(4) Operations loss deduction.

The operations loss deduction (determined under section 812).

(5) Certain nonparticipating contracts.

An amount equal to 10 percent of the increase for the taxable year in the reserves for nonparticipating contracts or (if greater) an amount equal to 3 percent of the premiums for the taxable year (excluding that portion of the premiums which is allocable to annuity features) attributable to nonparticipating contracts (other than group contracts) which are issued or renewed for periods of 5 years or more. For purposes of this paragraph, the term "reserves for nonparticipating contracts" means such part of the life insurance reserves (excluding that portion of the reserves which is allocable to annuity features) as relates to nonparticipating contracts (other than group contracts). For purposes of this paragraph and paragraph (6), the term “premiums” means the net amount of the premiums and other consideration taken into account under subsection (c) (1).

(6) Certain accident and health insurance and group life insurance.

An amount equal to 2 percent of the premiums for the taxable year attributable to accident and health insurance contracts (other than those to which paragraph (5) applies) and group life insurance contracts. The deduction under this paragraph for the taxable year and all preceding taxable years shall not exceed an amount equal to 50 percent of the premiums for the taxable year attributable to such contracts.

(7) Assumption by another person of liabilities under insurance, etc., contracts.

The consideration (other than consideration arising out of reinsurance ceded) in respect of the assumption by another person of liabilities under insurance and annuity contracts (including contracts supplementary thereto).

(8) Tax-exempt interest, dividends, etc. (A) Life insurance company's share. Each of the following items:

(i) the life insurance company's share of interest which under section 103 is excluded from gross income,

(ii) the deduction for partially tax-exempt interest provided by section 242 (as modified by section 804 (a) (3)) computed with respect to the life insurance company's share of such interest, and

(iii) the deductions for dividends received provided by sections 243, 244, and 245 (as modified by subparagraph (B)) computed with respect to the life insurance company's share of the dividends received.

(B) Application of section 246(b).

In applying section 246 (b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A) (iii), 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 gain from operations computed without regard to

(i) the deductions provided by paragraphs (3), (5), and (6) of this subsection,

(ii) the operations loss deduction provided by section 812, and

(iii) the deductions allowed by sections 243 (a) (1), 244 (a), and 245,

but such limit shall not apply for any taxable year for which there is a loss from operations. (9) Investment expenses, etc.

Investment expenses to the extent not allowed as a deduction under section 804 (c) (1) in computing investment yield, and the amount (if any) by which the sum of the deductions allowable under section 804 (c) exceeds the gross investment income.

(10) Small business deduction.

A small business deduction in an amount equal to the amount determined under section 804 (a) (4). (11) Certain mutualization distributions.

The amount of distributions to shareholders made in 1958, 1959, 1960, 1961, and 1962 in acquisition of stock pursuant to a plan of mutualization adopted before January 1, 1958.

(12) Other deductions.

Subject to the modifications provided by subsection (e), all other deductions allowed under this subtitle for purposes of computing taxable income to the extent not allowed as deductions in computing investment yield.

Except as provided in paragraph (3) no amount shall be allowed as a deduction under this subsection in respect of dividends to policyholders.

(e) Modifications.

The modifications referred to in subsection (d) (12) 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 810(c).

(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 the first sentence of section 170(b) (2) shall be 5 percent of the gain from operations computed without regard to

(i) the deduction provided by section 170, (ii) the deductions provided by paragraphs (3), (5), (6), and (8) of subsection (d), and (iii) any operations loss carryback to the taxable year under section 812; and (B) under regulations prescribed by the Secretary or his delegate, a rule similar to the rule contained in section 170(b) (3) shall be applied.

(4) Amortizable bond premium. Section 171 shall not apply.

(5) Net operating loss deduction.

The deduction for net operating losses provided in section 172 shall not be allowed.

(6) Partially tax-exempt interest.

The deduction for partially tax-exempt interest provided by section 242 shall not be allowed. (7) Dividends received.

The deductions for dividends received provided by sections 243, 244, and 245 shall not be allowed. (f) Limitation on certain deductions.

(1) In general.

The amount of the deductions under paragraphs (3), (5), and (6) of subsection (d) shall not exceed $250,000 plus the amount (if any) by which

(A) the gain from operations for the taxable year, computed without regard to such deductions, exceeds

(B) the taxable investment income for the taxable year.

(2) Application of limitation.

The limitation provided by paragraph (1) shall apply first to the amount of the deduction under subsection (d) (3), then to the amount of the deduction under subsection (d) (6), and finally to the amount of the deduction under subsection (d) (5).

(g) Limitation on deduction for certain mutualization distributions.

(1) Deduction not to reduce taxable investment in

come.

The amount of the deduction under subsection (d) (11) shall not exceed the amount (if any) by which

(A) the gain from operations for the taxable year, computed without regard to such deduction (but after the application of subsection (f)), exceeds

(B) the taxable investment income for the taxable year.

(2) Deduction not to reduce tax below 1957 law.

The deduction under subsection (d) (11) for the taxable year shall be allowed only to the extent that such deduction (after the application of all other deductions provided by subsection (d)) does not reduce the amount of the tax imposed by section 802(a) (1) for such taxable year below the amount of tax which would have been imposed by section 802(a) as in effect for 1957, if this part, as in effect for 1957, applied for such taxable year.

(3) Application of section 815.

That portion of any distribution with respect to which a deduction is allowed under subsection (d) (11) shall not be treated as a distribution to shareholders for purposes of section 815; except that in the case of any distribution made in 1959, 1960, 1961, or 1962, such portion shall be treated as a distribution with respect to which a reduction is required under section 815(e) (2) (B). (Added Pub. L. 86–69, § 2(a), June 25, 1959, 73 Stat. 121, and amended Pub. L. 87-59, § 2 (a), (b), June 27, 1961, 75 Stat. 120; Pub. L. 87-790, § 3(a), Oct. 10, 1962, 76 Stat. 808; Pub. L. 87-858, § 3 (b) (3), (c),

Oct. 23, 1962, 76 Stat. 1137; Pub. L. 88-272, title II, §§ 214(b) (4), 228(a), Feb. 26, 1964, 78 Stat. 55, 98.) AMENDMENTS

1964 Subsec. (d) (8) (B). Pub. L. 88-272, § 214(b) (4), substituted "243 (a)(1), 244(a)" for "243(a), 244" wherever appearing.

Subsec. (d) (11). Pub. L. 88–272, § 228 (a) (1), included the year 1962.

Subsec. (g) (3). Pub. L. 88-272, § 228(a)(2), included the year 1962.

1962 Subsec. (b) (1), (2). Pub L. 87-858, § 3(b) (3), added subpar. (B) to pars. (1) and (2) and redesignated former subpar. (B) as (C) in such pars. (1) and (2).

Subsec. (d) (6). Pub. L. 87-790 substituted "Certain accident and health insurance and group life insurance" for "Group life, accident, and health insurance" in the subsection catchline, and "accident and health insurance contracts (other than those to which paragraph (5) applies) and group life insurance contracts" for "group life insurance and group accident and health insurance contracts" in the text.

Subsec. (f) (2). Pub. L. 87-858, § 3(c), substituted "(d) (3)", "(d) (6)” and “(d) (5)" for "(d) (6)”, “(d) (5)” and "(d) (3)", respectively.

1961-Subsec. (d) (11).

Pub. L. 87-59, § 2(a), authorized the deduction of certain mutualization distributions made in 1960 and 1961.

Subsec. (g) (3). Pub. L. 87–59, § 2(b), included within its provisions certain mutualization distributions made in 1960 and 1961.

EFFECTIVE Date of 1964 AMENDMENT

Amendment of section by Pub. L. 88-272 applicable to dividends received in taxable years ending after Dec. 31, 1963, see section 214(c) of Pub. L. 88-272, set out as a note under section 243 of this title.

Section 228(d) of Pub. L. 88-272 provided that: "The amendment made by subsection (a) [to this section] shall apply to taxable years beginning after December 31, 1961. The amendment made by subsection (c) [to section 832 of this title] shall apply to taxable years beginning after December 31, 1953, and ending after August 16, 1954."

EFFECTIVE DATE OF 1962 AMENDMENTS Amendment of this section by Pub. L. 87-858 applicable with respect to taxable years beginning after Dec. 31, 1961, see section 3(f) of Pub. L. 87-858, set out as a note under section 801 of this title.

Section 3(c) of Pub. L. 87-790 provided that: "The amendments made by this section [to subsec. (d) (6) of this section and to section 815(c) (2) (C) of this title] shall apply to taxable years beginning after December 31, 1962."

EFFECTIVE DATE OF 1961 AMENDMENT

Section 2(c) of Pub. L. 87-59 provided that: "The amendments made by subsections (a) and (b) [to subsecs. (d) (11) and (g)(3) of this section] shall apply to taxable years beginning after December 31, 1959."

EFFECTIVE DATE

Section applicable only with respect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86-69, set out as a note under section 801 of this title.

§ 810. Rules for certain reserves.

(a) Adjustment for decrease.

If the sum of the items described in subsection (c) as of the beginning of the taxable year exceeds the sum of such items as of the close of the taxable year (reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a)(1)), the excess shall be taken into account as a net decrease referred to in section 809 (c) (2).

(b) Adjustment for increase.

If the sum of the items described in subsection (c) as of the close of the taxable year (reduced by

the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a) (1)) exceeds the sum of such items as of the beginning of the taxable year, the excess shall be taken into account as a net increase referred to in section 809 (d) (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 801(b)).

(2) The unearned premiums and unpaid losses included in total reserves under section 801(c) (2).

(3) The amounts (discounted at the rates of interest assumed by the company) necessary to satisfy the obligations under insurance or annuity contracts (including contracts supplementary thereto), but only if such obligations do not involve (at the time with respect to which the computation is made under this paragraph) life, health, or accident contingencies.

(4) Dividend accumulations, and other amounts, held at interest in connection with insurance or annuity contracts (including contracts supplementary thereto).

(5) Premiums received in advance, and liabilities for premium deposit funds.

In applying this subsection, the same item shall be counted only once.

(d) Adjustment for change in computing reserves. (1) In general.

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 for purposes of this subpart as follows:

(i) if the amount determined under subparagraph (A) exceeds the amount determined under subparagraph (B), 10 of such excess shall be taken into account, for each of the succeeding 10 taxable years, as a net increase to which section 809 (d) (2) applies;

or

(ii) if the amount determined under subparagraph (B) exceeds the amount determined under subparagraph (A), 10 of such excess shall be taken into account for each of the 10 succeeding taxable years, as a net decrease to which section 809 (c) (2) applies. (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 paragraph shall be taken into account for the preceding taxable year.

(3) Effect of preliminary term election.

An election under section 818(c) shall not be treated as a change in the basis for determining an item referred to in subsection (c) to which this subsection applies. If an election under section 818(c) applies for the taxable year, the amounts of the items referred to in subparagraphs (A) and (B) of paragraph (1) shall be determined without regard to such election. If such an election would apply in respect of such item for the taxable year but for the new basis, the amount of the item referred to in subparagraph (B) shall be determined on the basis which would have been applicable under section 818 (c) if the election applied in respect of the item for the taxable year.

(e) Certain decreases in reserves of voluntary employees' beneficiary associations.

(1) Decreases due to voluntary lapses of policies issued before January 1, 1958.

For purposes of subsections (a) and (b), in the case of a life insurance company which meets the requirements of section 501(c) (9) other than the requirement of subparagraph (B) thereof, there shall be taken into account only 111⁄2 percent of any decrease in the life insurance reserve on any policy issued before January 1, 1958, which is attributable solely to the voluntary lapse of such policy on or after January 1, 1958. In applying the preceding sentence, the decrease in the reserve for any policy shall be determined by reference to the amount of such reserve as of the beginning of the taxable year, reduced by any amount allowable as a deduction under section 809 (d) (1) in respect of such policy by reason of such lapse. This paragraph shall apply for any taxable year only if the taxpayer has made an election under paragraph (3) which is effective for such taxable year.

(2) Disallowance of carryovers from pre-1958 losses from operations.

In the case of a life insurance company to which paragraph (1) applies for the taxable year, section 812(b)(1) shall not apply with respect to any loss from operations for any taxable year beginning before January 1, 1958.

(3) Election.

Paragraph (1) shall apply to any taxpayer for any taxable year only if the taxpayer elects, not later than the time prescribed by law (including extensions thereof) for filing the return for such taxable year, to have such paragraph apply. Such election shall be made in such manner as the Secretary or his delegate shall prescribe by regulations. 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. (Added Pub. L. 86-69, § 2(a), June 25, 1959, 73 Stat. 126.)

EFFECTIVE DATE

Section applicable only with respect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86-69, set out as a note under section 801 of this title.

§ 811. Dividends to policyholders.
(a) Dividends to policyholders defined.

For purposes of this part, the term “dividends to policyholders" means dividends and similar distributions to policyholders in their capacity as such. Such term does not include interest paid (as defined in section 805(e)).

(b) Amount of deduction.

(1) In general.

Except as limited by section 809 (f), the deduction for dividends to policyholders for any taxable year shall be an amount equal to the dividends to policyholders paid during the taxable year

(A) increased by the excess of (i) the amounts held at the end of the taxable year as reserves for dividends to policyholders (as defined in subsection (a)) payable during the year following the taxable year, over (ii) such amounts held at the end of the preceding taxable year, or

(B) decreased by the excess of (i) such amounts held at the end of the preceding taxable year, over (ii) such amounts held at the end of the taxable year.

For purposes of subparagraphs (A) and (B), there shall be included as amounts held at the end of any taxable year amounts set aside, before the 16th day of the third month of the year following such taxable year (or, in the case of a mutual savings bank subject to the tax imposed by section 594, before the 16th day of the fourth month of the year following such taxable year), for payment during the year following such taxable year. (2) Certain amounts to be treated as net decreases. If the amount determined under paragraph (1) (B) exceeds the dividends to policyholders paid during the taxable year, the amount of such excess shall be a net decrease referred to in section 809 (c) (2).

(Added Pub. L. 86-69, § 2(a), June 25, 1959, 73 Stat. 125.)

PRIOR PROVISIONS

A prior section 811, act Aug. 16, 1954, ch. 736, § 811, as added Mar. 13, 1956, ch. 83, § 2, 70 Stat. 44, and amended July 24, 1956, ch. 696, § 2(c), 70 Stat. 633; Mar. 17, 1958, Pub. L. 85-345, § 2(c), 72 Stat. 37, imposed a tax on the life insurance company taxable income of all life insurance companies for taxable years beginning after Dec. 31, 1957.

EFFECTIVE DATE

Section applicable only with respect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86-69, set out as a note under section 801 of this title.

8812. 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. (A) In general.

The loss from operations for any taxable year (hereinafter in this section referred to as the "loss year") beginning after December 31, 1954, shall be

(i) an operations loss carryback to each of the 3 taxable years preceding the loss year, (ii) an operations loss carryover to each of the 5 taxable years following the loss year, and

(iii) subject to subsection (e), 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 5 taxable years described in clause (ii).

(B) Special transitional rules for carrybacks.

A loss from operations for any taxable year beginning before January 1, 1958, shall not be an operations loss carryback to any taxable year beginning before January 1, 1955. A loss from operations for any taxable year beginning after December 31, 1957, shall not be an operations loss carryback to any taxable year beginning before January 1, 1958.

(C) Application for years prior to 1958.

For purposes of this section, this part (as in effect for 1958) and section 381 (c) (22) shall be treated as applying to all taxable years beginning after December 31, 1954, and before January 1, 1958.

(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.

(c) Computation of loss from operations.

In computing the loss from operations for purposes of this section—

(1) The operations loss deduction shall not be allowed.

(2) 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 809(d) (8) (B).

(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 section 802(b) (3)) for such year to zero.

(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 or would have applied if in effect) was authorized to do business as an insurance company.

(f) Application of subtitle A and subtitle F.

Except as provided in section 809(e), subtitle A and subtitle F shall apply in respect of operations loss carrybacks, operations 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. (Added Pub. L. 86-69,

§ 2(a), June 25, 1959, 73 Stat. 127, and amended Pub. L. 87-858, § 3(d) (1), Oct. 23, 1962, 76 Stat. 1137; Pub. L. 88-571, §1(a), Sept. 2, 1964, 78 Stat. 857.)

PRIOR PROVISIONS

A prior section 812, act Aug. 16, 1954, ch. 736, § 812, as added Mar. 13, 1956, ch. 83, § 2, 70 Stat. 45, related to reserve and other policy liability deduction.

CODIFICATION

Former section 813, act Aug. 16, 1954, ch. 736, § 813, as added Mar. 13, 1956, ch. 83, § 2, 70 Stat. 46, which related to adjustment for certain reserves, was omitted from this part by Pub. L. 86-69, § 2(a), June 25, 1959, 73 Stat. 112, which amended this part in its entirety.

AMENDMENTS

1964 Subsec. (e). Pub. L. 88-571 eliminated provisions which imposed limitations on the eight year carryover by the exclusion of nonqualified corporations. 1962-Subsec. (e) (2) (B). Pub. L. 87-858 inserted in the first sentence "(except a corporation taxable under part II or part III of this subchapter)" following "with any other corporation."

EFFECTIVE Date of 1964 AMENDMENT

Section 1(b) of Pub. L. 88-571 provided that: "The amendment made by subsection (a) [to subsec. (e) of this section] shall apply to a loss from operations for taxable years beginning after December 31, 1955; except that, in the case of a nonqualified corporation as defined in section 812(e) (2) (B) of the Internal Revenue Code of 1954 [subsec. (e) (2) (B) of this section] as in effect before such amendment

"(1) a loss from operations for a taxable year beginning in 1956 shall not be an operating loss carryover to the years 1962 and 1963, and there shall be no reduction in the portion of such loss from operations which may be carried to 1964 by reason of an offset with respect to the year 1962 or 1963, and

"(2) a loss from operations for a taxable year beginning in 1957 shall not be an operating loss carryover to the year 1963, and there shall be no reduction in the portion of such loss from operations which may be carried to 1964 and 1965 by reason of an offset with respect, to the year 1963."

EFFECTIVE DATE OF 1962 AMENDMENT

Section 3(d) (2) of Pub. L. 87-858 provided that: "The amendment made by paragraph (1) [to subsec. (e) (2) (B) of this section] shall apply with respect to all taxable years beginning after December 31, 1954, except that in

the case of a nonqualified corporation, as defined in section 812(e) (2) (B) of the Internal Revenue Code of 1954 as in effect prior to the amendment made by paragraph (1), a loss from operations for a taxable year beginning in 1955 shall not be an operations loss carryover to the year 1961, and there shall be no reduction in the portion of such loss from operations which may be carried to 1962 or 1963 by reason of an offset with respect to the year 1961."

815. Distributions to shareholders.

§ 815. Distributions to shareholders. (a) General rule.

For purposes of this section and section 802(b) (3), any distribution to shareholders after December 31, 1958, 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. (b) Shareholders surplus account. (1) In general.

Each stock life insurance company shall, for purposes of this part, establish and maintain a shareholders surplus account. The amount in such account on January 1, 1958, shall be zero. (2) Additions to account.

The amount added to the shareholders surplus account for any taxable year beginning after December 31, 1957, shall be the amount by which— (A) the sum of—

(i) the life insurance company taxable income (computed without regard to section 802(b) (3)),

(ii) in the case of a taxable year beginning after December 31, 1958, the amount (if any) by which the net long-term capital gain exceeds the net short-term capital loss, reduced (in the case of a taxable year beginning after December 31, 1961) by the amount referred to in clause (i),

(iii) the deduction for partially taxexempt interest provided by section 242 (as modified by section 804 (a) (3)), the deductions for dividends received provided by sections 243, 244, and 245 (as modified by section 809 (d) (8) (B)), and the amount of interest excluded from gross income under section 103, and

(iv) the small business deduction provided by section 809 (d) (10), exceeds

(B) the taxes imposed for the taxable year by section 802(a), determined without regard to section 802(b) (3).

(3) Subtractions from account. (A) In general.

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.