§ 807. Rules for certain reserves

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1984

   Tax Reform Act of 1984

   Pub. L. 98–369 div. A title II § 211(a) · 98 Stat. 494

   Enacted · 26 U.S.C. § 807

   Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 726

   Source evidence

   Code source credit
   Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 726

   Enacted provision · exact public law section
   (a) General Rule.— Part I of subchapter L of chapter 1 is amended to read as follows: “PART II— LIFE INSURANCE COMPANIES “Subpart A. Tax imposed. “Subpart B. Life insurance gross income. “Subpart C. Life insurance deductions. “Subpart D. Accounting, allocation, and foreign provisions. “Subpart E. Definitions and special rules. “Subpart A— Tax Imposed “Sec. 801. Tax imposed. “SEC. 801. TAX IMPOSED. “(a) Tax Imposed.— “(1) In general.— A tax is hereby imposed for each taxable year on the life insurance company taxable income of every life insurance company. Such tax shall consist of a tax computed as provided in section 11 as though the life insurance company taxable income were the taxable income referred to in section 11. “(2) Alternative tax in case of capital gains.— “(A) In general.— If a life insurance company has a net capital gain for the taxable year, then (in lieu of the tax imposed by paragraph (1)), there is hereby imposed a tax (if such tax is less than the tax imposed by paragraph (1)). “(B) Amount of tax.— The amount of the tax imposed by this paragraph shall be the sum of— “(i) a partial tax, computed as provided by paragraph (1), on the life insurance company taxable income reduced by the amount of the net capital gain, and “(ii) an amount determined as provided in section 1201(a) on such net capital gain. “(C) Net capital gain not taken into account in determining special life insurance company deduction and small life insurance company deduction.— For purposes of subparagraph (B)(i), the amounts allowable as Post, p. 722. deductions under paragraphs (2) and (3) of section 804 shall be determined by reducing the tentative LICTI by the amount of the net capital gain (determined without regard to items attributable to noninsurance businesses). “(b) Life Insurance Company Taxable Income.— For purposes of this part, the term ‘life insurance company taxable income’ means— “(1) life insurance gross income, reduced by “(2) life insurance deductions. “(c) Taxation of Distributions From Pre-1984 Policyholders Surplus Account.— “For provision taxing distributions to shareholders from pre-1984 policyholders surplus account, see section 815. Post, p. 747. “Subpart B— Life Insurance Gross Income “Sec. 803. Life insurance gross income. “SEC. 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 Post, p. 726. 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. “Subpart C— Life Insurance Deductions “Sec. 804. Life insurance deductions. “Sec. 805. General deductions. “Sec. 806. Special deductions. “Sec. 807. Rules for certain reserves. “Sec. 808. Policyholder dividends deduction. “Sec. 809. Reduction in certain deductions of mutual life insurance companies. “Sec. 810. Operations loss deduction. “SEC. 804. LIFE INSURANCE DEDUCTIONS. “For purposes of this part, the term ‘life insurance deductions’ means— “(1) the general deductions provided in section 805, “(2) the special life insurance company deduction determined Post, p. 724. under section 806(a), and “(3) the small life insurance company deduction (if any) deter¬mined under section 806(b). “SEC. 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 Post, p. 726. reserves which is required by section 807(b) to be taken into account under this paragraph. “(3) Policyholder dividends.— The deduction for Post, p. 732. policy-holder dividends (determined under section 808(c)). “(4) Dividends received by company.— “(A) In general.— The deductions provided by sections 243, 244, and 245 (as modified by subparagraph (B))— “(i) for 100 percent dividends received, and “(ii) for the life insurance company’s share of the dividends (other than 100 percent dividends) received. “(B) Application of section 246(b).— In applying section 246(b) (relating to limitation on aggregate amount of deduc¬tions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections 243(a)(1), 244(a), and 245 shall be 85 percent of the life insurance company taxable income, com¬puted without regard to— “(i) the special life insurance company deduction and the small life insurance company deduction, “(ii) the operations loss deduction provided by section 810, “(iii) the deductions allowed by sections 243(a)(1), 244(a), and 245, and “(iv) any capital loss carryback to the taxable year under section 1212(a)(1), but such limit shall not apply for any taxable year for which there is a loss from operations. “(C) 100 percent dividend.— For purposes of subpara¬graph (A), the term ‘100 percent dividend’ means any divi¬dend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence). “(D) Certain dividends received by foreign corpora¬tions.— Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall apply to any dividend received by a foreign corpora¬tion 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)(5). “(5) Operations loss deduction.— The operations loss deduction (determined under section 810). Post, p. 738. “(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). Post, p. 726. “(2) Bad debts.— Section 166(c) (relating to reserve for bad debts) shall not apply. “(3) Charitable, etc., contributions and gifts.— In applying section 170— “(A) the limit on the total deductions under such section provided by section 170(b)(2) shall be 10 percent of the life insurance company taxable income computed without regard to— “(i) the deduction provided by section 170, “(ii) the deductions provided by paragraphs (3) and (4) of subsection (a), “(iii) the special life insurance company deduction and the small life insurance company deduction, “(iv) any operations loss carryback to the taxable year under section 810, and “(v) any capital loss carryback to the taxable year under section 1212(a)(1), and “(B) under regulations prescribed by the Secretary, a rule similar to the rule contained in section 170(d)(2)(B) (relating to special rule for net operating loss carryovers) shall be applied. “(4) 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). Post, p. 740. “(5) Net operating loss deduction.— Except as provided by section 844, the deduction for net operating losses provided in section 172 shall not be allowed. “(6) Dividends received deduction.— Except as provided in subsection (a)(4), the deductions for dividends received provided by sections 243, 244, and 245 shall not be allowed. “SEC. 806. SPECIAL DEDUCTIONS. “(a) Special Life Insurance Company Deduction.— For purposes Ante, p. 722. of section 804, the special life insurance company deduction for any taxable year is 20 percent of the excess of the tentative LICTI for such taxable year over the small life insurance company deduction (if any). “(b) Small Life Insurance Company Deduction.— “(1) In general.— For purposes of section 804, the small life insurance company deduction for any taxable year is 60 percent of so much of the tentative LICTI for such taxable year as does not exceed $3,000,000. “(2) Phaseout between $3,000,000 and $15,000,000.— The amount of the small life insurance company deduction determined under paragraph (1) for any taxable year shall be reduced (but not below zero) by 15 percent of so much of the tentative LICTI for such taxable year as exceeds $3,000,000. “(3) Small life insurance company deduction not allowable to company with assets of $500,000,000 or more.— “(A) In general.— The small life insurance company deduction shall not be allowed for any taxable year to any life insurance company which, at the close of such taxable year, has assets equal to or greater than $500,000,000. “(B) Assets.— For purposes of this paragraph, the term ‘assets’ means all assets of the company. “(C) Valuation of assets.— For purposes of this paragraph, the amount attributable to— “(i) real property and stock shall be the fair market value thereof, and “(ii) any other asset shall be the adjusted basis of such asset for purposes of determining gain on sale or other disposition. “(D) Special rule for interests in partnerships and trusts.— For purposes of this paragraph— “(i) an interest in a partnership or trust shall not be treated as an asset of the company, but “(ii) the company shall be treated as actually owning its proportionate share of the assets held by the partnership or trust (as the case may be). “(c) Tentative LICTI.— For purposes of this part— “(1) In general.— The term ‘tentative LICTI’ means life insurance company taxable income determined without regard to— “(A) the special life insurance company deduction, and “(B) the small life insurance company deduction. “(2) Exclusion of items attributable to noninsurance businesses.— The amount of the tentative LICTI for any taxable year shall be determined without regard to all items attributable to noninsurance businesses. “(3) Noninsurance business.— “(A) In general.— The term ‘noninsurance business’ means any activity which is not an insurance business. “(B) Certain activities treated as insurance businesses.— For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if— “(i) it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active con-duct of a trade or business, or “(ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits. “(C) Limitation on amount of loss from noninsurance business which may offset income from insurance business.— In computing the life insurance company taxable income of any life insurance company, any loss from a noninsurance business shall be limited under the principles of section 1503(c). “(d) Special Rule for Controlled Groups.— “(1) Special life insurance company deduction and small life insurance company deduction determined on con-trolled group basis.— For purposes of subsections (a) and (b)— “(A) all life insurance companies which are members of the same controlled group shall be treated as 1 life insurance company, and “(B) any special life insurance company deduction and any small life insurance company deduction determined with respect to such group shall be allocated among the life insurance companies which are members of such group in proportion to their respective tentative LICTI’s. “(2) Nonlife insurance members included for asset test.— For purposes of subsection (b)(3), all members of the same controlled group (whether or not life insurance companies) shall be treated as 1 company. “(3) Controlled group.— For purposes of this subsection, the term ‘controlled group’ means any controlled group of corporations (as defined in section 1563(a)); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply. “(4) Election with respect to loss from operations of member of group.— “(A) In general.— Any life insurance company which is a member of a controlled group may elect to have its loss from operations for any taxable year not taken into account for purposes of determining the amount of the special life insurance company deduction for the life insurance companies which are members of such group and which do not file a consolidated return with such life insurance company for the taxable year. “(B) Limitation on amount of loss which may offset nonlife income.— In the case of that portion of any loss from operations for any taxable year of a life insurance company which (but for subparagraph (A)) would have reduced tentative LICTI of other life insurance companies for such taxable year— “(i) only 80 percent of such portion may be used to offset nonlife income, and “(ii) to the extent such portion is used to offset nonlife income, the loss shall be treated as used at a rate of $1 for each 80 cents of income so offset. For purposes of the preceding sentence, any such portion shall be used before the remaining portion of the loss from the same year and shall be treated as first being offset against income which is not nonlife income. “(C) Nonlife income.— “(i) In general.— The term ‘nonlife income’ means the portion of the life insurance company’s taxable income for which the special life insurance company deduction was not allowable and any income of a corporation not subject to tax under this part. “(ii) Special rule for taxable years beginning before January 1, 1984— In the case of a taxable year beginning before January 1, 1984, all life insurance company taxable income shall be treated as nonlife income. “(5) Adjustments to prevent excess detriment or benefit.— Under regulations prescribed by the Secretary, proper adjustments shall be made in the application of this subsection to prevent any excess detriment or benefit (whether from yearto-year or otherwise) arising from the application of this subsection. “SEC. 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 sum of (i) the amount of the policyholders’ share of tax-exempt interest, plus (ii) any excess described in section 809(a)(2) for the taxable year, such excess shall be included in gross income under section 803(a)(2). “(b) Increase Treated as Deduction.— If for any taxable year— “(1) (A) the closing balance for the items described in subsection (c), reduced by “(B) the sum of (i) the amount of the policyholders’ share of tax-exempt interest, plus (ii) any excess described in section Post, p. 733. Ante, p. 721. 809(a)(2) for the taxable year, exceeds “(2) the opening balance for such items, such excess shall be taken into account as a deduction under section Ante, p. 722. 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 provi-sion of insurance on retired lives, for premium stabilization, or for a combination thereof. For purposes of paragraph (3), the appropriate rate of interest for any obligation is the higher of the prevailing State assumed interest rate as of the time such obligation first did not involve life, accident, or health contingencies or the rate of interest assumed by the company (as of such time) in determining the guaranteed benefit. “(d) Method of Computing Reserves for Purposes of Determining Income.— “(1) In general.— For purposes of this part (other than section 816), the amount of the life insurance reserves for any Post, p. 748. contract shall be the greater of— “(A) the net surrender value of such contract, or “(B) the reserve determined under paragraph (2). In no event shall the reserve determined under the preceding sentence for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in section 809(b)(4)(B)). Post, p. 733. “(2) Amount of reserve.— The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using— “(A) the tax reserve method applicable to such contract, “(B) the prevailing State assumed interest rate, and “(C) the prevailing commissioners’ standard tables for mortality and morbidity adjusted as appropriate to reflect the risks (such as substandard risks) incurred under the contract which are not otherwise taken into account. “(3) Tax reserve method.— For purposes of this subsection— “(A) In general.— The term ‘tax reserve method’ means— “(i) Life insurance contracts.— The CRVM in the case of a contract covered by the CRVM. “(ii) Annuity contracts.— The CARVM in the case of a contract covered by the CARVM. “(iii) Noncancellable accident and health insurance contracts.— In the case of any noncancellable accident and health insurance contract, a 2-year full preliminary term method. “(iv) Other contracts.— In the case of any contract not described in clause (i), (ii), or (iii)— “(I) the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract (as of the date of issuance), or “(II) if no reserve method has been prescribed by the National Association of Insurance Commissioners which covers such contract, a reserve method which is consistent with the reserve method required under clause (i), (ii), or (iii) or under subclause (I) of this clause as of the date of the issuance of such contract (whichever is most appropriate). “(B) Definition of crvm and carvm.— For purposes of this paragraph— “(i) CRVM.— The term ‘CRVM’ means the Commissioners’ Reserve Valuation Method prescribed by the National Association of Insurance Commissioners which is in effect on the date of the issuance of the contract. “(ii) CARVM.— The term ‘CARVM’ means the Commissoners’ Annuities Reserve Valuation Method prescribed by the National Association of Insurance Com-missioners which is in effect on the date of the issuance of the contract. “(C) No additional reserve deduction allowed for deficiency reserves.— Nothing in any reserve method described under this paragraph shall permit any increase in the reserve because the net premium (computed on the basis of assumptions required under this subsection) exceeds the actual premiums or other consideration charged for the benefit. “(4) Prevailing state assumed interest rate.— For purposes of this subsection— “(A) 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 the nonforfeiture laws of a State on interest rates for reserves shall not be taken into account. “(B) When rate determined.— Except as provided in subparagraph (C), the prevailing State assumed rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued. “(C) Election for nonannuity contracts.— In the case of a contract other than an annuity contract, the issuer may elect (at such time and in such manner as the Secretary shall by regulations prescribe) to determine the prevailing State assumed rate as of the beginning of the calendar year preceding the calendar year in which the contract was issued. “(D) Rate for noncancellable accident and health insurance contracts.— If there is no prevailing State assumed interest rate applicable under subparagraph (A) to any noncancellable accident and health insurance contract when it is issued, the prevailing State assumed interest rate for such contract shall be the prevailing State assumed interest rate which would be determined under subparagraph (A) for a whole life insurance contract issued on the date on which the noncancellable accident and health insurance contract is issued. “(5) Prevailing commissioners’ standard tables.— For purposes of this subsection— “(A) In general.— The term ‘prevailing commissioners’ standard tables’ means, with respect to any contract, the most recent commissioners’ standard tables prescribed by the National Association of Insurance Commissioners which are permitted to be used in computing reserves for that type of contract under the insurance laws of at least 26 States when the contract was issued. “(B) Insurer may use old tables for 3 years when tables change.— If the prevailing commissioners’ standard tables as of the beginning of any calendar year (hereinafter in this subparagraph referred to as the ‘year of change’) is different from the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year with respect to any contract issued after the change and before the close of the 3-year period beginning on the first day of the year of change. “(C) Special rule for contracts for which there are no commissioners’ standard tables.— If there are no commissioners’ standard tables applicable to any contract when it is issued, the mortality and morbidity tables used for purposes of paragraph (2)(C) shall be determined under regulations prescribed by the Secretary. “(D) Special rule for contracts issued before 1948.— If— “(i) a contract was issued before 1948, and “(ii) there were no commissioners’ standard tables applicable to such contract when it was issued, the mortality and morbidity tables used in computing statutory reserves for such contracts shall be used for purposes of paragraph (2)(C). “(E) Special rule where more than i table or option applicable.— If, with respect to any category of risks, there are 2 or more tables (or options under 1 or more tables) which meet the requirements of subparagraph (A) (or, where applicable, subparagraph (B) or (O), the table (and option thereunder) which generally yields the lowest reserves shall be used for purposes of paragraph (2)(C). “(e) Special Rules for Computing Reserves.— “(1) Net surrender value.— For purposes of this section— “(A) In general.— The net surrender value of any contract shall be determined— “(i) with regard to any penalty or charge which would be imposed on surrender, but “(ii) without regard to any market value adjustment on surrender. “(B) Special rule for pension plan contracts.— In the case of a pension plan contract, the balance in the policyholder’s fund shall be treated as the net surrender value of such contract. For purposes of the preceding sentence, such balance shall be determined with regard to any penalty or forfeiture which would be imposed on surrender but without regard to any market value adjustment. “(2) Issuance date in case of group contracts.— For purposes of this section, in the case of a group contract, the date on which such contract is issued shall be the date as of which the master plan is issued (or, with respect to a benefit guaranteed to a participant after such date, the date as of which such benefit is guaranteed). “(3) Supplemental benefits.— “(A) Qualified supplemental benefits treated separately.— For purposes of this part, the amount of the life insurance reserve for any qualified supplemental benefit— “(i) shall be computed separately as though such benefit were under a separate contract, and “(ii) shall, except to the extent otherwise provided in regulations, be the reserve taken into account for purposes of the annual statement approved by the National Association of Insurance Commissioners. “(B) Supplemental benefits which are not qualified supplemental benefits.— In the case of any supplemental benefit described in subparagraph (D) which is not a qualified supplemental benefit, the amount of the reserve determined under paragraph (2) of subsection (d) shall, except to the extent otherwise provided in regulations, be the reserve taken into account for purposes of the annual statement approved by the National Association of Insurance Commissioners. “(C) Qualified supplemental benefit.— For purposes of this paragraph, the term ‘qualified supplemental benefit’ means any supplemental benefit described in subparagraph (D) if— “(i) there is a separately identified premium or charge for such benefit, and “(ii) any net surrender value under the contract attributable to any other benefit is not available to fund such benefit. “(D) Supplemental benefits.— For purposes of this paragraph, the supplemental benefits described in this subparagraph are any— “(i) guaranteed insurability, “(ii) accidental death or disability benefit, “(iii) convertibility, “(iv) disability waiver benefit, or “(v) other benefit prescribed by regulations, which is supplemental to a contract for which there is a reserve described in subsection (c). “(4) Certain contracts issued by foreign branches of domestic life insurance companies.— “(A) In general.— In the case of any qualified foreign contract, the amount of the reserve shall be not less than the minimum reserve required by the laws, regulations, or administrative guidance of the regulatory authority of the foreign country referred to in subparagraph (B) (but not to exceed the net level reserves for such contract). “(B) Qualified foreign contract.— For purposes of subparagraph (A), the term ‘qualified foreign contract’ means any contract issued by a foreign life insurance branch (which has its principal place of business in a foreign country) of a domestic life insurance company if— “(i) such contract is issued on the life or health of a resident of such country, “(ii) such domestic life insurance company was required by such foreign country (as of the time it began operations in such country) to operate in such country through a branch, and “(iii) such foreign country is not contiguous to the United States. “(5) Treatment of substandard risks.— “(A) Separate computation.— Except to the extent provided in regulations, the amount of the life insurance reserve for any qualified substandard risk shall be computed separately under subsection (d)(1) from any other reserve under the contract. “(B) Qualified substandard risk.— For purposes of subparagraph (A), the term ‘qualified substandard risk’ means any substandard risk if— “(i) the insurance company maintains a separate reserve for such risk, “(ii) there is a separately identified premium or charge for such risk, “(iii) the amount of the net surrender value under the contract is not increased or decreased by reason of such risk, and “(iv) the net surrender value under the contract is not regularly used to pay premium charges for such risk. “(C) Limitation on amount of life insurance reserve.— The amount of the life insurance reserve determined for any qualified substandard risk shall in no event exceed the sum of the separately identified premiums charged for such risk plus interest less mortality charges for such risk. “(D) Limitation on amount of contracts to which paragraph applies.— The aggregate amount of insurance in force under contracts to which this paragraph applies shall not exceed 10 percent of the insurance in force (other than term insurance) under life insurance contracts of the company. “(6) Special rules for contracts issued before January i, 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. “(f) Adjustment for Change in Computing Reserves.— “(1) 10-Year spread.— “(A) In general.— For purposes of this part, if the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between— “(i) the amount of the item at the close of the taxable year, computed on the new basis, and “(ii) the amount of the item at the close of the taxable year, computed on the old basis, as is attributable to contracts issued before the taxable year shall be taken into account under the method provided in subparagraph (B). “(B) Method.— The method provided in this subparagraph is as follows: “(i) if the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), ⅒ of such excess shall be taken into account, for each of the succeeding 10 taxable years, as Ante, p. 722. a deduction under section 805(a)(2); or “(ii) if the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), ⅒ of such excess shall be included in gross income, for each of the 10 succeeding taxable years, under section 803(a)(2). “(2) Termination as life insurance company.— Except as provided in section 381(c)(22) (relating to carryovers in certain corporate readjustments), if for any taxable year the taxpayer is not a life insurance company, the balance of any adjustments under this subsection shall be taken into account for the preceding taxable year. “SEC. 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.— “(1) In general.— Except as limited by paragraph (2), the deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year. “(2) Reduction in case of mutual companies.— In the case of a mutual life insurance company, the deduction for policyholder dividends for any taxable year shall be reduced by the amount Post, p. 733. determined under section 809. “(d) Definitions.— For purposes of this section— “(1) Excess interest.— The term ‘excess interest’ means any amount in the nature of interest— “(A) paid or credited to a policyholder in his capacity as such, and “(B) determined at a rate in excess of the prevailing State assumed interest 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. “SEC. 809. REDUCTION IN CERTAIN DEDUCTIONS OF MUTUAL LIFE INSURANCE COMPANIES. “(a) General Rule.— “(1) Policyholder dividends— In the case of any mutual life insurance company, the amount of the deduction allowed under section 808 shall be reduced (but not below zero) by the differential Ante, p. 732. earnings amount. “(2) Reduction in reserve deduction in certain cases — In the case of any mutual life insurance company, if the differential earnings amount exceeds the amount allowable as a deduction under section 808 for the taxable year (determined without regard to this section), such excess shall be taken into account under subsections (a) and (b) of section 807. Ante, p. 726. “(3) Differential earnings amount.— For purposes of this section, the term ‘differential earnings amount’ means, with respect to any taxable year, an amount equal to the product of— “(A) the life insurance company’s average equity base for the taxable year, multiplied by “(B) the differential earnings rate for such taxable year. “(b) Average Equity Base.— For purposes of this section— “(1) In general.— The term ‘average equity base’ means, with respect to any taxable year, the average of— “(A) the equity base determined as of the close of the taxable year, and “(B) the equity base determined as of the close of the preceding taxable year. “(2) Equity base.— The term ‘equity base’ means an amount determined in the manner prescribed by regulations equal to— “(A) the surplus and capital, “(B) acHusted as provided in paragraphs (3), (4), (5), and (6) of this subsection. “(3) Increase for nonadmitted financial assets.— “(A) In general.— The amount of the surplus and capital shall be increased by the amount of the nonadmitted financial assets. “(B) Nonadmitted financial assets.— For purposes of subparagraph (A), the term ‘nonadmitted financial asset’ means any nonadmitted asset of the company which is— “(i) a bond, “(ii) stock, “(iii) real estate, “(iv) a mortgage loan on real estate, or “(v) any other invested asset. “(4) Increase where statutory reserves exceed tax reserves.— “(A) In general.— If— “(i) the aggregate amount of statutory reserves, exceeds “(ii) the aggregate amount of tax reserves, the amount of the surplus and capital shall be increased by the amount of such excess. “(B) Definitions.— For purposes of this paragraph— “(i) Statutory reserves.— The term ‘statutory reserves’ means the aggregate amount set forth in the annual statement with respect to items described in Ante, p. 726. 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 Post, p. 740. under section 811(c). “(ii) Tax reserves.— The term ‘tax reserves’ means the aggregate of the items described in section 807(c) as determined for purposes of section 807. “(5) Increase by amount of certain other reserves.— The amount of the surplus and capital shall be increased by the sum of— “(A) the amount of any mandatory securities valuation reserve, “(B) the amount of any deficiency reserve, and “(C) the amount of any voluntary reserve or similar liability not described in subparagraph (A) or (B). “(6) Adjustment for next year’s policyholder dividends.— The amount of the surplus and capital shall be increased by 50 percent of the amount of any provision for policyholder dividends (or other similar liability) payable in the following taxable year. “(c) Differential Earnings Rate.— “(1) In general.— For purposes of this section, the differential earnings rate for any taxable year is the excess of— “(A) the imputed earnings rate for the taxable year, over “(B) the average mutual earnings rate for the second calendar year preceding the calendar year in which the taxable year begins. “(2) Transitional rule.— The differential earnings rate— “(A) for any taxable year beginning in 1984, or “(B) for purposes of computing the amount of underpayment under section 6655 (including the application of section 6655(d)(3)) for any taxable year beginning in 1985, shall be equal to 7.8 percent. “(d) Imputed Earnings Rate.— “(1) In general.— For purposes of this section, the imputed earnings rate for any taxable year is— “(A) 16.5 percent in the case of taxable years beginning in 1984, and “(B) in the case of taxable years beginning after 1984, an amount which bears the same ratio to 16.5 percent as the current stock earnings rate for the taxable year bears to the base period stock earnings rate. “(2) Current stock earnings rate.— For purposes of this subsection, the term ‘current stock earnings rate’ means, with respect to any taxable year, the average of the stock earnings rates determined under paragraph (4) for the 3 calendar years preceding the calendar year in which the taxable year begins. “(3) Base period stock earnings rate.— For purposes of this subsection, the base period stock earnings rate is the average of the stock earnings rates determined under paragraph (4) for calendar years 1981, 1982, and 1983. “(4) Stock earnings rate.— “(A) In general.— For purposes of this subsection, the stock earnings rate for any calendar year is the numerical average of the earnings rates of the 50 largest stock companies. “(B) Earnings rate.— For purposes of subparagraph (A), the earnings rate of any stock company is the percentage (determined by the Secretary) which— “(i) the statement gain or loss from operations for the calendar year of such company, is of “(ii) such company’s average equity base for such year. “(C) 50 largest stock companies.— For purposes of this paragraph, the term ‘50 largest stock companies’ means a group (as determined by the Secretary) of stock life insurance companies which consists of the 50 largest stock life insurance companies which are subject to tax under this part. The Secretary may by regulations provide for exclusion from the group determined under the preceding sentence of any stock life insurance company if (i) the equity of such company is not great enough for such company to be 1 of the 50 largest stock life insurance companies if the determination were made on the basis of equity, and (ii) by reason of the small equity base of such company, it has an earnings rate which would seriously distort the stock earnings rate. “(D) Treatment of affiliated groups.— For purposes of this paragraph, all stock life insurance companies which are members of the same affiliated group shall be treated as one stock life insurance company. “(e) Average Mutual Earnings Rate.— For purposes of this section, the average mutual earnings rate for any calendar year is the percentage (determined by the Secretary) which— “(1) the aggregate statement gain or loss from operations for such year of mutual life insurance companies, is of “(2) their aggregate average equity bases for such year. “(f) Recomputation in Subsequent Year.— “(1) Inclusion in income where recomputed amount greater.— In the case of any mutual life insurance company, if— “(A) the recomputed differential earnings amount for any taxable year, exceeds “(B) the differential earnings amount determined under this section for such taxable year, such excess shall be included in life insurance gross income for the succeeding taxable year. “(2) Deduction where recomputed amount smaller.— In the case of any mutual life insurance company, if— “(A) the differential earnings amount determined under this section for any taxable year, exceeds “(B) the recomputed differential earnings amount for such taxable year, such excess shall be allowed as a life insurance deduction for the succeeding taxable year. “(3) Recomputed differential earnings amount.— For purposes of this subsection, the term ‘recomputed differential earnings amount’ means, with respect to any taxable year, the amount which would be the differential earnings amount for such taxable year if the average mutual earnings rate taken into account under subsection (c)(2) were the average mutual earnings rate for the calendar year in which the taxable year begins. “(4) Special rule where company ceases to be mutual life insurance company.— Except as provided in section 381(c)(22), if— “(A) a life insurance company is a mutual life insurance company for any taxable year, but “(B) such life insurance company is not a mutual life insurance company for the succeeding taxable year, any adjustment under paragraph (1) or (2) by reason of the recomputed differential earnings amount for the first of such taxable years shall be taken into account for the first of such taxable years. “(g) Definitions and Special Rules.— For purposes of this section— “(1) Statement gain or loss from operations.— The term ‘statement gain or loss from operations’ means the net gain or loss from operations required to be set forth in the annual statement— “(A) determined with regard to policyholder dividends (as defined in section 808) but without regard to Federal income taxes, “(B) determined on the basis of the tax reserves rather than statutory reserves, and “(C) properly adjusted for realized capital gains and losses and other relevant items. “(2) Other terms.— Except as otherwise provided in this section, the terms used in this section shall have the same respective meanings as when used in the annual statement. “(3) Determinations based on amount set forth in annual statement.— Except as otherwise provided in this section or in regulations, all determinations under this section shall be made on the basis of the amounts required to be set forth on the annual statement. “(4) Annual statement.— The term ‘annual statement’ means the annual statement for life insurance companies approved by the National Association of Insurance Commissioners. “(5) Reduction in equity base for portion of equity allocable to life insurance business in noncontiguous western hemisphere countries.— The equity base of any mutual life insurance company shall be reduced by an amount equal to the portion of the equity base attributable to the life insurance business multiplied by a fraction— “(A) the numerator of which is the portion of the tax reserves which is allocable to life insurance contracts issued on the life of residents of countries in the Western Hemisphere which are not contiguous to the United States, and “(B) the denominator of which is the amount of the tax reserves allocable to life insurance contracts. The preceding sentence shall not apply unless the fraction determined under the preceding sentence exceeds ½0. “(6) Special rule for certain contracts issued before January 1, 1985.— In determining the amount of tax reserves of a subsidiary of a mutual insurance company for purposes of subsection (b)(4), section 811(d) shall not apply with respect to Post, p. 740. any life insurance contract issued before January 1, 1985, under a plan of life insurance in existence on July 1, 1983. “(h) Treatment of Stock Companies Owned by Mutual Life Insurance Companies.— “(1) Treatment as mutual life insurance companies for purposes of determining stock earnings rates and mutual earnings rates.— Solely for purposes of subsections (d) and (e), a stock life insurance company snail be treated as a mutual life insurance company if stock possessing— “(A) at least 80 percent of the total combined voting power of all classes of stock of such stock life insurance company entitled to vote, or “(B) at least 80 percent of the total value of shares of all classes of stock of such stock life insurance company, is owned at any time during the calendar year directly (or through the application of section 318) by one or more mutual life insurance companies. “(2) Treatment of affiliated group which includes mutual parent and stock subsidiary.— In the case of an affiliated group of corporations which includes a common parent which is a mutual life insurance company and one or more stock life insurance companies, for purposes of determining the average equity base of such common parent (and the statement gain or loss from operations)— “(A) stock in such stock life insurance companies held by such common parent (and dividends on such stock) shall not be taken into account, and “(B) such common parent and such stock life insurance companies shall be treated as though they were one mutual life insurance company. “(3) Adjustment where stock company not member of affiliated group.— In the case of any stock life insurance company which is described in paragraph (1) but is not a member of an affiliated group described in paragraph (2), under regulations, proper adjustments shall be made in the average equity bases (and statement gains or losses from operations) of mutual life insurance companies owning stock in such company as may be necessary or appropriate to carry out the purposes of this section. “(i) Transitional Rule for Certain High Surplus Mutual Life Insurance Companies.— “(1) In general.— For purposes of subsection (a)(3), the average equity base of a high surplus mutual life insurance company for any taxable year shall not include the applicable percentage of the excess equity base of such company for such taxable year. “(2) Definitions.— For purposes of this subsection— “(A) Excess equity base.— The term ‘excess equity base’ means the excess of— “(i) the average equity base of the company for the taxable year, over “(ii) the amount which would be its average equity base if its equity percentage equaled the following percentage: “For taxable years beginning in: The percentage is:  1984 4.5   1985 or 1986 14   1987 or 1988 13.5  In no case shall the excess equity base for any taxable year be greater than the excess equity base for the company’s first taxable year beginning in 1984. “(B) Applicable percentage.— The term ‘applicable percentage’ means the percentage determined in accordance with the following table: “For taxable years beginning in: The applicable percentage is:  1984 100   1985 80   1986 60   1987 40   1988 20   1989 or thereafter 0.  “(C) High surplus mutual life insurance company.— The term ‘high surplus mutual life insurance company’ means any mutual life insurance company if, for the taxable year beginning in 1984, its equity percentage exceeded 14.5 percent. “(D) Equity percentage.— The term ‘equity percentage’ means, with respect to any mutual life insurance company, the percentage which— “(i) the average equity base of such company (determined under this section without regard to this subsection) for a taxable year bears to “(ii) the average of— “(I) the assets of such company as of the close of the preceding taxable year, and “(II) the assets of such company as of the close of the taxable year. For purposes of the preceding sentence, the assets of a company shall include all assets taken into account under this section in determining its equity base (after applying the principles of subsection (h)). “SEC. 810. OPERATIONS LOSS DEDUCTION. “(a) Deduction Allowed.— There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of— “(1) the operations loss carryovers to such year, plus “(2) the operations loss carrybacks to such year. For purposes of this part, the term ‘operations loss deduction’ means the deduction allowed by this subsection. “(b) Operations Loss Carrybacks and Carryovers.— “(1) Years to which loss may be carried.— The loss from operations for any taxable year (hereinafter in this section referred to as the ‘loss year’) shall be— “(A) an operations loss carryback to each of the 3 taxable years preceding the loss year, “(B) an operations loss carryover to each of the 15 taxable years following the loss year, and “(C) if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 15 taxable years described in subparagraph (B). “(2) Amount of carrybacks and carryovers.— The entire amount of the loss from operations for any loss year shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess (if any) of the amount of such loss over the sum of the offsets (as defined in subsection (d)) for each of the prior taxable years to which such loss may be carried. “(3) Election for operations loss carrybacks.— In the case of a loss from operations for any taxable year, the taxpayer may elect to relinquish the entire carryback period for such loss. Such election shall be made by the due date (including extensions of time) for filing the return for the taxable year of the loss from operations for which the election is to be in effect, and, once made for any taxable year, such election shall be irrevocable for that taxable year. “(c) Computation of Loss From Operations.— For purposes of this section— “(1) In general.— The term ‘loss from operations’ means the excess of the life insurance deductions for any taxable year over the life insurance gross income for such taxable year. “(2) Modifications.— For purposes of paragraph (1)— “(A) the operations loss deduction shall not be allowed, and “(B) the deductions allowed by sections 243 (relating to dividends received by corporations), 244 (relating to dividends received on certain preferred stock of public utilities), and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) as modified by section 805(a)(4). Ante, p. 722. “(d) Offset Defined.— “(1) In general.— For purposes of subsection (b)(2), the term ‘offset’ means, with respect to any taxable year, an amount equal to that increase in the operations loss deduction for the taxable year which reduces the life insurance company taxable income (computed without regard to paragraphs (2) and (3) of section 804) for such year to zero. Ante, p. 722. “(2) Operations loss deduction— For purposes of paragraph (1), the operations loss deduction for any taxable year shall be computed without regard to the loss from operations for the loss year or for any taxable year thereafter. “(e) New Company Defined.— For purposes of this part, a life insurance company is a new company for any taxable year only if such taxable year begins not more than 5 years after the first day on which it (or any predecessor, if section 381(c)(22) applies) was authorized to do business as an insurance company. “(f) Application of Subtitles A and F in Respect of Operation Losses.— Except as provided in section 805(b)(5), subtitles A and F shall apply in respect of operation loss carrybacks, operation loss carryovers, and the operations loss deduction under this part, in the same manner and to the same extent as such subtitles apply in respect of net operating loss carrybacks, net operating loss carryovers, and the net operating loss deduction. “(g) Transitional Rule.— For purposes of this section and section Post, p. 741. 812 (as in effect before the enactment of the Life Insurance Tax Act of 1984), this section shall be treated as a continuation of such section 812. “Subpart D— Accounting, Allocation, and Foreign Provisions “Sec. 811. Accounting provisions. “Sec. 812. Definition of company’s share and policyholders’ share. “Sec. 813. Foreign life insurance companies. “Sec. 814. Contiguous country branches of domestic life insurance companies. “Sec. 815. Distributions to shareholders from pre-1984 policyholders surplus account. “SEC. 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 1232(b)). “(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 Post, p. 748. interest to be paid or credited under any contract for any period which is computed at a rate which— “(1) exceeds the prevailing State assumed interest rate 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. “SEC. 812. DEFINITION OF COMPANY’S SHARE AND POLICYHOLDERS’ SHARE. “(a) General Rule.— “(1) Company’s share.— For purposes of section 805(a)(4), the term ‘company’s Ante, p. 722. share’ means, with respect to any taxable year, the percentage obtained by dividing— “(A) the company’s share of the net investment income for the taxable year, by “(B) the net investment income for the taxable year. “(2) Policyholders’ share.— For purposes of section 807, the Ante, p. 726. term ‘policyholders’ share’ means, with respect to any taxable year, the excess of 100 percent over the percentage determined under paragraph (1). “(b) Company’s Share of Net Investment Income.— “(1) In general.— For purposes of this section, the company’s share of net investment income is the excess (if any) of— “(A) the net investment income for the taxable year, over “(B) the sum of— “(i) the policy interest, for the taxable year, plus “(ii) the gross investment income’s proportionate share of policyholder dividends for the taxable year. “(2) Policy interest.— For purposes of this subsection, the term ‘policy interest’ means— “(A) required interest (at the prevailing State assumed rate) on reserves under section 807(c) (other than paragraph (2) thereof), “(B) the deductible portion of excess interest, and “(C) the deductible portion of any amount (whether or not a policyholder dividend), and not taken into account under subparagraph (A) or (B), credited to— “(i) a policyholder’s fund under a pension plan contract for employees (other than retired employees), or “(ii) a deferred annuity contract before the annuity starting date. “(3) Gross investment income’s proportionate share of policyholder dividends.— For purposes of paragraph (1), the gross investment income’s proportionate share of policyholder dividends is— “(A) the deduction for policyholders’ dividends Ante, pp. 732, 733. determined under sections 808 and 809 for the taxable year, but not including— “(i) the deductible portion of excess interest, “(ii) the deductible portion of policyholder dividends on contracts referred to in clauses (i) and (ii) of paragraph (2)(C), and “(iii) the deductible portion of the premium and mortality charge adjustments with respect to contracts paying excess interest for such year, multiplied by “(B) the fraction— “(i) the numerator of which is gross investment income for the taxable year (reduced by the policy interest for such year), and “(ii) the denominator of which is life insurance gross income (including tax-exempt interest) reduced by the excess (if any) of the closing balance for the items Ante, p. 726. described in section 807(c) over the opening balance for such items for the taxable year. “(c) Net Investment Income.— For purposes of this section, the term ‘net investment income’ means 90 percent of gross investment income. “(d) Gross Investment Income.— For purposes of this section, the term ‘gross investment income’ means the sum of the following: “(1) Interest, etc.— The gross amount of income from— “(A) interest (including tax-exempt interest), dividends, rents, and royalties, “(B) the entering into of any lease, mortgage, or other instrument or agreement from which the life insurance company derives interest, rents, or royalties, and “(C) the alteration or termination of any instrument or agreement described in subparagraph (B). “(2) Short-term capital gain.— the amount (if any) by which the net short-term capital gain exceeds the net long-term capital loss. “(3) Trade or business income.— The gross income from any trade or business (other than an insurance business) carried on by the life insurance company, or by a partnership of which the life insurance company is a partner. In computing gross income under this paragraph, there shall be excluded any item described in paragraph (1). Except as provided in paragraph (2), in computing gross investment income under this subsection, there shall be excluded any gain from the sale or exchange of a capital asset, and any gain considered as gain from the sale or exchange of a capital asset. “(e) Dividends From Certain Subsidiaries Not Included in Gross Investment Income.— For purposes of this section, the term ‘gross investment income’ shall not include any dividend received by the life insurance company which is a 100-percent dividend (as defined in section 805(a)(4)(C)). Such term also shall not include any Ante, p. 722. dividend described in section 805(a)(4)(D) (relating to certain dividends in the case of foreign corporations). “(f) No Double Counting.— Under regulations, proper adjustments shall be made in the application of this section to prevent an item from being counted more than once. “SEC. 813. FOREIGN LIFE INSURANCE COMPANIES. “(a) Adjustment Where Surplus Held in the United States Is Less Than Specified Minimum.— “(1) In general.— In the case of any foreign company taxable under this part, if— “(A) the required surplus determined under paragraph (2), exceeds “(B) the surplus held in the United States, then its income effectively connected with the conduct of an insurance business within the United States shall be increased by an amount determined by multiplying such excess by such company’s current investment yield. “(2) Required surplus.— For purposes of this subsection— “(A) In general.— The term ‘required surplus’ means the amount determined by multiplying the taxpayer’s total insurance liabilities on United States business by a percentage for the taxable year determined and proclaimed by the Secretary under subparagraph (B). “(B) Determination of percentage.— The percentage determined and proclaimed by the Secretary under this subparagraph shall be based on such data with respect to domestic life insurance companies for the preceding taxable year as the Secretary considers representative. Such percentage shall be computed on the basis of a ratio the numerator of which is the excess of the assets over the total insurance liabilities, and the denominator of which is the total insurance liabilities. “(3) Current investment yield.— For purposes of this subsection— “(A) In general.— The term ‘current investment yield’ means the percent obtained by dividing— “(i) the net investment income on assets held in the United States, by “(ii) the mean of the assets held in the United States during the taxable year. “(B) Determinations based on amount set forth in the annual statement.— Except as otherwise provided in regulations, determinations under subparagraph (A) shall be made on the basis of the amounts required to be set forth on the annual statement approved by the National Association of Insurance Commissioners. “(4) Other definitions.— For purposes of this subsection— “(A) Surplus held in the united states.— The surplus held in the United States is the excess of the assets (determined under section 806(b)(3)(C)) held in the United States Ante, p. 724. over the total insurance liabilities on United States business. “(B) Total insurance liabilities.— For purposes of this subsection, the term ‘total insurance liabilities’ means the Post, p. 748. sum of the total reserves (as defined in section 816(c)) plus (to the extent not included in total reserves) the items Ante, p. 726. referred to in paragraphs (3), (4), (5), and (6) of section 807(c). “(5) Reduction of section 881 taxes.— In the case of any foreign company taxable under this part, there shall be determined— “(A) the amount which would be subject to taxes under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894, and “(B) the amount of the increase provided by paragraph (1). The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which is the same proportion of such tax as the amount referred to in subparagraph (B) is of the amount referred to in subparagraph (A); but such reduction in taxes shall not exceed the increase in taxes under this part by reason of the increase provided by paragraph (1). “(b) Adjustment to Limitation on Deduction for Policyholder Dividends in the Case of Foreign Mutual Life Insurance Companies.— Ante, p. 733. For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the amount of any excess determined under paragraph (1) of subsection (a) with respect to such taxable year. “(c) Cross Reference.— “For taxation of foreign corporations carrying on life insurance business within the United States, see section 842. “SEC. 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.— “(A) In general.— No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account 26 USC 901. for purposes of subpart A of part III of subchapter N (relating to foreign tax credit) or allowable as a deduction. “(B) Treatment of repatriated amounts.— For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall be treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. “(2) United states source income allocable to contiguous country branch.— For purposes of sections 881, 882, and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. “(g) Election.— A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereofi 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 or 1491. 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. “SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS FROM PRE-1984 POLICY-HOLDERS SURPLUS ACCOUNT. “(a) General Rule.— In the case of a stock life insurance company which has an existing policyholders surplus account, the tax imposed by section 801 for any taxable year shall be the amount which Ante, p. 720. would be imposed by such section for such year on the sum of— “(1) life insurance company taxable income for such year (but not less than zero), plus “(2) the amount of direct and indirect distributions during such year to shareholders from such account. “(b) Ordering Rule.— For purposes of this section, any distribution to shareholders shall be treated as made— “(1) first out of the shareholders surplus account, to the extent thereof, “(2) then out of the policyholders surplus account, to the extent thereof, and “(3) finally, out of other accounts. “(c) Shareholders Surplus Account.— “(1) In general.— Each stock life insurance company which has an existing policyholders surplus account shall continue its shareholders surplus account for purposes of this part. “(2) Additions to account.— The amount added to the shareholders surplus account for any taxable year beginning after December 31, 1983, shall be the excess of— “(A) the sum of— “(i) the life insurance company’s taxable income (but not below zero), “(ii) the special deductions provided by section 806, Ante, p. 724. and “(iii) the deductions for dividends received provided by sections 243, 244, and 245 (as modified by section 805(a)(4)) and the amount of interest excluded from Ante, p. 722. gross income under section 103, over “(B) the taxes imposed for the taxable year by section 801 Ante, p. 720. (determined without regard to this section). “(3) Subtractions from account.— There shall be subtracted from the shareholders surplus account for any taxable year the amount which is treated under this section as distributed out of such account. “(d) Policyholders Surplus Account.— “(1) In general.— Each stock life insurance company which has an existing policyholders surplus account shall continue such account. “(2) No additions to account.— No amount shall be added to the policyholders surplus account for any taxable year beginning after December 31, 1983. “(3) Subtractions from account.— There shall be subtracted from the policyholders surplus account for any taxable year an amount equal to the sum of— “(A) the amount which (without regard to subparagraph (B)) is treated under this section as distributed out of the policyholders surplus account, and “(B) the amount by which the tax imposed for the taxable Ante, p. 720. year by section 801 is increased by reason of this section. “(e) Existing Policyholders Surplus Account.— For purposes of this section, the term ‘existing policyholders surplus account’ means any policyholders surplus account which has a balance as of the close of December 31, 1983. “(f) Other Rules Applicable to Policyholders Surplus Account Continued.— Except to the extent inconsistent with the provisions of this part, the provisions of subsections (d), (e), (f), and (g) of Ante, p. 747. section 815 (and of sections 6501(c)(6), 6501(k), 6511(d)(6), 6601(d)(3), and 6611(f)(4)) as in effect before the enactment of the Tax Reform Act of 1984 are hereby made applicable in respect of any policyholders surplus account for which there was a balance as of December 31, 1983. “Subpart E— Definitions and Special Rules “Sec. 816. Life insurance company defined. “Sec. 817. Treatment of variable contracts. “Sec. 818. Other definitions and special rules. “SEC. 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 balf 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 con-tracts 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 821 or section 831. “SEC. 817. TREATMENT OF VARIABLE CONTRACTS. “(a) Increases and Decreases in Reserves— For purposes of Ante, p. 726. 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 ofi, 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 Ante, p. 722. (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence. “(b) Adjustment to Basis of Assets Held in Segregated Asset Account.— In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be— “(1) increased by the amount of any appreciation in value, and “(2) decreased by the amount of any depreciation in value, to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts. “(c) Separate Accounting.— For purposes of this part (other than section 809), a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made— “(1) in accordance with the method regularly employed by such company, if such method is reasonable, and “(2) in all other cases, in accordance with regulations prescribed by the Secretary. “(d) Variable Contract Defined.— For purposes of this part, the term ‘variable contract’ means a contract— “(1) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company, “(2) which— “(A) provides for the payment of annuities, or “(B) is a life insurance contract, 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, or “(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. 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. “(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 Ante, p. 748. 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 Post, p. 767. 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. For purposes of this paragraph and paragraph (2), beneficial interests in a regulated investment company or in a trust shall not be treated as 1 investment if all of the beneficial interests in such company or trust are held by 1 or more segregated asset accounts of 1 or more insurance companies. “(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)(4), and “(B) no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(4)(A)(i). “(3) Special rule for variable life insurance contracts investing in united states obligations.— In the Case of a segregated asset account with respect to variable life insurance contracts, paragraph (1) shall not apply in the case of securities issued by the United States Treasury which are owned by a regulated investment company or by a trust all the beneficial interests in which are held by 1 or more segregated asset accounts of the company issuing the contract. “(4) Independent investment advisors permitted.— Nothing in this subsection shall be construed as prohibiting the use of independent investment advisors. “SEC. 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 53 Stat. 67 . 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), (19), (20), and (22) 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 53 Stat. 33. 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 “(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, for use in satisfying an obligation of such government, political subdivision, or agency or instrumentality 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 Post, p. 944. 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(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. “(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 Rule for Consolidated Returns.— 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. “(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 Ante, p. 732. Ante, p. 726. 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 Ante, p. 722. 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.”

2. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1023(b) · 100 Stat. 2085

   Inserted · 26 U.S.C. § 807(c)

   Pub. L. 99–514, § 1023(b), inserted at end “For purposes of paragraph (2) and section 805(a)(1), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846.”

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 99–514, § 1023(b), inserted at end “For purposes of paragraph (2) and section 805(a)(1), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846.”

   Enacted provision · exact public law section
   (b) Limitation of Deduction in the Case of Life Insurance Companies.— Section 807(c) (relating to reserves and similar items taken into account) is amended by adding at the end thereof the following new sentence: “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.”

3. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1821(a) · 100 Stat. 2085

   Inserted · 26 U.S.C. § 807(c)

   Pub. L. 99–514, § 1821(a), inserted at end “In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract.”

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   Pub. L. 99–514, § 1821(a), inserted at end “In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract.”

   Enacted provision · exact public law section
   (a) Certain Amounts Not Less Than Surrender Value of Contract.— Subsection (c) of section 807 (relating to rules for certain reserves) is amended by adding at the end thereof the following new sentence: ‘Tn no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract.”

4. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1821(s) · 100 Stat. 2085

   Inserted · 26 U.S.C. § 807(d)(5)(C)

   Pub. L. 99–514, § 1821(s), inserted at end “When the Secretary by regulation changes the table applicable to a type of contract, the new table shall be treated (for purposes of subparagraph (B) and for purposes of determining the issue dates of contracts for which it shall be used) as if it were a new prevailing commissioner’s standard table adopted by the twenty-sixth State as of a date (no earlier than the date the regulation is issued) specified by the Secretary.”

   Source evidence

   Code amendment note
   Subsec. (d)(5)(C). Pub. L. 99–514, § 1821(s), inserted at end “When the Secretary by regulation changes the table applicable to a type of contract, the new table shall be treated (for purposes of subparagraph (B) and for purposes of determining the issue dates of contracts for which it shall be used) as if it were a new prevailing commissioner’s standard table adopted by the twenty-sixth State as of a date (no earlier than the date the regulation is issued) specified by the Secretary.”

   Enacted provision · exact public law section
   (s) Amendments Related to Section 807 — Subparagraph (C) of section 807(d)(5) is amended by adding at the end thereof the following: “When the Secretary by regulation changes the table applicable to a type of contract, the new table shall be treated (for purposes of subparagraph (B) and for purposes of determining the issue dates of contracts for which it shall be used) as if it were a new prevailing commissioner’s standard table adopted by the twenty-sixth State as of a date (no earlier than the date the regulation is issued) specified by the Secretary.”

5. 1987

   Pub. L. 100–203 § 10241(b)(2)(A) · 101 Stat. 1330

   Substituted · 26 U.S.C. § 807(c)

   Pub. L. 100–203, § 10241(b)(2)(A), substituted “whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” for “the higher of the prevailing State assumed interest rate as of the time such obligation first did not involve life, accident, or health contingencies or the rate of interest assumed by the company (as of such time) in determining the guaranteed benefit.” in third to last sentence

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 100–203, § 10241(b)(2)(A), substituted “whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” for “the higher of the prevailing State assumed interest rate as of the time such obligation first did not involve life, accident, or health contingencies or the rate of interest assumed by the company (as of such time) in determining the guaranteed benefit.” in third to last sentence.

   Enacted provision · exact public law section
   (A) The third to the last sentence of section 807(c) is amended by striking out “the higher of and all that follows and inserting in lieu thereof “whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.”

6. 1987

   Pub. L. 100–203 § 10241(a) · 101 Stat. 1330

   Amended · 26 U.S.C. § 807(d)(2)(B)

   Pub. L. 100–203, § 10241(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the prevailing State assumed interest rate, and”

   Source evidence

   Code amendment note
   Subsec. (d)(2)(B). Pub. L. 100–203, § 10241(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the prevailing State assumed interest rate, and”.

   Enacted provision · exact public law section
   (a) In General.— Subparagraph (B) of section 807(d)(2) (relating to method of computing reserves for purposes of determining income) is amended to read as follows: “(B) the greater of— “(i) the applicable Federal interest rate, or “(ii) the prevailing State assumed interest rate, and”.

7. 1987

   Pub. L. 100–203 § 10241(b)(1) · 101 Stat. 1330

   1. Substituted · 26 U.S.C. § 807(d)(4)

      Pub. L. 100–203, § 10241(b)(1), substituted “Applicable Federal interest rate; prevailing State assumed interest rate” for “Prevailing State assumed interest rate” in heading

   2. Amended · 26 U.S.C. § 807(d)(4)

      Pub. L. 100–203, § 10241(b)(1), amended text generally, revising and restating as subpars. (A) and (B) provisions of former subpars. (A) to (D)

   Source evidence

   Code amendment note
   Subsec. (d)(4). Pub. L. 100–203, § 10241(b)(1), substituted “Applicable Federal interest rate; prevailing State assumed interest rate” for “Prevailing State assumed interest rate” in heading and amended text generally, revising and restating as subpars. (A) and (B) provisions of former subpars. (A) to (D).

   Enacted provision · exact public law section
   (1) In general.— Paragraph (4) of section 807(d) (defining State assumed interest rate) is amended to read as follows: “(4) Applicable federal interest rate; prevailing state assumed interest rate.— For purposes of this subsection— “(A) Applicable federal interest rate — “(i) In general.— Except as provided in clause (ii), the term ‘applicable Federal interest rate’ means the annual rate determined by the Secretary under section 846(c)(2) for the calendar year in which the contract was issued. “(ii) Election to recompute federal interest rate every 5 years.— “(I) In general.— In computing the amount of the reserve with respect to any contract to which an election under this clause applies for periods during any recomputation period, the applicable Federal interest rate shall be the annual rate determined by the Secretary under section 846(c)(2) for the 1st year of such period. No change in the applicable Federal interest rate shall be made under the preceding sentence unless such change would equal or exceed 14 of 1 percentage point. “(II) Recomputation period.— For purposes of subclause (I), the term ‘recomputation period’ means, with respect to any contract, the 5 calendar year period beginning with the 5th calendar year beginning after the calendar year in which the contract was issued (and each subsequent 5 calendar year period). “(III) Election.— An election under this clause Contracts. shall apply to all contracts issued during the calendar year for which the election was made or during any subsequent calendar year unless such election is revoked with the consent of the Secretary. “(IV) Spread not available.— Subsection (f) shall not apply to any adjustment required under this clause. “(B) Prevailing state assumed interest rate.— “(i) In general.— The term ‘prevailing State assumed interest rate’ means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account. “(ii) Contracts. 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.’

8. 1990

   Revenue Reconciliation Act of 1990

   Pub. L. 101–508 title XI § 11302(a) · 104 Stat. 1388

   Added · 26 U.S.C. § 807(e)(7)

   Pub. L. 101–508 added par. (7)

   Source evidence

   Code amendment note
   Subsec. (e)(7). Pub. L. 101–508 added par. (7).

   Enacted provision · exact public law section
   (a) General Rule.— Subsection (e) of section 807 (relating to special rules for computing reserves) is amended by adding at the end thereof the following new paragraph: “(7) Special rules for treatment of certain nonlife reserves.— “(A) In general.— The amount taken into account for purposes of subsections (a) and (b) as— “(i) the opening balance of the items referred to in subparagraph (C), and “(ii) the closing balance of such items, shall be 80 percent of the amount which (without regard to this subparagraph) would have been taken into account as such opening or closing balance, as the case may be. “(B) Transitional rule.— “(i) In general.— In the case of any taxable year beginning on or after September 30, 1990, and before September 30, 1996, there shall be included in the gross income of any life insurance company an amount equal to 3 1/3 percent of such company’s closing balance of the items referred to in subparagraph (C) for its most recent taxable year beginning before September 30, 1990. “(ii) Termination as ufe insurance company.— Except as provided in section 381(c)(22), if, for any taxable year beginning on or before September 30, 1996, the taxpayer ceases to be a life insurance company, the aggregate inclusions which would have been made under clause (i) for such taxable year and subsequent taxable years but for such cessation shall be taken into account for the taxable year preceding such cessation year. “(C) Description of items.— For purposes of this paragraph, the items referred to in this subparagraph are the items described in subsection (c) which consist of unearned premiums and premiums received in advance under insurance contracts not described in section 816(b)(l)(B).”

9. 1996

   Small Business Job Protection Act of 1996

   Pub. L. 104–188 title I § 1704(t)(61) · 110 Stat. 1755

   Substituted · 26 U.S.C. § 807(d)(3)(B)(ii)

   Pub. L. 104–188 substituted “Commissioners’ Annuities” for “Commissoners’ Annuities”

   Source evidence

   Code amendment note
   Subsec. (d)(3)(B)(ii). Pub. L. 104–188 substituted “Commissioners’ Annuities” for “Commissoners’ Annuities”.

   Enacted provision · exact public law section
   (61) Clause (ii) of section 807(d)(3)(B) is amended by striking “Commissoners’” and inserting “Commissioners’”.

10. 1996

    Pub. L. 104–191 title III § 321(b) · 110 Stat. 1936

    Inserted · 26 U.S.C. § 807(d)(3)(A)(iii)

    Pub. L. 104–191 inserted “(other than a qualified long-term care insurance contract, as defined in section 7702B(b))” after “insurance contract”

    Source evidence

    Code amendment note
    Subsec. (d)(3)(A)(iii). Pub. L. 104–191 inserted “(other than a qualified long-term care insurance contract, as defined in section 7702B(b))” after “insurance contract”.

    Enacted provision · exact public law section
    (b) Reserve Method.— Clause (iii) of section 807(d)(3)(A) is amended by inserting “(other than a qualified long-term care insurance contract, as defined in section 7702B(b))” after “insurance contract”.

11. 1997

    Pub. L. 105–34 § 1084(b)(2)(A) · 111 Stat. 788

    Substituted · 26 U.S.C. § 807(a)(2)(B)

    Pub. L. 105–34, § 1084(b)(2)(A), substituted “interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,” for “interest,”

    Source evidence

    Code amendment note
    Subsec. (a)(2)(B). Pub. L. 105–34, § 1084(b)(2)(A), substituted “interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,” for “interest,”.

    Enacted provision · exact public law section
    (2) Coordination with transfers for value.— Paragraph (2) of section 101(a) is amended by adding at the end the following new flush sentence: “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”.

12. 1997

    Pub. L. 105–34 § 1084(b)(2)(B) · 111 Stat. 788

    Substituted · 26 U.S.C. § 807(b)(1)(B)

    Pub. L. 105–34, § 1084(b)(2)(B), substituted “interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,” for “interest,”

    Source evidence

    Code amendment note
    Subsec. (b)(1)(B). Pub. L. 105–34, § 1084(b)(2)(B), substituted “interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,” for “interest,”.

    Enacted provision · exact public law section
    (2) Coordination with transfers for value.— Paragraph (2) of section 101(a) is amended by adding at the end the following new flush sentence: “The term ‘other amounts’ in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).”.

13. 2004

    Pension Funding Equity Act of 2004

    Pub. L. 108–218 § 205(b)(1) · 118 Stat. 596

    1. Struck · 26 U.S.C. § 807(a)(2)(B); 26 U.S.C. § 807(b)(1)(B)

       Pub. L. 108–218, § 205(b)(1), struck out “the sum of (i)” before “the amount”

    2. Struck · 26 U.S.C. § 807(a)(2)(B); 26 U.S.C. § 807(b)(1)(B)

       Pub. L. 108–218, § 205(b)(1), struck out “plus (ii) any excess described in section 809(a)(2) for the taxable year,” after “to which section 264(f) applies,”

    Source evidence

    Code amendment note
    Subsecs. (a)(2)(B), (b)(1)(B). Pub. L. 108–218, § 205(b)(1), struck out “the sum of (i)” before “the amount” and struck out “plus (ii) any excess described in section 809(a)(2) for the taxable year,” after “to which section 264(f) applies,”.

    Enacted provision · exact public law section
    (1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 of such Code 26 USC 807. are each amended by striking “the sum of (i)” and by striking “plus (ii) any excess described in section 809(a)(2) for the taxable year,”.

14. 2004

    Pension Funding Equity Act of 2004

    Pub. L. 108–218 § 205(b)(2)(A) · 118 Stat. 596

    Substituted · 26 U.S.C. § 807(d)(1)

    Pub. L. 108–218, § 205(b)(2)(A), substituted “paragraph (6)” for “section 809(b)(4)(B)” in concluding provisions

    Source evidence

    Code amendment note
    Subsec. (d)(1). Pub. L. 108–218, § 205(b)(2)(A), substituted “paragraph (6)” for “section 809(b)(4)(B)” in concluding provisions.

    Enacted provision · exact public law section
    (A) The last sentence of section 807(d)(1) of such Code is amended by striking “section 809(b)(4)(B)” and inserting “paragraph (6)”.

15. 2004

    Pension Funding Equity Act of 2004

    Pub. L. 108–218 § 205(b)(2)(B) · 118 Stat. 596

    Added · 26 U.S.C. § 807(d)(6)

    Pub. L. 108–218, § 205(b)(2)(B), added par. (6)

    Source evidence

    Code amendment note
    Subsec. (d)(6). Pub. L. 108–218, § 205(b)(2)(B), added par. (6).

    Enacted provision · exact public law section
    (B) Subsection (d) of section 807 of such Code is amended by adding at the end the following new paragraph: “(6) 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).” .

16. 2014

    Tax Technical Corrections Act of 2014

    Pub. L. 113–295 div. A title II § 221(a)(68) · 128 Stat. 4010

    1. Redesignated · 26 U.S.C. § 807(e)(7)(B); 26 U.S.C. § 807(e)(7)(C)

       Pub. L. 113–295 redesignated subpar. (C) as (B)

    2. Struck · 26 U.S.C. § 807(e)(7)(B); 26 U.S.C. § 807(e)(7)(C)

       Pub. L. 113–295 struck out former subpar. (B) which related to transitional rule

    Source evidence

    Code amendment note
    Subsec. (e)(7)(B), (C). Pub. L. 113–295 redesignated subpar. (C) as (B) and struck out former subpar. (B) which related to transitional rule.

    Enacted provision · exact public law section
    (68) Special rules for computing reserves.— Paragraph (7) of section 807(e) is amended by striking subparagraph (B) and redesignating subparagraph (C) as subparagraph (B).

17. 2017

    Pub. L. 115–97 § 13517(a)(1) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 807(c)

    Pub. L. 115–97, § 13517(a)(1), directed the general amendment of the second sentence of subsec. (c), which was executed by substituting “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.” for “For purposes of paragraph (3), the appropriate rate of interest for any obligation is whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” in concluding provisions

    Source evidence

    Code amendment note
    Subsec. (c). Pub. L. 115–97, § 13517(a)(1), directed the general amendment of the second sentence of subsec. (c), which was executed by substituting “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.” for “For purposes of paragraph (3), the appropriate rate of interest for any obligation is whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” in concluding provisions.

    Enacted provision · exact public law section
    (1) Appropriate rate of interest.— The second sentence of section 807(c) is amended to read as follows: “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.”.

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

18. 2017

    Pub. L. 115–97 § 13517(a)(2)(A) · 131 Stat. 2054

    1. Added · 26 U.S.C. § 807(d)(1); 26 U.S.C. § 807(d)(2)

       Pub. L. 115–97, § 13517(a)(2)(A), (C), added pars. (1) and (2)

    2. Struck · 26 U.S.C. § 807(d)(1); 26 U.S.C. § 807(d)(2)

       Pub. L. 115–97, § 13517(a)(2)(A), (C), struck out former pars. (1) and (2) which read as follows:

    Source evidence

    Code amendment note
    Subsec. (d)(1), (2). Pub. L. 115–97, § 13517(a)(2)(A), (C), added pars. (1) and (2) and struck out former pars. (1) and (2) which read as follows:

    “(1) In general.—For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract shall be the greater of— “(A) the net surrender value of such contract, or “(B) the reserve determined under paragraph (2). In no event shall the reserve determined under the preceding sentence for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in paragraph (6)). “(2) Amount of reserve.—The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using— “(A) the tax reserve method applicable to such contract, “(B) the greater of— “(i) the applicable Federal interest rate, or “(ii) the prevailing State assumed interest rate, and “(C) the prevailing commissioners’ standard tables for mortality and morbidity adjusted as appropriate to reflect the risks (such as substandard risks) incurred under the contract which are not otherwise taken into account.”

    Enacted provision · exact public law section
    (A) by striking paragraphs (1), (2), (4), and (5),

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

19. 2017

    Pub. L. 115–97 § 13517(a)(2)(D) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 807(d)(3)(A)(iii)

    Pub. L. 115–97, § 13517(a)(2)(D), substituted “, the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined” for “(other than a qualified long-term care insurance contract, as defined in section 7702B(b)), a 2-year full preliminary term method”

    Source evidence

    Code amendment note
    Subsec. (d)(3)(A)(iii). Pub. L. 115–97, § 13517(a)(2)(D), substituted “, the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined” for “(other than a qualified long-term care insurance contract, as defined in section 7702B(b)), a 2-year full preliminary term method”.

    Enacted provision · exact public law section
    (D) by striking “(other than a qualified long-term care insurance contract, as defined in section 7702B(b)), a 2-year full preliminary term method” in paragraph (3)(A)(iii) and inserting “, the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined”,

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

20. 2017

    Pub. L. 115–97 § 13517(a)(2)(E) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 807(d)(3)(A)(iv)(I)

    Pub. L. 115–97, § 13517(a)(2)(E), substituted “(as of the date the reserve is determined)” for “(as of the date of issuance)”

    Source evidence

    Code amendment note
    Subsec. (d)(3)(A)(iv)(I). Pub. L. 115–97, § 13517(a)(2)(E), substituted “(as of the date the reserve is determined)” for “(as of the date of issuance)”.

    Enacted provision · exact public law section
    (E) by striking “(as of the date of issuance)” in paragraph (3)(A)(iv)(I) and inserting “(as of the date the reserve is determined)”,

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

21. 2017

    Pub. L. 115–97 § 13517(a)(2)(F) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 807(d)(3)(A)(iv)(II)

    Pub. L. 115–97, § 13517(a)(2)(F), substituted “as of the date the reserve is determined for” for “as of the date of the issuance of”

    Source evidence

    Code amendment note
    Subsec. (d)(3)(A)(iv)(II). Pub. L. 115–97, § 13517(a)(2)(F), substituted “as of the date the reserve is determined for” for “as of the date of the issuance of”.

    Enacted provision · exact public law section
    (F) by striking “as of the date of the issuance of” in paragraph (3)(A)(iv)(II) and inserting “as of the date the reserve is determined for”,

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

22. 2017

    Pub. L. 115–97 § 13517(a)(2)(G) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 807(d)(3)(B)

    Pub. L. 115–97, § 13517(a)(2)(G), (H), substituted “applicable to the contract and in effect as of the date the reserve is determined” for “in effect on the date of the issuance of the contract” in cls. (i) and (ii)

    Source evidence

    Code amendment note
    Subsec. (d)(3)(B). Pub. L. 115–97, § 13517(a)(2)(G), (H), substituted “applicable to the contract and in effect as of the date the reserve is determined” for “in effect on the date of the issuance of the contract” in cls. (i) and (ii).

    Enacted provision · exact public law section
    (G) by striking “in effect on the date of the issuance of the contract” in paragraph (3)(B)(i) and inserting “applicable to the contract and in effect as of the date the reserve is determined”, and

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

23. 2017

    Pub. L. 115–97 § 13517(a)(2)(A) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 807(d)(4)(6)

       Pub. L. 115–97, § 13517(a)(2)(A), (B), redesignated par. (6) as (4)

    2. Struck · 26 U.S.C. § 807(d)(4)(6)

       Pub. L. 115–97, § 13517(a)(2)(A), (B), struck out former pars. (4) and (5) which related to applicable Federal and prevailing State assumed interest rates and prevailing commissioners’ standard tables, respectively

    Source evidence

    Code amendment note
    Subsec. (d)(4) to (6). Pub. L. 115–97, § 13517(a)(2)(A), (B), redesignated par. (6) as (4) and struck out former pars. (4) and (5) which related to applicable Federal and prevailing State assumed interest rates and prevailing commissioners’ standard tables, respectively.

    Enacted provision · exact public law section
    (A) by striking paragraphs (1), (2), (4), and (5),

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

24. 2017

    Pub. L. 115–97 § 13517(a)(3)(C) · 131 Stat. 2054

    Amended · 26 U.S.C. § 807(e)(2)

    Pub. L. 115–97, § 13517(a)(3)(C), amended par. (2) generally. Prior to amendment, par. (2) related to supplemental benefits

    Source evidence

    Code amendment note
    Subsec. (e)(2). Pub. L. 115–97, § 13517(a)(3)(C), amended par. (2) generally. Prior to amendment, par. (2) related to supplemental benefits.

    Enacted provision · exact public law section
    (C) by amending paragraph (2) (as so redesignated) to read as follows: “(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).”, and

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

25. 2017

    Pub. L. 115–97 § 13517(a)(3)(A) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 807(e)(2)

       Pub. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (3) as (2)

    2. Struck · 26 U.S.C. § 807(e)(2)

       Pub. L. 115–97, § 13517(a)(3)(A), (B), struck out former par. (2) which related to issuance date in case of group contracts

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (3) as (2) and struck out former par. (2) which related to issuance date in case of group contracts.

    Enacted provision · exact public law section
    (A) by striking paragraphs (2) and (5),

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

26. 2017

    Pub. L. 115–97 § 13517(a)(3)(B) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 807(e)(3); 26 U.S.C. § 807(e)(4)

    Pub. L. 115–97, § 13517(a)(3)(B), redesignated pars. (4) and (6) as (3) and (4), respectively. Former par. (3) redesignated (2)

    Source evidence

    Code amendment note
    Subsec. (e)(3), (4). Pub. L. 115–97, § 13517(a)(3)(B), redesignated pars. (4) and (6) as (3) and (4), respectively. Former par. (3) redesignated (2).

    Enacted provision · exact public law section
    (B) by redesignating paragraphs (3), (4), (6), and (7) as paragraphs (2), (3), (4), and (5), respectively,

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

27. 2017

    Pub. L. 115–97 § 13517(a)(3)(A) · 131 Stat. 2054

    1. Redesignated · 26 U.S.C. § 807(e)(5)

       Pub. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (7) as (5)

    2. Struck · 26 U.S.C. § 807(e)(5)

       Pub. L. 115–97, § 13517(a)(3)(A), (B), struck out former par. (5) which related to treatment of substandard risks

    Source evidence

    Code amendment note
    Subsec. (e)(5). Pub. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (7) as (5) and struck out former par. (5) which related to treatment of substandard risks.

    Enacted provision · exact public law section
    (A) by striking paragraphs (2) and (5),

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

28. 2017

    Pub. L. 115–97 § 13517(a)(3)(D) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 807(e)(6)

    Pub. L. 115–97, § 13517(a)(3)(D), added par. (6). Former par. (6) redesignated (4)

    Source evidence

    Code amendment note
    Subsec. (e)(6). Pub. L. 115–97, § 13517(a)(3)(D), added par. (6). Former par. (6) redesignated (4).

    Enacted provision · exact public law section
    (D) by adding at the end the following new paragraph: “(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.” .

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

29. 2017

    Pub. L. 115–97 § 13517(a)(3)(B) · 131 Stat. 2054

    Redesignated · 26 U.S.C. § 807(e)(7)

    Pub. L. 115–97, § 13517(a)(3)(B), redesignated par. (7) as (5)

    Source evidence

    Code amendment note
    Subsec. (e)(7). Pub. L. 115–97, § 13517(a)(3)(B), redesignated par. (7) as (5).

    Enacted provision · exact public law section
    (B) by redesignating paragraphs (3), (4), (6), and (7) as paragraphs (2), (3), (4), and (5), respectively,

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

30. 2017

    Pub. L. 115–97 § 13513(a) · 131 Stat. 2054

    Amended · 26 U.S.C. § 807(f)(1)

    Pub. L. 115–97, § 13513(a), amended par. (1) generally. Prior to amendment, par. (1) related to 10-year spread method of computation

    Source evidence

    Code amendment note
    Subsec. (f)(1). Pub. L. 115–97, § 13513(a), amended par. (1) generally. Prior to amendment, par. (1) related to 10-year spread method of computation.

    Enacted provision · exact public law section
    (a) In General.— Paragraph (1) of section 807(f) is amended to read as follows: “(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.” .

    Effective date note
    Pub. L. 115–97, title I, § 13513(b), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.” Pub. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

31. 2018

    Energy and Water Development and Related Agencies Appropriations Act, 2018

    Pub. L. 115–141 div. U title IV § 401(a)(141) · 132 Stat. 348

    Substituted · 26 U.S.C. § 807(e)(5)(A)(i)

    Pub. L. 115–141 substituted “subparagraph (B)” for “subparagraph (C)”

    Source evidence

    Code amendment note
    Subsec. (e)(5)(A)(i). Pub. L. 115–141 substituted “subparagraph (B)” for “subparagraph (C)”.

    Enacted provision · exact public law section
    Sec. 401. The Nuclear Regulatory Commission shall comply with the July 5, 2011, version of Chapter VI of its Internal Commission Procedures when responding to Congressional requests for information.

38 of 38 references resolved to an enrolled provision