Public Law 90–240

item 915.25 (relating to bona fide gifts, not exceeding $50 in retail value, from members of the Armed Forces serving in combat zones) of the Tariff Schedules of the United States (19 U.S.C. 1202) is amended by striking out “On or before 12/31/67” and inserting in lieu thereof “On or before 12/31/69”.

The headnotes for part 1, subpart B of the Appendix to such Schedules are amended by adding at the end thereof the following headnote: “2. Articles exempted under item 915.25 from the payment of duty shall be exempt also from the payment of any internal revenue tax imposed upon or by reason of importation.”

Section 5701(a) of the Internal Revenue Code of 1954 (relating to rate of tax on cigars) is amended by adding after the penultimate sentence the following new sentence: “For purposes of the preceding sentence, the amount of State or local tax excluded from the retail price shall be the actual tax imposed; except that, if the combined taxes result in a numerical figure ending in a fraction of a cent, the amount so excluded shall be rounded to the next highest full cent unless such rounding would result in a tax lower than the tax which would be imposed in the absence of State or local tax.”

The amendment made by subsection (a) shall apply to the removal of cigars on or after the first day of the first calendar quarter which begins more than 30 days after the date of the enactment of this Act.

Section 832(b)(1) of the Internal Revenue Code of 1954 (relating to insurance company gross income) is amended, by striking out “and” at the end of subparagraph (C), by striking out the period at the end of subparagraph (D) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new subparagraph:

“(E)“(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.”

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Section 832(c) of such Code (relating to insurance company deductions) is amended by striking out “and” at the end of paragraph (11), by striking out the period at the end of paragraph (12) and inserting in lieu thereof “; and”, and by adding at the end the following new paragraph:

“(13)“(13)

in the case of a company which writes mortgage guaranty insurance, the deduction allowed by subsection (e).”

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Section 832 of such Code (relating to insurance company taxable

68A Stat. 264; 80 Stat. 1562.

26 USC 832.

income) is amended by adding at the end thereof the following new subsection:

“(e)“(e)

Special Deduction and Income Account.—

In the case of taxable years beginning after December 31, 1966, of a company which writes mortgage guaranty insurance—

“(1)“(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)“(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

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“(B)“(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,

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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.

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“(2)“(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 or his delegate, 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, as if no election to make installment payments under section 6152 is

68A Stat. 757.

26 USC 6152.

made. 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 or his delegate, if all interest and penalties, computed as if this sentence did not apply, are paid.

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“(3)“(3)

Mortgage guaranty account.—

Each company which writes mortgage guaranty insurance shall, for purposes of this part, establish and maintain a mortgage guaranty account.

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“(4)“(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).

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“(5)“(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)“(A)

the amount (if any) remaining which was added to the account for the tenth preceding taxable year, and

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“(B)“(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,

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“(C)“(C)

an amount (if any) equal to the net operating loss for the taxable year computed without regard to this subparagraph, and

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“(D)“(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.

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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

68A Stat. 124.

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

68A Stat. 264; 80 Stat. 1562.

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.”

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Section 381 (c)(22) of such Code (relating to carryovers in certain corporate acquisitions) is amended to read as follows:

“(22)“(22)

Successor insurance company.—

If the acquiring corporation is an insurance company taxable under subchapter L, there shall be taken into account (to the extent proper to carry

73 Stat. 139.

26 USC 801–843.

out the purposes of this section and of subchapter L, and under such regulations as may be prescribed by the Secretary or his delegate) the items required to be taken into account for purposes of subchapter L in respect of the distributor or transferor corporation.”

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The amendments made by subsections (a), (b), (c), and (d) shall apply to taxable years beginning after December 31, 1966, except that so much of section 832(e)(2) of the Internal Revenue Code of 1954 (as added by the amendment made by subsection (c)) as provides for payment of interest and penalties for failure to make a timely purchase of tax and loss bonds shall not apply with respect to any period during which such bonds are not available for purchase.

The Second Liberty Bond Act is amended by adding at the end thereof the following new section:

“Sec. 26.

The Secretary of the Treasury is authorized to issue, from time to time, tax and loss bonds, the proceeds of which shall be available to meet any public expenditures authorized by law, and to retire any outstanding obligations of the United States issued under this Act. Tax and loss bonds shall be nontransferable except as provided by the Secretary of the Treasury, shall bear no interest and shall be issued in such amounts, subject to the limitations imposed by section

Ante, p. 99.

21 of this Act, as are necessary to permit persons to comply with section 832(e) of the Internal Revenue Code of 1954. Tax and loss bonds shall be issued in such amounts and on such terms and conditions as required by section 832(e) of such Code and as the Secretary of the

Ante, p. 777.

Treasury shall prescribe. With respect to any taxable year in which amounts are subtracted from the mortgage guaranty account referred to in section 832(e)(3) of such Code, an amount of tax and loss bonds which was purchased under section 832(e)(2) of such Code with respect to the amount so subtracted shall be redeemed, and to the extent necessary shall be applied to pay any taxes due as a result of the inclusion under section 82(b)(1)(E) of such Code of amounts in gross income. In addition, tax and loss bonds may be redeemed as prescribed by the Secretary of the Treasury.”

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