc.
(a) General rule
In the case of any organization to which this section applies—
(1) Treated as stock company
Such organization shall be taxable under this part in the same manner as if it were a stock insurance company.
(2) Special deduction allowed
The deduction determined under subsection (b) for any taxable year shall be allowed.
(3) Reductions in unearned premium reserves not to apply
Subparagraph (B) of paragraph (4) of section 832(b) shall be applied by substituting "100 percent" for "80 percent", and subparagraph (C) of such paragraph (4) shall not apply.
(b) Amount of deduction
(1) In general
Except as provided in paragraph (2), the deduction determined under this subsection for any taxable year is the excess (if any) of—
(A) 25 percent of the sum of—
(i) the claims incurred during the taxable year and liabilities incurred during the taxable year under cost-plus contracts, and
(ii) the expenses incurred during the taxable year in connection with the administration, adjustment, or settlement of claims or in connection with the administration of cost-plus contracts, over
(B) the adjusted surplus as of the beginning of the taxable year.
(2) Limitation
The deduction determined under paragraph (1) for any taxable year shall not exceed taxable income for such taxable year (determined without regard to such deduction).
(3) Adjusted surplus
For purposes of this subsection—
(A) In general
The adjusted surplus as of the beginning of any taxable year is an amount equal to the adjusted surplus as of the beginning of the preceding taxable year—
(i) increased by the amount of any adjusted taxable income for such preceding taxable year, or
(ii) decreased by the amount of any adjusted net operating loss for such preceding taxable year.
(B) Special rule
The adjusted surplus as of the beginning of the organization's 1st taxable year beginning after December 31, 1986, shall be its surplus as of such time. For purposes of the preceding sentence and subsection (c)(3)(C), the term "surplus" means the excess of the total assets over total liabilities as shown on the annual statement.
(C) Adjusted taxable income
The term "adjusted taxable income" means taxable income determined—
(i) without regard to the deduction determined under this subsection,
(ii) without regard to any carryforward or carryback to such taxable year, and
(iii) by increasing gross income by an amount equal to the net exempt income for the taxable year.
(D) Adjusted net operating loss
The term "adjusted net operating loss" means the net operating loss for any taxable year determined with the adjustments set forth in subparagraph (C).
(E) Net exempt income
The term "net exempt income" means—
(i) any tax-exempt interest received or accrued during the taxable year, reduced by any amount (not otherwise deductible) which would have been allowable as a deduction for the taxable year if such interest were not tax-exempt, and
(ii) the aggregate amount allowed as a deduction for the taxable year under sections 243 and 245.
The amount determined under clause (ii) shall be reduced by the amount of any decrease in deductions allowable for the taxable year by reason of section 832(b)(5)(B) to the extent such decrease is attributable to deductions under sections 243 and 245.
(4) Only health-related items taken into account
Any determination under this subsection shall be made by only taking into account items attributable to the health-related business of the taxpayer.
(c) Organizations to which section applies
(1) In general
This section shall apply to—
(A) any existing Blue Cross or Blue Shield organization, and
(B) any other organization meeting the requirements of paragraph (3).
(2) Existing Blue Cross or Blue Shield organization
The term "existing Blue Cross or Blue Shield organization" means any Blue Cross or Blue Shield organization if—
(A) such organization was in existence on August 16, 1986,
(B) such organization is determined to be exempt from tax for its last taxable year beginning before January 1, 1987, and
(C) no material change has occurred in the operations of such organization or in its structure after August 16, 1986, and before the close of the taxable year.
To the extent permitted by the Secretary, any successor to an organization meeting the requirements of the preceding sentence, and any organization resulting from the merger or consolidation of organizations each of which met such requirements, shall be treated as an existing Blue Cross or Blue Shield organization.
(3) Other organizations
(A) In general
An organization meets the requirements of this paragraph for any taxable year if—
(i) substantially all the activities of such organization involve the providing of health insurance,
(ii) at least 10 percent of the health insurance provided by such organization is provided to individuals and small groups (not taking into account any medicare supplemental coverage),
(iii) such organization provides continuous full-year open enrollment (including conversions) for individuals and small groups,
(iv) such organization's policies covering individuals provide full coverage of pre-existing conditions of high-risk individuals without a price differential (with a reasonable waiting period), and coverage is provided without regard to age, income, or employment status of individuals under age 65,
(v) at least 35 percent of its premiums are determined on a community rated basis, and
(vi) no part of its net earnings inures to the benefit of any private shareholder or individual.
(B) Small group defined
For purposes of subparagraph (A), the term "small group" means the lesser of—
(i) 15 individuals, or
(ii) the number of individuals required for a small group under applicable State law.
(C) Special rule for determining adjusted surplus
For purposes of subsection (b), the adjusted surplus of any organization meeting the requirements of this paragraph as of the beginning of the 1st taxable year for which it meets such requirements shall be its surplus as of such time.
(4) Treatment as existing Blue Cross or Blue Shield organization
(A) In general
Paragraph (2) shall be applied to an organization described in subparagraph (B) as if it were a Blue Cross or Blue Shield organization.
(B) Applicable organization
An organization is described in this subparagraph if it—
(i) is organized under, and governed by, State laws which are specifically and exclusively applicable to not-for-profit health insurance or health service type organizations, and
(ii) is not a Blue Cross or Blue Shield organization or health maintenance organization.
(5) Nonapplication of section in case of low medical loss ratio
Notwithstanding the preceding paragraphs, paragraphs (2) and (3) of subsection (a) shall not apply to any organization unless such organization's percentage of total premium revenue expended on reimbursement for clinical services and for activities that improve health care quality provided to enrollees under its policies during such taxable year (as reported under section 2718 of the Public Health Service Act) is not less than 85 percent.
(Added
Editorial Notes
References in Text
Section 2718 of the Public Health Service Act, referred to in subsec. (c)(5), is classified to
Amendments
2014—Subsec. (b)(3)(E).
Subsec. (c)(5).
2010—Subsec. (c)(5).
1997—Subsec. (b)(1)(A)(i).
Subsec. (b)(1)(A)(ii).
1996—Subsec. (c)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2014 Amendment
Amendment by
Except as otherwise provided in section 221(a) of
Effective Date of 2010 Amendment
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date
"(1)
"(2)
"(3)
"(A)
"(i) no adjustment shall be made under section 481 (or any other provision) of such Code on account of a change in its method of accounting for its 1st taxable year beginning after December 31, 1986, and
"(ii) for purposes of determining gain or loss, the adjusted basis of any asset held on the 1st day of such taxable year shall be treated as equal to its fair market value as of such day.
"(B)
"(C)
"(4)
"(A) The amendments made by this section shall not apply with respect to that portion of the business of Mutual of America which is attributable to pension business.
"(B) The amendments made by this section shall not apply to that portion of the business of the Teachers Insurance Annuity Association-College Retirement Equities Fund which is attributable to pension business.
"(C) The amendments made by this section shall not apply to—
"(i) the retirement fund of the YMCA,
"(ii) the Missouri Hospital Plan,
"(iii) administrative services performed by municipal leagues, and
"(iv) dental benefit coverage provided by a Delta Dental Plans Association organization through contracts with independent professional service providers so long as the provision of such coverage is the principal activity of such organization.
"(D) For purposes of this paragraph, the term 'pension business' means the administration of any plan described in section 401(a) of the Internal Revenue Code of 1954 [now 1986] which includes a trust exempt from tax under section 501(a), any plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b) of such Code, any individual retirement plan described in section 408 of such Code, and any eligible deferred compensation plan to which section 457(a) of such Code applies."
[The due date for the report referred to in section 1012(c)(2) of
Termination of Certain Exceptions From Rules Relating to Exempt Organizations Which Provide Commercial-Type Insurance
"(a)
"(b)
"(1) no adjustment shall be made under section 481 (or any other provision) of such Code on account of a change in its method of accounting for its first taxable year beginning after December 31, 1997, and
"(2) for purposes of determining gain or loss, the adjusted basis of any asset held on the 1st day of such taxable year shall be treated as equal to its fair market value as of such day.
"(c)
"(d)
Rules Providing Adjustments for Certain Taxpayers Affected by Section 1012 of Pub. L. 99–514
§834. Determination of taxable investment income
(a) General rule
For purposes of section 831(b), the term "taxable investment income" means the gross investment income, minus the deductions provided in subsection (c).
(b) Gross investment income
For purposes of subsection (a), the term "gross investment income" means the sum of the following:
(1) The gross amount of income during the taxable year from—
(A) interest, dividends, rents, and royalties,
(B) the entering into of any lease, mortgage, or other instrument or agreement from which the insurance company derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or agreement described in subparagraph (B), and
(D) gains from sales or exchanges of capital assets to the extent provided in subchapter P (relating to capital gains and losses).
(2) The gross income during the taxable year from any trade or business (other than an insurance business) carried on by the insurance company, or by a partnership of which the insurance company is a partner. In computing gross income under this paragraph, there shall be excluded any item described in paragraph (1).
(c) Deductions
In computing taxable investment income, the following deductions shall be allowed:
(1) Tax-free interest
The amount of interest which under section 103 is excluded for the taxable year from gross income.
(2) Investment expenses
Investment expenses paid or accrued during the taxable year. If any general expenses are in part assigned to or included in the investment expenses, the total deduction under this paragraph shall not exceed one-fourth of 1 percent of the mean of the book value of the invested assets held at the beginning and end of the taxable year plus one-fourth of the amount by which taxable investment income (computed without any deduction for investment expenses allowed by this paragraph, for tax-free interest allowed by paragraph (1), or for dividends received allowed by paragraph (7)), exceeds 3¾ percent of the book value of the mean of the invested assets held at the beginning and end of the taxable year.
(3) Real estate expenses
Taxes (as provided in section 164), and other expenses, paid or accrued during the taxable year exclusively on or with respect to the real estate owned by the company. No deduction shall be allowed under this paragraph for any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property.
(4) Depreciation
The depreciation deduction allowed by section 167.
(5) Interest paid or accrued
All interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from taxation under this subtitle.
(6) Capital losses
Capital losses to the extent provided in subchapter P (sec. 1201 and following) plus losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders. Capital assets shall be considered as sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders to the extent that the gross receipts from their sale or exchange are not greater than the excess, if any, for the taxable year of the sum of dividends and similar distributions paid to policyholders, losses paid, and expenses paid over the sum of the items described in subsection (b) (other than paragraph (1)(D) thereof) and net premiums received. In the application of section 1212 for purposes of this section, the net capital loss for the taxable year shall be the amount by which losses for such year from sales or exchanges of capital assets exceeds the sum of the gains from such sales or exchanges and whichever of the following amounts is the lesser:
(A) the taxable investment income (computed without regard to gains or losses from sales or exchanges of capital assets); or
(B) losses from the sale or exchange of capital assets sold or exchanged to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders.
(7) Special deductions
The special deductions allowed by part VIII (except section 248) of subchapter B (sec. 241 and following, relating to dividends received). In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of this paragraph, the reference in such section to "taxable income" shall be treated as a reference to "taxable investment income".
(8) Trade or business deductions
The deductions allowed by this subtitle (without regard to this part) which are attributable to any trade or business (other than an insurance business) carried on by the insurance company, or by a partnership of which the insurance company is a partner; except that for purposes of this paragraph—
(A) any item, to the extent attributable to the carrying on of the insurance business, shall not be taken into account, and
(B) the deduction for net operating losses provided in section 172 shall not be allowed.
(9) Depletion
The deduction allowed by section 611 (relating to depletion).
(d) Other applicable rules
(1) Rental value of real estate
The deduction under subsection (c)(3) or (4) on account of any real estate owned and occupied in whole or in part by a mutual insurance company subject to the tax imposed by section 831 shall be limited to an amount which bears the same ratio to such deduction (computed without regard to this paragraph) as the rental value of the space not so occupied bears to the rental value of the entire property.
(2) Amortization of premium and accrual of discount
The gross amount of income during the taxable year from interest and the deduction provided in subsection (c)(1) shall each be decreased to reflect the appropriate amortization of premium and increased to reflect the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a mutual insurance company subject to the tax imposed by section 831. Such amortization and accrual shall be determined—
(A) in accordance with the method regularly employed by such company, if such method is reasonable, and
(B) in all other cases, in accordance with regulations prescribed by the Secretary.
No accrual of discount shall be required under this paragraph on any bond (as defined in section 171(d)) except in the case of discount which is original issue discount (as defined in section 1273).
(3) Double deductions
Nothing in this part shall permit the same item to be deducted more than once.
(e) Definitions
For purposes of this part—
(1) Net premiums
The term "net premiums" means gross premiums (including deposits and assessments) written or received on insurance contracts during the taxable year less return premiums and premiums paid or incurred for reinsurance. Amounts returned where the amount is not fixed in the insurance contract but depends on the experience of the company or the discretion of the management shall not be included in return premiums but shall be treated as dividends to policyholders under paragraph (2).
(2) Dividends to policyholders
The term "dividends to policyholders" means dividends and similar distributions paid or declared to policyholders. For purposes of the preceding sentence, the term "paid or declared" shall be construed according to the method regularly employed in keeping the books of the insurance company.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2017—Subsec. (b)(1)(D).
1986—
Subsec. (a).
"(1) The term 'taxable investment income' means the gross investment income, minus the deductions provided in subsection (c).
"(2) The term 'investment loss' means the amount by which the deductions provided in subsection (c) exceed the gross investment income."
Subsec. (d).
1976—Subsec. (c)(2).
Subsec. (c)(5).
Subsec. (c)(6)(A).
Subsec. (c)(7).
Subsec. (d)(2).
1966—Subsecs. (e), (f).
1964—Subsec. (d)(2).
1962—
Subsec. (a).
Subsec. (c).
Subsec. (e).
Subsec. (f).
1956—Subsec. (b). Act Mar. 13, 1956, §3(a)(3), principally included royalties, and the income from a trade or business other than the insurance business carried on by the insurance company in "gross investment income".
Subsec. (c). Act Mar. 13, 1956, §3(a)(4), (5), (6), clarified the deduction for real estate expenses in par. (3), substituted in par. (6) "the sum of the items described in subsection (b) (other than paragraph (1)(D) thereof) and net premiums received. In the application of section 1212" for "the sum of interest, dividends, rents, and net premiums received. In the application of section 1211", and inserted pars. (8) and (9).
Subsec. (d)(1). Act Mar. 13, 1956, §3(a)(7), substituted "subsection (c)(3) or (4)" for "subsection (e)(3) or (4)".
Subsec. (e). Act Mar. 13, 1956, §3(a)(8), substituted "items described in subsection (b) (other than paragraph (1)(D) thereof" for "interest, dividends, rents,".
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(105), (b)(1)(P)–(S) of
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1956 Amendment
Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note set out under
§835. Election by reciprocal
(a) In general
Except as otherwise provided in this section, any mutual insurance company which is an interinsurer or reciprocal underwriter (hereinafter in this section referred to as a "reciprocal") subject to the taxes imposed by section 831(a) may, under regulations prescribed by the Secretary, elect to be subject to the limitation provided in subsection (b). Such election shall be effective for the taxable year for which made and for all succeeding taxable years, and shall not be revoked except with the consent of the Secretary.
(b) Limitation
The deduction for amounts paid or incurred in the taxable year to the attorney-in-fact by a reciprocal making the election provided in subsection (a) shall be limited to, but in no case increased by, the deductions of the attorney-in-fact allocable, in accordance with regulations prescribed by the Secretary, to the income received by the attorney-in-fact from the reciprocal.
(c) Exception
An election may not be made by a reciprocal under subsection (a) unless the attorney-in-fact of such reciprocal—
(1) is subject to the tax imposed by section 11;
(2) consents in such manner as the Secretary shall prescribe by regulations to make available such information as may be required during the period in which the election provided in subsection (a) is in effect, under regulations prescribed by the Secretary;
(3) reports the income received from the reciprocal and the deductions allocable thereto under the same method of accounting under which the reciprocal reports deductions for amounts paid to the attorney-in-fact; and
(4) files its return on the calendar year basis.
(d) Credit
Any reciprocal electing to be subject to the limitation provided in subsection (b) shall be credited with so much of the tax paid by the attorney-in-fact as is attributable, under regulations prescribed by the Secretary, to the income received by the attorney-in-fact from the reciprocal in such taxable year.
(e) Benefits of graduated rates denied
Any increase in the taxable income of a reciprocal attributable to the limits provided in subsection (b) shall be taxed at the highest rate of tax specified in section 11(b).
(f) Adjustment for refund
If for any taxable year an attorney-in-fact is allowed a credit or refund for taxes paid with respect to which credit or refund to the reciprocal resulted under subsection (d), the taxes of such reciprocal for such taxable year shall be properly adjusted under regulations prescribed by the Secretary.
(g) Taxes of attorney-in-fact unaffected
Nothing in this section shall increase or decrease the taxes imposed by this chapter on the income of the attorney-in-fact.
(Added
Editorial Notes
Amendments
1988—Subsec. (a).
Subsec. (f).
1986—
Subsec. (d).
Subsec. (e).
Subsecs. (f) to (h).
1978—Subsec. (c)(1).
1976—Subsecs. (a), (b), (c)(2), (e), (g).
Statutory Notes and Related Subsidiaries
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective Date
Section applicable with respect to taxable years beginning after Dec. 31, 1962, see section 8(h) of
PART III—PROVISIONS OF GENERAL APPLICATION
Editorial Notes
Amendments
2017—
1990—
1989—
1988—
1986—
1984—
1969—
1966—
1956—Act Mar. 13, 1956, ch. 83, §4(b),
§841. Credit for foreign taxes
The taxes imposed by foreign countries or possessions of the United States shall be allowed as a credit against the tax of a domestic insurance company subject to the tax imposed by section 801 or 831, to the extent provided in the case of a domestic corporation in section 901 (relating to foreign tax credit). For purposes of the preceding sentence (and for purposes of applying section 906 with respect to a foreign corporation subject to tax under this subchapter), the term "taxable income" as used in section 904 means—
(1) in the case of the tax imposed by section 801, the life insurance company taxable income (as defined in section 801(b)), and
(2) in the case of the tax imposed by section 831, the taxable income (as defined in section 832(a)).
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
1986—
1984—
1966—
1962—
1959—
1956—Act Mar. 13, 1956, inserted references to section 811.
Statutory Notes and Related Subsidiaries
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by
Effective Date of 1959 Amendment
Amendment by
Effective Date of 1956 Amendment
Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under
§842. Foreign companies carrying on insurance business
(a) Taxation under this subchapter
If a foreign company carrying on an insurance business within the United States would qualify under part I or II of this subchapter for the taxable year if (without regard to income not effectively connected with the conduct of any trade or business within the United States) it were a domestic corporation, such company shall be taxable under such part on its income effectively connected with its conduct of any trade or business within the United States. With respect to the remainder of its income which is from sources within the United States, such a foreign company shall be taxable as provided in section 881.
(b) Minimum effectively connected net investment income
(1) In general
In the case of a foreign company taxable under part I or II of this subchapter for the taxable year, its net investment income for such year which is effectively connected with the conduct of an insurance business within the United States shall be not less than the product of—
(A) the required United States assets of such company, and
(B) the domestic investment yield applicable to such company for such year.
(2) Required U.S. assets
(A) In general
For purposes of paragraph (1), the required United States assets of any foreign company for any taxable year is an amount equal to the product of—
(i) the mean of such foreign company's total insurance liabilities on United States business, and
(ii) the domestic asset/liability percentage applicable to such foreign company for such year.
(B) Total insurance liabilities
For purposes of this paragraph—
(i) Companies taxable under part I
In the case of a company taxable under part I, the term "total insurance liabilities" means the sum of the total reserves (as defined in section 816(c)) plus (to the extent not included in total reserves) the items referred to in paragraphs (3), (4), (5), and (6) of section 807(c).
(ii) Companies taxable under part II
In the case of a company taxable under part II, the term "total insurance liabilities" means the sum of unearned premiums and unpaid losses.
(C) Domestic asset/liability percentage
The domestic asset/liability percentage applicable for purposes of subparagraph (A)(ii) to any foreign company for any taxable year is a percentage determined by the Secretary on the basis of a ratio—
(i) the numerator of which is the mean of the assets of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
(ii) the denominator of which is the mean of the total insurance liabilities of the same companies.
(3) Domestic investment yield
The domestic investment yield applicable for purposes of paragraph (1)(B) to any foreign company for any taxable year is the percentage determined by the Secretary on the basis of a ratio—
(A) the numerator of which is the net investment income of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
(B) the denominator of which is the mean of the assets of the same companies.
(4) Election to use worldwide yield
(A) In general
If the foreign company makes an election under this paragraph, such company's worldwide current investment yield shall be taken into account in lieu of the domestic investment yield for purposes of paragraph (1)(B).
(B) Worldwide current investment yield
For purposes of subparagraph (A), the term "worldwide current investment yield" means the percentage obtained by dividing—
(i) the net investment income of the company from all sources, by
(ii) the mean of all assets of the company (whether or not held in the United States).
(C) Election
An election under this paragraph shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(5) Net investment income
For purposes of this subsection, the term "net investment income" means—
(A) gross investment income (within the meaning of section 834(b)), reduced by
(B) expenses allocable to such income.
(c) Special rules for purposes of subsection (b)
(1) Reduction in section 881 taxes
(A) In general
The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which bears the same ratio to such tax as—
(i) the amount of the increase in effectively connected income of the company resulting from subsection (b), bears to
(ii) the amount which would be subject to tax under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894.
(B) Limitation on reduction
The reduction under subparagraph (A) shall not exceed the increase in taxes under part I or II (as the case may be) by reason of the increase in effectively connected income of the company resulting from subsection (b).
(2) Data used in determining domestic asset/liability percentages and domestic investment yields
Each domestic asset/liability percentage, and each domestic investment yield, for any taxable year shall be based on such representative data with respect to domestic insurance companies for the second preceding taxable year as the Secretary considers appropriate.
(d) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
(1) providing for the proper treatment of segregated asset accounts,
(2) providing for proper adjustments in succeeding taxable years where the company's actual net investment income for any taxable year which is effectively connected with the conduct of an insurance business within the United States exceeds the amount required under subsection (b)(1),
(3) providing for the proper treatment of investments in domestic subsidiaries, and
(4) which may provide that, in the case of companies taxable under part II of this subchapter, determinations under subsection (b) will be made separately for categories of such companies established in such regulations.
(Aug. 16, 1954, ch. 736,
Editorial Notes
Amendments
2017—Subsec. (c).
2004—Subsec. (c)(3), (4).
"(A) the required United States assets of the company (determined under subsection (b)(2)), over
"(B) the mean of the assets held in the United States during the taxable year."
1989—Subsec. (c)(4).
1988—Subsec. (b)(3)(B).
Subsec. (b)(4)(B)(ii).
Subsec. (d)(4).
1987—
1986—
1966—
1959—
1956—Act Mar. 13, 1956, inserted reference to section 811.
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1987 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
Effective Date of 1959 Amendment
Amendment by
Effective Date of 1956 Amendment
Amendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under
Study of United States Reinsurance Industry
§843. Annual accounting period
For purposes of this subtitle, the annual accounting period for each insurance company subject to a tax imposed by this subchapter shall be the calendar year. Under regulations prescribed by the Secretary, an insurance company which joins in the filing of a consolidated return (or is required to so file) may adopt the taxable year of the common parent corporation even though such year is not a calendar year.
(Added Mar. 13, 1956, ch. 83, §4(a),
Editorial Notes
Amendments
1976—
Statutory Notes and Related Subsidiaries
Effective Date of 1976 Amendment
Amendment by
Effective Date
Section applicable only to taxable years beginning after Dec. 31, 1954, see Effective Date of 1956 Amendment note set out under
[§844. Repealed. Pub. L. 115–97, title I, §13511(b)(2)(A), Dec. 22, 2017, 131 Stat. 2142 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to losses arising in taxable years beginning after Dec. 31, 2017, see section 13511(c) of
§845. Certain reinsurance agreements
(a) Allocation in case of reinsurance agreement involving tax avoidance or evasion
In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may—
(1) allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement,
(2) recharacterize any such items, or
(3) make any other adjustment,
if he determines that such allocation, recharacterization, or adjustment is necessary to reflect the proper amount, source, or character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person.
(b) Reinsurance contract having significant tax avoidance effect
If the Secretary determines that any reinsurance contract has a significant tax avoidance effect on any party to such contract, the Secretary may make proper adjustments with respect to such party to eliminate such tax avoidance effect (including treating such contract with respect to such party as terminated on December 31 of each year and reinstated on January 1 of the next year).
(Added
Editorial Notes
Amendments
2004—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Effective Date
"(1) Subsection (a) of section 845 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by this title) shall apply with respect to any risk reinsured on or after September 27, 1983.
"(2) Subsection (b) of section 845 of such Code (as so added) shall apply with respect to risks reinsured after December 31, 1984."
§846. Discounted unpaid losses defined
(a) Discounted losses determined
(1) Separately computed for each accident year
The amount of the discounted unpaid losses as of the end of any taxable year shall be the sum of the discounted unpaid losses (as of such time) separately computed under this section with respect to unpaid losses in each line of business attributable to each accident year.
(2) Method of discounting
The amount of the discounted unpaid losses as of the end of any taxable year attributable to any accident year shall be the present value of such losses (as of such time) determined by using—
(A) the amount of the undiscounted unpaid losses as of such time,
(B) the applicable interest rate, and
(C) the applicable loss payment pattern.
(3) Limitation on amount of discounted losses
In no event shall the amount of the discounted unpaid losses with respect to any line of business attributable to any accident year exceed the aggregate amount of unpaid losses with respect to such line of business for such accident year included on the annual statement filed by the taxpayer for the year ending with or within the taxable year.
(4) Determination of applicable factors
In determining the amount of the discounted unpaid losses attributable to any accident year—
(A) the applicable interest rate shall be the interest rate determined under subsection (c) for the calendar year with which such accident year ends, and
(B) the applicable loss payment pattern shall be the loss payment pattern determined under subsection (d) which is in effect for the calendar year with which such accident year ends.
(b) Determination of undiscounted unpaid losses
For purposes of this section—
(1) In general
Except as otherwise provided in this subsection, the term "undiscounted unpaid losses" means the unpaid losses shown in the annual statement filed by the taxpayer for the year ending with or within the taxable year of the taxpayer.
(2) Adjustment if losses discounted on annual statement
If—
(A) the amount of unpaid losses shown in the annual statement is determined on a discounted basis, and
(B) the extent to which the losses were discounted can be determined on the basis of information disclosed on or with the annual statement,
the amount of the unpaid losses shall be determined without regard to any reduction attributable to such discounting.
(c) Rate of interest
(1) In general
For purposes of this section, the rate of interest determined under this subsection shall be the annual rate determined by the Secretary under paragraph (2).
(2) Determination of annual rate
The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i), determined by substituting "60-month period" for "24-month period" therein).
(d) Loss payment pattern
(1) In general
For each determination year, the Secretary shall determine a loss payment pattern for each line of business by reference to the historical loss payment pattern applicable to such line of business. Any loss payment pattern determined by the Secretary shall apply to the accident year ending with the determination year and to each of the 4 succeeding accident years.
(2) Method of determination
Determinations under paragraph (1) for any determination year shall be made by the Secretary—
(A) by using the aggregate experience reported on the annual statements of insurance companies,
(B) on the basis of the most recent published aggregate data from such annual statements relating to loss payment patterns available on the 1st day of the determination year,
(C) as if all losses paid or treated as paid during any year are paid in the middle of such year, and
(D) in accordance with the computational rules prescribed in paragraph (3).
(3) Computational rules
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the loss payment pattern for any line of business shall be based on the assumption that all losses are paid—
(i) during the accident year and the 3 calendar years following the accident year, or
(ii) in the case of any line of business reported in the schedule or schedules of the annual statement relating to auto liability, other liability, medical malpractice, workers' compensation, and multiple peril lines, during the accident year and the 10 calendar years following the accident year.
(B) Treatment of certain losses
(i) 3-year loss payment pattern
In the case of any line of business not described in subparagraph (A)(ii), losses paid after the 1st year following the accident year shall be treated as paid equally in the 2nd and 3rd year following the accident year.
(ii) 10-year loss payment pattern
(I) In general
The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II).
(II) Computation of extension
The amount of losses which would have been treated as paid in the 10th year after the accident year shall be treated as paid in such 10th year and each subsequent year in an amount equal to the amount of the average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 24th year after the accident year, they shall be treated as paid in such 24th year.
(4) Determination year
For purposes of this section, the term "determination year" means calendar year 1987 and each 5th calendar year thereafter.
(e) Other definitions and special rules
For purposes of this section—
(1) Accident year
The term "accident year" means the calendar year in which the incident occurs which gives rise to the related unpaid loss.
(2) Unpaid loss adjustment expenses
The term "unpaid losses" includes any unpaid loss adjustment expenses shown on the annual statement.
(3) Annual statement
The term "annual statement" means the annual statement approved by the National Association of Insurance Commissioners which the taxpayer is required to file with insurance regulatory authorities of a State.
(4) Line of business
The term "line of business" means a category for the reporting of loss payment patterns determined on the basis of the annual statement for fire and casualty insurance companies for the calendar year ending with or within the taxable year, except that the multiple peril lines shall be treated as a single line of business.
(5) Multiple peril lines
The term "multiple peril lines" means the lines of business relating to farmowners multiple peril, homeowners multiple peril, commercial multiple peril, ocean marine, aircraft (all perils) and boiler and machinery.
(6) Special rule for certain accident and health insurance lines of business
Any determination under subsection (a) with respect to unpaid losses relating to accident and health insurance lines of businesses (other than credit disability insurance) shall be made—
(A) in the case of unpaid losses relating to disability income, by using the general rules prescribed under section 807(d) applicable to noncancellable accident and health insurance contracts and using a mortality or morbidity table reflecting the taxpayer's experience; except that the limitation of subsection (a)(3) shall apply, and
(B) in all other cases, by using an assumption (in lieu of a loss payment pattern) that unpaid losses are paid in the middle of the year following the accident year.
(f) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—
(1) regulations providing proper treatment of allocated reinsurance, and
(2) regulations providing appropriate adjustments in the application of this section to a taxpayer having a taxable year which is not the calendar year.
(Added
Editorial Notes
Amendments
2017—Subsec. (c)(2).
"(A)
"(B)
Subsec. (d)(3)(B) to (G).
Subsecs. (e), (f).
Subsec. (f)(6)(A).
"(i) the prevailing State assumed interest rate shall be the rate in effect for the year in which the loss occurred rather than the year in which the contract was issued, and
"(ii) the limitation of subsection (a)(3) shall apply in lieu of the limitation of the last sentence of section 807(d)(1), and".
Subsec. (g).
1990—Subsec. (g).
1988—Subsec. (f)(6)(B).
Subsec. (g)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13517(b)(3) of
Effective Date of 1990 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(A) the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) of the Internal Revenue Code of 1986) at the end of the preceding taxable year, and
"(B) the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year,
shall be determined as if the amendments made by this section had applied to such unpaid losses and expenses unpaid in the preceding taxable year and by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 1987. For subsequent taxable years, such amendments shall be applied with respect to such unpaid losses and expenses unpaid by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 1987.
"(3)
"(A)
"(i) the amount determined to be the unpaid losses and expenses unpaid for the year preceding the 1st taxable year of an insurance company beginning after December 31, 1986, determined without regard to paragraph (2), and
"(ii) such amount determined with regard to paragraph (2),
shall not be taken into account for purposes of the Internal Revenue Code of 1986.
"(B)
"(C)
"(4)
"(A) an insurance company was not subject to tax under section 831(a) of the Internal Revenue Code of 1986 for its 1st taxable year beginning after December 31, 1986, by reason of being—
"(i) subject to tax under section 831(b) of such Code, or
"(ii) described in section 501(c) of such Code and exempt from tax under section 501(a) of such Code, and
"(B) such company becomes subject to tax under such section 831(a) for any later taxable year,
paragraph (2) and subparagraphs (A) and (C) of paragraph (3) shall be applied by treating such later taxable year as its 1st taxable year beginning after December 31, 1986, and by treating the calendar year in which such later taxable year begins as 1987; and paragraph (3)(B) shall not apply."
Transitional Rule
"(1) the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) of the Internal Revenue Code of 1986) at the end of the preceding taxable year, and
"(2) the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year,
shall be determined as if the amendments made by this section [amending this section] had applied to such unpaid losses and expenses unpaid in the preceding taxable year and by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018, and any adjustment shall be taken into account ratably in such first taxable year and the 7 succeeding taxable years. For subsequent taxable years, such amendments shall be applied with respect to such unpaid losses and expenses unpaid by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018."
[§847. Repealed. Pub. L. 115–97, title I, §13516(a), Dec. 22, 2017, 131 Stat. 2144 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
§848. Capitalization of certain policy acquisition expenses
(a) General rule
In the case of an insurance company—
(1) specified policy acquisition expenses for any taxable year shall be capitalized, and
(2) such expenses shall be allowed as a deduction ratably over the 180-month period beginning with the first month in the second half of such taxable year.
(b) 5-year amortization for first $5,000,000 of specified policy acquisition expenses
(1) In general
Paragraph (2) of subsection (a) shall be applied with respect to so much of the specified policy acquisition expenses of an insurance company for any taxable year as does not exceed $5,000,000 by substituting "60-month" for "180-month".
(2) Phase-out
If the specified policy acquisition expenses of an insurance company exceed $10,000,000 for any taxable year, the $5,000,000 amount under paragraph (1) shall be reduced (but not below zero) by the amount of such excess.
(3) Special rule for members of controlled group
In the case of any controlled group—
(A) all insurance companies which are members of such group shall be treated as 1 company for purposes of this subsection, and
(B) the amount to which paragraph (1) applies shall be allocated among such companies in such manner as the Secretary may prescribe.
For purposes of the preceding sentence, the term "controlled group" means any controlled group of corporations as defined in section 1563(a); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply, and subsection (b)(2)(C) of section 1563 shall not apply to the extent it excludes a foreign corporation to which section 842 applies.
(4) Exception for acquisition expenses attributable to certain reinsurance contracts
Paragraph (1) shall not apply to any specified policy acquisition expenses for any taxable year which are attributable to premiums or other consideration under any reinsurance contract.
(c) Specified policy acquisition expenses
For purposes of this section—
(1) In general
The term "specified policy acquisition expenses" means, with respect to any taxable year, so much of the general deductions for such taxable year as does not exceed the sum of—
(A) 2.09 percent of the net premiums for such taxable year on specified insurance contracts which are annuity contracts,
(B) 2.45 percent of the net premiums for such taxable year on specified insurance contracts which are group life insurance contracts, and
(C) 9.2 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A) or (B).
(2) General deductions
The term "general deductions" means the deductions provided in part VI of subchapter B (sec. 161 and following, relating to itemized deductions) and in part I of subchapter D (sec. 401 and following, relating to pension, profit sharing, stock bonus plans, etc.).
(d) Net premiums
For purposes of this section—
(1) In general
The term "net premiums" means, with respect to any category of specified insurance contracts set forth in subsection (c)(1), the excess (if any) of—
(A) the gross amount of premiums and other consideration on such contracts, over
(B) return premiums on such contracts and premiums and other consideration incurred for reinsurance of such contracts.
The rules of section 803(b) shall apply for purposes of the preceding sentence.
(2) Amounts determined on accrual basis
In the case of an insurance company subject to tax under part II of this subchapter, all computations entering into determinations of net premiums for any taxable year shall be made in the manner required under section 811(a) for life insurance companies.
(3) Treatment of certain policyholder dividends and similar amounts
Net premiums shall be determined without regard to section 808(e) and without regard to other similar amounts treated as paid to, and returned by, the policyholder.
(4) Special rules for reinsurance
(A) Premiums and other consideration incurred for reinsurance shall be taken into account under paragraph (1)(B) only to the extent such premiums and other consideration are includible in the gross income of an insurance company taxable under this subchapter or are subject to tax under this chapter by reason of subpart F of part III of subchapter N.
(B) The Secretary shall prescribe such regulations as may be necessary to ensure that premiums and other consideration with respect to reinsurance are treated consistently by the ceding company and the reinsurer.
(e) Classification of contracts
For purposes of this section—
(1) Specified insurance contract
(A) In general
Except as otherwise provided in this paragraph, the term "specified insurance contract" means any life insurance, annuity, or noncancellable accident and health insurance contract (or any combination thereof).
(B) Exceptions
The term "specified insurance contract" shall not include—
(i) any pension plan contract (as defined in section 818(a)),
(ii) any flight insurance or similar contract,
(iii) any qualified foreign contract (as defined in section 807(e)(3) without regard to paragraph (5) of this subsection),
(iv) any contract which is an Archer MSA (as defined in section 220(d)), and
(v) any contract which is a health savings account (as defined in section 223(d)).
(2) Group life insurance contract
The term "group life insurance contract" means any life insurance contract—
(A) which covers a group of individuals defined by reference to employment relationship, membership in an organization, or similar factor,
(B) the premiums for which are determined on a group basis, and
(C) the proceeds of which are payable to (or for the benefit of) persons other than the employer of the insured, an organization to which the insured belongs, or other similar person.
(3) Treatment of annuity contracts combined with noncancellable accident and health insurance
Any annuity contract combined with noncancellable accident and health insurance shall be treated as a noncancellable accident and health insurance contract and not as an annuity contract.
(4) Treatment of guaranteed renewable contracts
The rules of section 816(e) shall apply for purposes of this section.
(5) Treatment of reinsurance contract
A contract which reinsures another contract shall be treated in the same manner as the reinsured contract.
(6) Treatment of certain qualified long-term care insurance contract arrangements
An annuity or life insurance contract which includes a qualified long-term care insurance contract as a part of or a rider on such annuity or life insurance contract shall be treated as a specified insurance contract not described in subparagraph (A) or (B) of subsection (c)(1).
(f) Special rule where negative net premiums
(1) In general
If for any taxable year there is a negative capitalization amount with respect to any category of specified insurance contracts set forth in subsection (c)(1)—
(A) the amount otherwise required to be capitalized under this section for such taxable year with respect to any other category of specified insurance contracts shall be reduced (but not below zero) by such negative capitalization amount, and
(B) such negative capitalization amount (to the extent not taken into account under subparagraph (A))—
(i) shall reduce (but not below zero) the unamortized balance (as of the beginning of such taxable year) of the amounts previously capitalized under subsection (a) (beginning with the amount capitalized for the most recent taxable year), and
(ii) to the extent taken into account as such a reduction, shall be allowed as a deduction for such taxable year.
(2) Negative capitalization amount
For purposes of paragraph (1), the term "negative capitalization amount" means, with respect to any category of specified insurance contracts, the percentage (applicable under subsection (c)(1) to such category) of the amount (if any) by which—
(A) the amount determined under subparagraph (B) of subsection (d)(1) with respect to such category, exceeds
(B) the amount determined under subparagraph (A) of subsection (d)(1) with respect to such category.
(g) Treatment of certain ceding commissions
Nothing in any provision of law (other than this section or section 197) shall require the capitalization of any ceding commission incurred on or after September 30, 1990, under any contract which reinsures a specified insurance contract.
(h) Secretarial authority to adjust capitalization amounts
(1) In general
Except as provided in paragraph (2), the Secretary may provide that a type of insurance contract will be treated as a separate category for purposes of this section (and prescribe a percentage applicable to such category) if the Secretary determines that the deferral of acquisition expenses for such type of contract which would otherwise result under this section is substantially greater than the deferral of acquisition expenses which would have resulted if actual acquisition expenses (including indirect expenses) and the actual useful life for such type of contract had been used.
(2) Adjustment to other contracts
If the Secretary exercises his authority with respect to any type of contract under paragraph (1), the Secretary shall adjust the percentage which would otherwise have applied under subsection (c)(1) to the category which includes such type of contract so that the exercise of such authority does not result in a decrease in the amount of revenue received under this chapter by reason of this section for any fiscal year.
(Added
Editorial Notes
Amendments
2017—Subsec. (a)(2).
Subsec. (b)(1).
Subsec. (c)(1)(A).
Subsec. (c)(1)(B).
Subsec. (c)(1)(C).
Subsec. (e)(1)(B)(iii).
Subsec. (i).
2014—Subsec. (j).
2006—Subsec. (e)(6).
2003—Subsec. (e)(1)(B)(v).
2000—Subsec. (e)(1)(B)(iv).
1996—Subsec. (e)(1)(B)(iv).
1993—Subsec. (g).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 12001(b)(8)(C) of
Amendment by section 13517(b)(4) of
"(1)
"(2)
Effective Date of 2014 Amendment
Amendment by
Effective Date of 2006 Amendment
Amendment by
Effective Date of 2003 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by