§ 848. Capitalization of certain policy acquisition expenses

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. 1990

   Revenue Reconciliation Act of 1990

   Pub. L. 101–508 title XI § 11301(a) · 104 Stat. 1388

   Enacted · 26 U.S.C. § 848

   Added Pub. L. 101–508, title XI, § 11301(a), Nov. 5, 1990, 104 Stat. 1388–445

   Source evidence

   Code source credit
   Added Pub. L. 101–508, title XI, § 11301(a), Nov. 5, 1990, 104 Stat. 1388–445

   Enacted provision · exact public law section
   (a) General Rule.— Part III of subchapter L of chapter 1 (relating to provisions of general application) is amended by adding at the end thereof the following new section: “SEC. 848. CAPITALIZATION OF CERTAIN POLICY ACQUISITION EXPENSES. “(a) General Rule.— In the case of an insurance company— “(1) specified policy acquisition expenses for any taxable year shall be capitalized, and “(2) such expenses shall be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year. “(b) 5-Year Amortization for First $5,000,000 of Specified Policy Acquisition Expenses.— “(1) In general.— Paragraph (2) of subsection (a) shall be applied with respect to so much of the specified policy acquisition expenses of an insurance company for any taxable year as does not exceed $5,000,000 by substituting ‘60-month’ for ‘120-month’. “(2) Phase-out.— If the specified policy acquisition expenses of an insurance company exceed $10,000,000 for any taxable year, the $5,000,000 amount under paragraph (1) shall be reduced (but not below zero) by the amount of such excess. “(3) Special rule for members of controlled group.— In the case of any controlled group— “(A) all insurance companies which are members of such group shall be treated as 1 company for purposes of this subsection, and “(B) the amount to which paragraph (1) applies shall be allocated among such companies in such manner as the Secretary may prescribe. For purposes of the preceding sentence, the term ‘controlled group* means any controlled group of corporations as defined in section 1563(a); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply, and subsection (b)(2)(O of section 1563 shall not apply to the extent it excludes a foreign corporation to which section 842 applies. “(4) Exception for acquisition expenses attributable to certain reinsurance contracts.— Paragraph (1) shall not apply to any specified policy acquisition expenses for any taxable year which are attributable to premiums or other consideration under any reinsurance contract. “(c) Specified Policy Acquisition Expenses.— For purposes of this section— “(1) In general.— The term ‘specified policy acquisition expenses’ means, with respect to any taxable year, so much of the general deductions for such taxable year as does not exceed the sum of— “(A) 1.75 percent of the net premiums for such taxable year on specified insurance contracts which are annuity contracts, “(B) 2.05 percent of the net premiums for such taxable year on specified insurance contracts which are group life insurance contracts, and “(C) 7.7 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A) or (B). “(2) General deductions.— The term ‘general deductions’ means the deductions provided in part VI of subchapter B (sec. 161 and following, relating to itemized deductions) and in part I of subchapter D (sec. 401 and following, relating to pension, profit sharing, stock bonus plans, etc.). “(d) Net Premiums.— For purposes of this section— “(1) In general.— The term ‘net premiums’ means, with respect to any category of specified insurance contracts set forth in subsection (c)(l), the excess (if any) of— “(A) the gross amount of premiums and other consideration on such contracts, over “(B) return premiums on such contracts and premiums and other consideration incurred for reinsurance of such contracts. The rules of section 803(b) shall apply for purposes of the preceding sentence. “(2) Amounts determined on accrual basis.— In the case of an insurance company subject to tax under part II of this subchapter, all computations entering into determinations of net premiums for any taxable year shall be made in the manner required under section 811(a) for life insurance companies. “(3) Treatment of certain policyholder dividends and similar amounts.— Net premiums shall be determined without regard to section 808(e) and without regard to other similar amounts treated as paid to, and returned by, the policyholder. “(4) Special rules for reinsurance.— “(A) Premiums and other consideration incurred for re-insurance shall be taken into account under paragraph (1)(B) only to the extent such premiums and other consideration are includible in the gross income of an insurance company taxable under this subchapter or are subject to tax under this chapter by reason of subpart F of part III of subchapter N. “(B) The Secretary shall prescribe such regulations as may be necessary to ensure that premiums and other consideration with respect to reinsurance are treated consistently by the ceding company and the reinsurer. “(e) Classification of Contracts.— For purposes of this section— “(1) Specified insurance contract.— “(A) In general.— Except as otherwise provided in this paragraph, the term ‘specified insurance contract’ means any life insurance, annuity, or noncancellable accident and health insurance contract (or any combination thereof). “(B) Exceptions.— The term ‘specified insurance contract’ shall not include— “(i) any pension plan contract (as defined in section 818(a)), “(ii) any flight insurance or similar contract, and “(iii) any qualified foreign contract (as defined in section 807(e)(4) without regard to paragraph (5) of this subsection). “(2) Group life insurance contract.— The term ‘group life insurance contract’ means any life insurance contract— “(A) which covers a group of individuals defined by reference to employment relationship, membership in an organization, or similar factor, “(B) the premiums for which are determined on a group basis, and “(C) the proceeds of which are payable to (or for the benefit of) persons other than the employer of the insured, an organization to which the insured belongs, or other similar person. “(3) Treatment of annuity contracts combined with noncancellable accident and health insurance.— Any annuity contract combined with noncancellable accident and health insurance shall be treated as a noncancellable accident and health insurance contract and not as an annuity contract. “(4) Treatment of guaranteed renewable contracts.— The rules of section 816(e) shall apply for purposes of this section. “(5) Treatment of reinsurance contract.— A contract which reinsures another contract shall be treated in the same manner as the reinsured contract. “(f) Special Rule Where Negative Net Premiums.— “(1) In general.— If for any taxable year there is a negative capitalization amount with respect to any category of specified insurance contracts set forth in subsection (c)(D— “(A) the amount otherwise required to be capitalized under this section for such taxable year with respect to any other category of specified insurance contracts shall be reduced (but not below zero) by such negative capitalization amount, and “(B) such negative capitalization amount (to the extent not taken into account under subparagraph (A))— “(i) shall reduce (but not below zero) the unamortized balance (as of the beginning of such taxable year) of the amounts previously capitalized under subsection (a) (beginning with the amount capitalized for the most recent taxable year), and “(ii) to the extent taken into account as such a reduction, shall be allowed as a deduction for such taxable year. “(2) Negative capitalization amount.— For purposes of paragraph (1), the term ‘negative capitalization amount’ means, with respect to any category of specified insurance contracts, the percentage (applicable under subsection (c)(1) to such category) of the amount (if any) by which— “(A) the amount determined under subparagraph (B) of subsection (d)(1) with respect to such category, exceeds “(B) the amount determined under subparagraph (A) of subsection (d)(1) with respect to such category. “(g) Treatment of Certain Ceding Commissions.— Nothing in any provision of law (other than this section) shall require the capitalization of any ceding commission incurred on or after September 30, 1990, under any contract which reinsures a specified insurance contract. “(h) Secretarial Authority To Adjust Capitalization Amounts.— “(1) In general.— Except as provided in paragraph (2), the Secretary may provide that a type of insurance contract will be treated as a separate category for purposes of this section (and prescribe a percentage applicable to such category) if the Secretary determines that the deferral of acquisition expenses for such type of contract which would otherwise result under this section is substantially greater than the deferral of acquisition expenses which would have resulted if actual acquisition expenses (including indirect expenses) and the actual useful life for such type of contract had been used. “(2) Adjustment to other contracts.— If the Secretary exercises his authority with respect to any type of contract under paragraph (1), the Secretary shall adjust the percentage which would otherwise have applied under subsection (c)(1) to the category which includes such type of contract so that the exercise of such authority does not result in a decrease in the amount of revenue received under this chapter by reason of this section for any fiscal year. “(i) Treatment of Qualified Foreign Contracts Under Adjusted Current Earnings Preference.— For purposes of deter-mining adjusted current earnings under section 56(g), acquisition expenses with respect to contracts described in clause (iii) of subsection (e)(l)(B) shall be capitalized and amortized in accordance with the treatment generally required under generally accepted accounting principles as if this subsection applied to such contracts for all taxable years. “(j) Transitional Rule.— In the case of any taxable year which includes September 30, 1990, the amount taken into account as the net premiums (or negative capitalization amount) with respect to any category of specified insurance contracts shall be the amount which bears the same ratio to the amount which (but for this subsection) would be so taken into account as the number of days in such taxable year on or after September 30, 1990, bears to the total number of days in such taxable year.”

2. 1993

   Omnibus Budget Reconciliation Act of 1993

   Pub. L. 103–66 title XIII § 13261(d) · 107 Stat. 312

   Substituted · 26 U.S.C. § 848(g)

   Pub. L. 103–66 substituted “this section or section 197” for “this section”

   Source evidence

   Code amendment note
   Subsec. (g). Pub. L. 103–66 substituted “this section or section 197” for “this section”.

3. 1996

   Pub. L. 104–191 title III § 301(h) · 110 Stat. 1936

   Added · 26 U.S.C. § 848(e)(1)(B)(iv)

   Pub. L. 104–191 added cl. (iv)

   Source evidence

   Code amendment note
   Subsec. (e)(1)(B)(iv). Pub. L. 104–191 added cl. (iv).

   Enacted provision · exact public law section
   (h) Exception From Capitalization of Policy Acquisition Expenses.— Subparagraph (B) of section 848(e)(1) (defining specified insurance contract) is amended by striking “and” at the end of clause (ii), by striking the period at the end of clause (iii) and inserting “, and”, and by adding at the end the following new clause: “(iv) any contract which is a medical savings account (as defined in section 220(d)).”.

4. 2000

   Consolidated Appropriations Act, 2001

   Pub. L. 106–554 § 1(a)(7)(tII)(s202)(b)(10) · 114 Stat. 2763

   Substituted · 26 U.S.C. § 848(e)(1)(B)(iv)

   Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA”

   Source evidence

   Code amendment note
   Subsec. (e)(1)(B)(iv). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA”.

   Enacted provision · exact public law section
   (7) H.R. 5662, as introduced on December 14, 2000.

5. 2000

   Consolidated Appropriations Act, 2001

   Pub. L. 106–554 § 1(a)(7)(tII)(s202)(a)(5) · 114 Stat. 2763

   Substituted · 26 U.S.C. § 848(e)(1)(B)(iv)

   Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5)], substituted “Archer MSA” for “medical savings account”

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5)], substituted “Archer MSA” for “medical savings account”.

   Enacted provision · exact public law section
   (7) H.R. 5662, as introduced on December 14, 2000.

6. 2003

   Medicare Prescription Drug, Improvement, and Modernization Act of 2003

   Pub. L. 108–173 title XII § 1201(h) · 117 Stat. 2066

   Added · 26 U.S.C. § 848(e)(1)(B)(v)

   Pub. L. 108–173 added cl. (v)

   Source evidence

   Code amendment note
   Subsec. (e)(1)(B)(v). Pub. L. 108–173 added cl. (v).

   Enacted provision · exact public law section
   (h) Exception From Capitalization of Policy Acquisition Expenses.— Subparagraph (B) of section 848(e)(1) 26 USC 848. of such Code (defining specified insurance contract) is amended by striking “and” at the end of clause (iii), by striking the period at the end of clause (iv) and inserting “, and”, and by adding at the end the following new clause: “(v) any contract which is a health savings account (as defined in section 223(d)).” .

7. 2006

   Pub. L. 109–280 title VIII § 844(e) · 120 Stat. 780

   Added · 26 U.S.C. § 848(e)(6)

   Pub. L. 109–280 added par. (6)

   Source evidence

   Code amendment note
   Subsec. (e)(6). Pub. L. 109–280 added par. (6).

   Enacted provision · exact public law section
   (e) Treatment of Policy Acquisition Expenses.— Subsection (e) of section 848 of such Code (relating to classification of contracts) is amended by adding at the end the following new paragraph: “(6) Treatment of certain qualified long-term care insurance contract arrangements.— An annuity or life insurance contract which includes a qualified long-term care insurance contract as a part of or a rider on such annuity or life insurance contract shall be treated as a specified insurance contract not described in subparagraph (A) or (B) of subsection (c)(1).” .

8. 2014

   Tax Technical Corrections Act of 2014

   Pub. L. 113–295 div. A title II § 221(a)(70) · 128 Stat. 4010

   Struck · 26 U.S.C. § 848(j)

   Pub. L. 113–295 struck out subsec. (j). Text read as follows: “In the case of any taxable year which includes September 30, 1990, the amount taken into account as the net premiums (or negative capitalization amount) with respect to any category of specified insurance contracts shall be the amount which bears the same ratio to the amount which (but for this subsection) would be so taken into account as the number of days in such taxable year on or after September 30, 1990, bears to the total number of days in such taxable year.”

   Source evidence

   Code amendment note
   Subsec. (j). Pub. L. 113–295 struck out subsec. (j). Text read as follows: “In the case of any taxable year which includes September 30, 1990, the amount taken into account as the net premiums (or negative capitalization amount) with respect to any category of specified insurance contracts shall be the amount which bears the same ratio to the amount which (but for this subsection) would be so taken into account as the number of days in such taxable year on or after September 30, 1990, bears to the total number of days in such taxable year.”

   Enacted provision · exact public law section
   (70) Capitalization of certain policy acquisition expenses.— Section 848 is amended by striking subsection (j).

9. 2017

   Pub. L. 115–97 § 13519(a)(1) · 131 Stat. 2054

   Substituted · 26 U.S.C. § 848(a)(2)

   Pub. L. 115–97, § 13519(a)(1), substituted “180-month” for “120-month”

   Source evidence

   Code amendment note
   Subsec. (a)(2). Pub. L. 115–97, § 13519(a)(1), substituted “180-month” for “120-month”.

   Enacted provision · exact public law section
   (1) Section 848(a)(2) is amended by striking “120-month” and inserting “180-month”.

   Effective date note
   Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

10. 2017

    Pub. L. 115–97 § 13519(b) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 848(b)(1)

    Pub. L. 115–97, § 13519(b), substituted “180-month” for “120-month”

    Source evidence

    Code amendment note
    Subsec. (b)(1). Pub. L. 115–97, § 13519(b), substituted “180-month” for “120-month”.

    Enacted provision · exact public law section
    (b) Conforming Amendments.— Section 848(b)(1) is amended by striking “120-month” and inserting “180-month”.

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

11. 2017

    Pub. L. 115–97 § 13519(a)(2) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 848(c)(1)(A)

    Pub. L. 115–97, § 13519(a)(2), substituted “2.09 percent” for “1.75 percent”

    Source evidence

    Code amendment note
    Subsec. (c)(1)(A). Pub. L. 115–97, § 13519(a)(2), substituted “2.09 percent” for “1.75 percent”.

    Enacted provision · exact public law section
    (2) Section 848(c)(1) is amended by striking “1.75 percent” and inserting “2.09 percent”.

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

12. 2017

    Pub. L. 115–97 § 13519(a)(3) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 848(c)(1)(B)

    Pub. L. 115–97, § 13519(a)(3), which directed substitution of “2.45 percent” for “2.05 percent” in par. (2), was executed to par. (1)(B) to reflect the probable intent of Congress

    Source evidence

    Code amendment note
    Subsec. (c)(1)(B). Pub. L. 115–97, § 13519(a)(3), which directed substitution of “2.45 percent” for “2.05 percent” in par. (2), was executed to par. (1)(B) to reflect the probable intent of Congress.

    Enacted provision · exact public law section
    (3) Section 848(c)(2) is amended by striking “2.05 percent” and inserting “2.45 percent”.

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

13. 2017

    Pub. L. 115–97 § 13519(a)(4) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 848(c)(1)(C)

    Pub. L. 115–97, § 13519(a)(4), which directed substitution of “9.2 percent” for “7.7 percent” in par. (3), was executed to par. (1)(C) to reflect the probable intent of Congress. Subsec. (c) does not contain a par. (3)

    Source evidence

    Code amendment note
    Subsec. (c)(1)(C). Pub. L. 115–97, § 13519(a)(4), which directed substitution of “9.2 percent” for “7.7 percent” in par. (3), was executed to par. (1)(C) to reflect the probable intent of Congress. Subsec. (c) does not contain a par. (3).

    Enacted provision · exact public law section
    (4) Section 848(c)(3) is amended by striking “7.7 percent” and inserting “9.2 percent”.

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

14. 2017

    Pub. L. 115–97 § 13517(b)(4) · 131 Stat. 2054

    Substituted · 26 U.S.C. § 848(e)(1)(B)(iii)

    Pub. L. 115–97, § 13517(b)(4), substituted “807(e)(3)” for “807(e)(4)”

    Source evidence

    Code amendment note
    Subsec. (e)(1)(B)(iii). Pub. L. 115–97, § 13517(b)(4), substituted “807(e)(3)” for “807(e)(4)”.

    Enacted provision · exact public law section
    (4) Section 848(e)(1)(B)(iii) is amended by striking “807(e)(4)” and inserting “807(e)(3)”.

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

15. 2017

    Pub. L. 115–97 § 12001(b)(8)(C) · 131 Stat. 2054

    Struck · 26 U.S.C. § 848(i)

    Pub. L. 115–97, § 12001(b)(8)(C), struck out subsec. (i). Text read as follows: “For purposes of determining adjusted current earnings under section 56(g), acquisition expenses with respect to contracts described in clause (iii) of subsection (e)(1)(B) shall be capitalized and amortized in accordance with the treatment generally required under generally accepted accounting principles as if this subsection applied to such contracts for all taxable years.”

    Source evidence

    Code amendment note
    Subsec. (i). Pub. L. 115–97, § 12001(b)(8)(C), struck out subsec. (i). Text read as follows: “For purposes of determining adjusted current earnings under section 56(g), acquisition expenses with respect to contracts described in clause (iii) of subsection (e)(1)(B) shall be capitalized and amortized in accordance with the treatment generally required under generally accepted accounting principles as if this subsection applied to such contracts for all taxable years.”

    Enacted provision · exact public law section
    (C) Section 848 is amended by striking subsection (i).

    Effective date note
    Amendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that:

14 of 15 references resolved to an enrolled provision · 1 partial