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