§ 835. Election by reciprocal

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. 1962

   Revenue Act of 1962

   Pub. L. 87–834 § 8(c) · 76 Stat. 960

   Enacted · 26 U.S.C. § 835

   Added Pub. L. 87–834, § 8(c), Oct. 16, 1962, 76 Stat. 996, § 826

   Source evidence

   Code source credit
   Added Pub. L. 87–834, § 8(c), Oct. 16, 1962, 76 Stat. 996, § 826

   Enacted provision · exact public law section
   (c) Statutory Underwriting Income or Loss.— Part II of subchapter L of chapter 1 is amended by adding after section 822(f) (as redesignated by subsection (b)(4) of this section) the following new sections: “SEC. 823. DETERMINATION OF STATUTORY UNDERWRITING INCOME OR LOSS. “(a) In General.— For purposes of this part— “(1) The term ‘statutory underwriting income’ means the amount by which— “(A) the gross income which would be taken into account 26 USC 832. Post, pp. 997, 998. in computing taxable income under section 832 if the taxpayer were subject to the tax imposed by section 831, reduced by the gross investment income, exceeds “(B) the sum of (i) the deductions which would be taken into account in computing taxable income if the taxpayer were subject to the tax imposed by section 831, reduced by Supra; 26 USC 822. the deductions provided m section 822(c), plus (ii) the deductions provided in subsection (c) and section 824(a). “(2) The term ‘statutory underwriting loss’ means the excess of the amount referred to in paragraph (1)(B) over the amount referred to in paragraph (1)(A). “(b) Modifications.— In applying subsection (a)— “(1) Net operating loss deduction.— The deduction for net 26 USC 172. operating losses provided in section 172 shall not be allowed. “(2) Interinsurer.— In the case of a mutual insurance company which is an interinsurer or reciprocal underwriter— “(A) there shall be allowed as a deduction the increase for the taxable year in savings credited to subscriber accounts, or “(B) there shall be included as an item of gross income the decrease for the taxable year in savings credited to subscriber accounts. For purposes of the preceding sentence, the term ‘savings credited to subscriber accounts’ means such portion of the surplus as is credited to the individual accounts oi subscribers before the 16th day of the third month following the close of the taxable year, but only if the company would be obligated to pay such amount promptly to such subscriber if he terminated his contract at the close of the company’s taxable year. For purposes of determining his taxable income, the subscriber shall treat any such savings credited to his account as a dividend paid or declared. “(c) Special Deduction for Small Company Having Gross Amount of Less Than $1,100,000.— “(1) In general.— If the gross amount received during the taxable year by a taxpayer subject to the tax imposed by section 821(a) from the items described in section 822(b) (other than paragraph (1)(D) thereof) and premiums (including deposits and assessments) does not equal or exceed $1,100,000, then in determining the statutory underwriting income or loss for the taxable year there shall be allowed an additional deduction of $6,000; except that if such gross amount exceeds $500,000, such additional deduction shall be equal to 1 percent of the amount by which $1,100,000 exceeds such gross amount. “(2) Limitation.— The amount of the deduction allowed under paragraph (1) shall not exceed the statutory underwriting income for the taxable year, computed without regard to any deduction under this subsection or section 824(a). “SEC. 824. ADJUSTMENTS TO PROVIDE PROTECTION AGAINST LOSSES. “(a) Allowance of Deduction.— “(1) In general.— In determining the statutory underwriting income or loss for any taxable year there shall be allowed as a deduction the sum of— “(A) an amount equal to 1 percent of the losses incurred during the taxable year (as determined under section 832(b)(5)), 26 USC 832. plus “(B) an amount equal to 25 percent of the underwriting gain for the taxable year, plus “(C) if the concentrated windstorm, etc., premium percentage for the taxable year exceeds 40 percent, an amount determined by applying so much of such percentage as exceeds 40 percent to the underwriting gain for the taxable year. For purposes of this paragraph, the term ‘underwriting gain’ means statutory underwriting income, computed without any deduction under this subsection. “(2) Special rule for companies having concentrated windstorm, etc., risks.— For purposes of paragraph (1)(C), the term ‘concentrated windstorm, etc., premium percentage’ means, with respect to any taxable year, the percentage obtained by dividing— “(A) the amount of the premiums earned on insurance contracts during the taxable year (as defined in section 832 (b)(4)), to the extent attributable to insuring against losses 26 USC 832; Post, p. 997. arising, either in any one State or within 200 miles of any fixed point selected by the taxpayer, from windstorm, hail, flood, earthquake, or similar hazards, by “(B) the amount of the premiums earned on insurance contracts during the taxable year (as so defined). “(b) Protection Against Loss Account.— Each insurance company subject to the tax imposed by section 821 (a) for any taxable year shall, Ante, p. 989. for purposes of this part, establish and maintain a protection against loss account. “(c) Additions to Account.— There shall be added to the protection against, loss account for each taxable year an amount equal to the amount allowable as a deduction for the taxable year under subsection (a)(1). “(d) Subtractions.— “(1) Annual subtractions.— After applying subsection (c), there shall be subtracted for the taxable year from the protection against loss account— “(A) first, an amount equal to the excess (if any) of the deduction allowed under subsection (a) for the taxable year over the underwriting gain (within the meaning of subsection (a)(1)) for the taxable year, “(B) then, the amount (if any) by which— “(i) the sum of the investment loss for such year and the statutory underwriting loss (reduced by the amount referred to in subparagraph (A)) for such year, exceeds “(ii) the sum of the statutory underwriting income for such taxable year and the taxable investment income for such taxable year, “(C) next (in the order in which the losses occurred), amounts equal to the unused loss carryovers to such year, “(D) next, any amount remaining which was added to the account for the fifth preceding taxable year, minus one-half of the amount remaining in the account for such taxable year which was added by reason of subsection (a)(1)(B), and “(E) finally, the amount by which the total amount in the account exceeds whichever or the following is the greater: “(i) 10 percent of premiums earned on insurance contracts during the taxable year (as defined in section 832 (b)(4)) less dividends to policyholders (as defined in section Post, p. 997. 832(c)(11)), or “(ii) the total amount in the account at the close of the preceding taxable year. “(2) Rules for ceiling on protection against loss account.— For purposes of paragraph (1)(E), the total amount in the account shall be determined— “(A) after the application of this section without regard to paragraph (1)(E), and “(B) without taking into consideration amounts remaining in the account which were added, with respect to all taxable years, by reason of subsection (a)(1)(C). “(3) Priorities.— The amounts required to be subtracted from the protection against loss account— “(A) under subparagraphs (A), (B), and (C) of paragraph (1) shall be subtracted— “(i) first (on a first-in, first-out, basis) from amounts in the account with respect to the five preceding taxable years and the taxable year, and “(ii) then from amounts in the account with respect to earlier years, “(B) under subparagraph (E) of paragraph (1) shall be subtracted only from amounts in the account with respect to the taxable year, and “(C) under paragraphs (A), (B), (C), and (E) of paragraph (1) shall, if the amount to be subtracted from the total amounts in the account with respect to any taxable year is less than such total, be subtracted from each of the amounts (referred to in subsection (a)(1)) in the account with respect to such year in the proportion which each bears to such total. “(4) Termination of taxability under section 821.— If the taxpayer is not subject to tax under section 821 for any taxable Ante, p. 989. year, the entire amount in the account at the close of the preceding taxable year shall be subtracted from the account in such preceding taxable year. “(5) Election to subtract amount from account.— “(A) A taxpayer may elect for any taxable year for which it is subject to tax under section 821(a) to subtract from its protection against loss account any amount which, but for the application of this subparagraph, would be in such account as of the close of such taxable year. “(B) The election provided by subparagraph (A) for any taxable year shall be made (in such manner and in such form as the Secretary or his delegate may by regulations prescribe) after the close of such taxable year and not later than the time prescribed by law for filing the return (including extensions thereof) for the taxable year following such taxable year. Such an election, once made, may not he revoked. “SEC. 825. UNUSED LOSS DEDUCTION. “(a) Amount of Deduction.— For purposes of this part, the unused loss deduction for the taxable year shall be an amount equal to the unused loss carryovers or carrybacks to the taxable year. “(b) Unused Loss Defined.— For purposes of this part, the term ‘unused loss’ means, with respect to any taxable year, the amount (if any) by which— “(1) the sum of the statutory underwriting loss and the investment loss, exceeds “(2) the sum of— “(A) the taxable investment income, “(B) the statutory underwriting income, and “(C) the amounts required by section 824(d) to be subtracted Ante, p. 994. from the protection against loss account. “(c) Loss Year Defined.— For purposes of this part, the term ‘loss year’ means, with respect to any company subject to the tax imposed by section 821(a), any taxable year in which the unused loss (as defined in subsection (b)) of such taxpayer is more than zero. “(d) Years to Which Carried.— The unused loss for any loss year shall be— “(1) an unused loss carryback to each of the 3 taxable years preceding the loss year, and “(2) an unused loss carryover to each of the 5 taxable years following the loss year. “(e) Amount of Carrybacks and Carryovers.— The entire amount of the unused loss for any loss year shall be carried to the earliest of the taxable years to which 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 (f)) for each of the prior taxable years to which such loss may be carried. “(f) Offset Defined.— For purposes of subsection (e), the term ‘offset’ means with respect to any taxable year (hereinafter referred to as the ‘offset year’)— “(1) in the case of an unused loss carryback from the loss year to the offset year, the mutual insurance company taxable income for the offset year; or “(2) in the case of an unused loss carryover from the loss year to the offset year, an amount equal to the sum of— “(A) the amount required to be subtracted from the protection Ante, p. 994. against loss account under section 824(d)(1)(C) for the offset year, plus “(B) the mutual insurance company taxable income for the offset year. For purposes of paragraphs (1) and (2)(B), the mutual insurance company taxable income for the offset year shall be determined without regard to any unused loss carryback or carryover from the loss year or any taxable year thereafter. “(g) Limitations.— For purposes of this part, an unused loss shall not be carried— “(1) to or from any taxable year beginning before January 1, 1963, “(2) to, or from any taxable year for which the insurance Ante, p. 989. company is not subject to the tax imposed by section 821(a), nor “(3) to any taxable year if, between the loss year and such taxable year, there is an intervening taxable year for which the insurance company was not subject to the tax imposed by section 821(a). “SEC. 826. ELECTION BY RECIPROCAL. “(a) In General.— Except as otherwise provided in this section, any mutual insurance company which is an interinsurer or reciprocal underwriter (hereinafter in this section referred to as a ‘reciprocal’) subject to the taxes imposed by section 821 (a) may, under regulations prescribed by the Secretary or his delegate, elect to be subject to the limitation provided in subsection (b). Such election shall be effective for the taxable year for which made and for all succeeding taxable years, and shall not be revoked except with the consent of the Secretary or his delegate. “(b) Limitation.— The deduction for amounts paid or incurred in the taxable year to the attorney infact by a reciprocal making the election provided in subsection (a) shall be limited to, but in no case increase by, the deductions of the attorney-in-fact allocable, in accordance witn regulations prescribed by the Secretary or his delegate, to the income received by the attorney-in-fact from the reciprocal. “(c) Exception.— An election may not be made by a reciprocal under subsection (a) unless the attorney-in-fact of such reciprocal— “(1) is subject to the taxes imposed by section 11 (b) and (c); “(2) consents in such manner as the Secretary or his delegate shall prescribe by regulations to make available such information as may be required during the period in which the election provided in subsection (a) is in effect, under regulations prescribed by the Secretary or his delegate; “(3) reports the income received from the reciprocal and the deductions allocable thereto under the same method of accounting under which the reciprocal reports deductions for amounts paid to the attorney-in-fact; and “(4) files its return on the calendar year basis. “(d) Special Rule.— In applying section 824(d)(1)(D), any amount which was added to the protection against loss account by reason of an election under this section shall be treated as having Ante, p. 993. been added by reason of section 824(a)(1)(A). “(e) Credit.— Any reciprocal electing to be subject to the limitation provided in subsection (b) shall be credited with so much of the tax paid by the attorney infact as is attributable, under regulations prescribed by the Secretary or his delegate, to the income received by the attorney-in-fact from the reciprocal in such taxable year. “(f) Surtax Exemption Denied.— Any increase in taxable income of a reciprocal attributable to the limitation provided in subsection (b) shall be taxed without regard to the surtax exemption provided in section 821(a)(2). Ante, p. 989. “(g) Adjustment for Refund.— If for any taxable year an attorney-in-fact is allowed a credit or refund for taxes paid with respect to which credit or refund to the reciprocal resulted under subsection (e), the taxes of such reciprocal for such taxable year shall be properly adjusted under regulations prescribed by the Secretary or his delegate. “(h) Taxes of Attorney-in-fact Unaffected.— Nothing in this section shall increase or decrease the taxes imposed by this chapter on the income of the attorney-in-fact.”

2. 1976

   Pub. L. 94–455 title XIX § 1906(b)(13)(A) · 90 Stat. 1520

   Struck · 26 U.S.C. § 835(a); 26 U.S.C. § 835(b); 26 U.S.C. § 835(c)(2); 26 U.S.C. § 835(e); 26 U.S.C. § 835(g)

   Pub. L. 94–455 struck out “or his delegate” after “Secretary”

   Source evidence

   Code amendment note
   Subsecs. (a), (b), (c)(2), (e), (g). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

   Enacted provision · exact public law section
   (A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.

3. 1978

   Pub. L. 95–600 title III § 301(b)(10) · 92 Stat. 2763

   Substituted · 26 U.S.C. § 835(c)(1)

   Pub. L. 95–600 substituted “the tax imposed by section 11” for “the taxes imposed by section 11(b) and (c)”

   Source evidence

   Code amendment note
   Subsec. (c)(1). Pub. L. 95–600 substituted “the tax imposed by section 11” for “the taxes imposed by section 11(b) and (c)”.

   Enacted provision · exact public law section
   (10) 26 USC 826. Election by mutual insurance company which is a reciprocal.— Paragraph (1) of section 826(c) (relating to exception) is amended to read as follows: “(1) is subject to the tax imposed by section 11;”.

4. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1024(a)(3) · 100 Stat. 2085

   Changed · 26 U.S.C. § 835

   Pub. L. 99–514, § 1024(a)(3), renumbered section 826 of this title as this section

   Source evidence

   Code amendment note
   Pub. L. 99–514, § 1024(a)(3), renumbered section 826 of this title as this section.

   Enacted provision · exact public law section
   (3) Section 822 (relating to determination of taxable investment income) and section 826 (relating to election by reciprocal) are hereby redesignated as sections 834 and 835, respectively, and transferred to the end of part II (as redesignated by paragraph (2)).

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

5. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1024(c)(9)(A) · 100 Stat. 2085

   1. Redesignated · 26 U.S.C. § 835(d)

      Pub. L. 99–514, § 1024(c)(9)(A), redesignated subsec. (e) as (d)

   2. Struck · 26 U.S.C. § 835(d)

      Pub. L. 99–514, § 1024(c)(9)(A), struck out former subsec. (d), special rule, which read as follows: “In applying section 824(d)(1)(D), any amount which was added to the protection against loss account by reason of an election under this section shall be treated as having been added by reason of section 824(a)(1)(A).”

   Source evidence

   Code amendment note
   Subsec. (d). Pub. L. 99–514, § 1024(c)(9)(A), redesignated subsec. (e) as (d) and struck out former subsec. (d), special rule, which read as follows: “In applying section 824(d)(1)(D), any amount which was added to the protection against loss account by reason of an election under this section shall be treated as having been added by reason of section 824(a)(1)(A).”

   Enacted provision · exact public law section
   (A) by striking out subsection (d) and by redesignating subsections (e), (f), (g), and (h) as subsections (d), (e), (f), and (g), respectively, and

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

6. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1024(c)(9) · 100 Stat. 2085

   1. Redesignated · 26 U.S.C. § 835(e)

      Pub. L. 99–514, § 1024(c)(9), redesignated subsec. (f) as (e)

   2. Substituted · 26 U.S.C. § 835(e)

      Pub. L. 99–514, § 1024(c)(9), substituted “Benefits of graduated rates” for “Surtax exemption” in heading

   3. Redesignated · 26 U.S.C. § 835(e)

      Pub. L. 99–514, § 1024(c)(9), amended text generally. Prior to amendment, text read as follows: “Any increase in taxable income of a reciprocal attributable to the limitation provided in subsection (b) shall be taxed without regard to the surtax exemption provided in section 821(a)(2).” Former subsec. (e) redesignated (d)

   Source evidence

   Code amendment note
   Subsec. (e). Pub. L. 99–514, § 1024(c)(9), redesignated subsec. (f) as (e), substituted “Benefits of graduated rates” for “Surtax exemption” in heading, and amended text generally. Prior to amendment, text read as follows: “Any increase in taxable income of a reciprocal attributable to the limitation provided in subsection (b) shall be taxed without regard to the surtax exemption provided in section 821(a)(2).” Former subsec. (e) redesignated (d).

   Enacted provision · exact public law section
   (9) Section 835 (as redesignated by subsection (a)) is amended— (A) by striking out subsection (d) and by redesignating subsections (e), (f), (g), and (h) as subsections (d), (e), (f), and (g), respectively, and (B) by amending subsection (e) (as so redesignated) to read as follows: “(e) Benefits of Graduated Rates Denied.— Any increase in the taxable income of a reciprocal attributable to the limits provided in subsection (b) shall be taxed at the highest rate of tax specified in section 11(b).”

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

7. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 § 1024(c)(9)(A) · 100 Stat. 2085

   Redesignated · 26 U.S.C. § 835(f)(h)

   Pub. L. 99–514, § 1024(c)(9)(A), redesignated subsecs. (f) to (h) as (e) to (g), respectively

   Source evidence

   Code amendment note
   Subsecs. (f) to (h). Pub. L. 99–514, § 1024(c)(9)(A), redesignated subsecs. (f) to (h) as (e) to (g), respectively.

   Enacted provision · exact public law section
   (A) by striking out subsection (d) and by redesignating subsections (e), (f), (g), and (h) as subsections (d), (e), (f), and (g), respectively, and

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

8. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1010(f)(2) · 102 Stat. 3342

   Substituted · 26 U.S.C. § 835(a)

   Pub. L. 100–647, § 1010(f)(2), substituted “section 831(a)” for “section 821(a)”

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 100–647, § 1010(f)(2), substituted “section 831(a)” for “section 821(a)”.

   Enacted provision · exact public law section
   (2) Subsection (a) of section 835 of the 1986 Code (relating to election by reciprocal) is amended by striking out “section 821(a)” and inserting in lieu thereof “section 831(a)”.

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

9. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1010(f)(3) · 102 Stat. 3342

   Substituted · 26 U.S.C. § 835(f)

   Pub. L. 100–647, § 1010(f)(3), substituted “subsection (d)” for “subsection (e)”

   Source evidence

   Code amendment note
   Subsec. (f). Pub. L. 100–647, § 1010(f)(3), substituted “subsection (d)” for “subsection (e)”.

   Enacted provision · exact public law section
   (3) Subsection (0 of section 835 of the 1986 Code is amended by striking out “subsection (e)” and inserting in lieu thereof “subsection (d)”.

   Effective date note
   Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

12 of 12 references resolved to an enrolled provision