Appendix II-Continued (3) ADJUSTMENTS WITH RESPECT TO CERTAIN NON-LIFE INSURANCE CONTRACTS.-For purposes of this subpart, if— (A) any computation under this subpart is made by reference to a contract meeting the requirements of paragraph (2) (A) of this subsection, and (B) part of the reserves for such contract are life insurance reserves, then, under regulations prescribed by the Secretary or his delegate, proper adjustment shall be made in the amount taken into account with respect to such contract for purposes of such computation. SEC. 805. SPECIAL INTEREST DEDUCTION. (a) SPECIAL INTEREST DEDUCTION.-For purposes of the tax imposed by section 802 (and the tax imposed by section 811), there shall be allowed a special interest deduction determined as follows: (1) Divide the amount of the adjusted net investment income (as defined in subsection (b)) by the amount of the required interest (as defined in subsection (c)). (2) If the quotient obtained in paragraph (1) is 1.05 or more, the special interest deduction shall be zero. (3) If the quotient obtained in paragraph (1) is 1.00 or less, the special interest deduction shall be an amount equal to 50 percent of the amount by which (A) the net investment income (reduced by the net investment income allocable to nonlife insurance reserves), exceeds (B) the reserve and other policy liability deduction for the taxable year. (4) If the quotient obtained in paragraph (1) is more than 1.00 but less than 1.05, the special interest deduction shall be the amount obtained by multiplying (A) the amount by which (i) the net investment income (reduced by the net investment income allocable to non-life insurance reserves) exceeds (ii) the reserve and other policy liability deduction for the taxable year, by (B) 10 times the difference between the figure 1.05 and the quotient obtained in paragraph (1). (b) ADJUSTED NET INVESTMENT INCOME.-For purposes of subsection (a)(1), the term "adjusted net investment income" means— (1) the net investment income (computed without the deduction for wholly-exempt interest allowed by section 803(c)(1)), minus (2) 50 percent of the net investment income allocable to non-life insurance reserves. (c) REQUIRED INTEREST.-For purposes of subsection (1)(a), the term "required interest" means the total of (1) the sum of the amounts obtained by multiplying— (A) each rate of interest assumed in computing the taxpayer's life insurance reserves, by (B) the means of the amounts of the taxpayer's life insurance reserves computed at such rate at the beginning and end of the taxable year, plus 7 percent of the portion of such reserves at such rate as are computed on a preliminary term basis; (2) the sum of the amounts obtained by multiplying— (A) each rate of interest assumed in computing the taxpayer's reserves for deferred dividends described in section 804 (c) (4), by (B) the means of the amounts of such reserves computed at such rate at the end of the taxable year: and (3) interest paid. (d) INTEREST PAID.—For purposes of subsection (c)(3), the term "interest paid" means— (1) all interest paid or accrued within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest on which is wholly exempt from taxation under this chapter; and (2) all amounts in the nature of interest, whether or not guaranteed, paid or accrued within the taxable year on insurance or annuity contracts (or contracts arising out of insurance or annuity contracts) which do not involve, at the time of payment or accrual, life, health, or accident contingencies. Subpart B-1942 Formula Sec. 811. Tax imposed. Sec. 812. SEC. 811. TAX IMPOSED. Reserve and other policy liability deduction. (a) TAX IMPOSED.-A tax is hereby imposed, on the life insurance company taxable income of every life insurance company, for each taxable year beginning after December 31, 1955. Such tax shall consist of— (1) a normal tax on such income computed under section 11(b), and (2) a surtax on such income computed under section 11(c). (b) LIFE INSURANCE COMPANY TAXABLE INCOME DEFINED.-For purposes of this subpart, the term "life insurance company taxable income" means the net investment income (as defined in section 803(c)) (1) minus the reserve and other policy liability deduction allowed by section 812, For purposes of the normal tax, the life insurance company taxable income shall be reduced by the deduction provided in section 242 for partially tax-exempt interest. Appendix II-Continued (c) RULE FOR COMPUTATION OF SPECIAL INTEREST DEDUCTION.-In computing the special interest deduction under section 805 in the case of any taxable year with respect to which a tax is imposed under this section (1) in lieu of the reduction of the net investment income provided in paragraphs (3) (A) and (4) (A) of section 805(a), the net investment income shall be reduced by the amount of the adjustment for certain reserves provided in section 813, and (2) in lieu of subtracting the amount provided in paragraph (2) of section 805(b), subtract 50 percent of the amount of the adjustment for certain reserves provided in section 813. SEC. 812. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. (a) GENERAL RULE.-For purposes of this subpart, the term "reserve and other policy liability deduction" means an amount computed by multiplying the net investment income by a figure, to be determined and proclaimed by the Secretary or his delegate for each taxable year with respect to which a tax is imposed by section 811. This figure shall be based on such data with respect to life insurance companies for the preceding taxable year as the Secretary or his delegate considers representative and shall be computed in accordance with the following formula: The ratio which a numerator comprised of the aggregate of the sums of (1) 2 percent of the reserves for deferred dividends, (2) interest paid, and (3) the product of (A) the mean of the adjusted reserves at the beginning and end of the taxable year, and (B) the reserve earnings rate, bears to a denominator comprised of the aggregate of the excess of net investment incomes (computed without the deduction for wholly-exempt interest allowed by section 803(c)(1)) over the adjustment for certain reserves provided in section 813. (b) DEFINITIONS.-For purposes of subsection (a)— (1) RESERVES FOR DEFERRED DIVIDENDS.-The term "reserves for deferred dividends" has the same meaning as when used in section 804 (c) (4). (2) INTEREST PAID.-The term "interest paid" has the meaning given to such term by section 805(d). (3) ADJUSTED RESERVES.-The term "adjusted reserves" means the life insurance reserves (as defined in section 801(b)), plus 7 percent of that portion of such reserves as are computed on a preliminary term basis. (4) RESERVE EARNINGS RATE.-The term "reserve earnings rate" means a rate computed by adding 2.1125 percent (65 percent of 34 percent) to 35 percent of the average rate of interest assumed in computing life insurance reserves. Such average rate shall be calculated by multiplying each assumed rate of interest by the means of the amounts of the adjusted reserves computed at that rate at the beginning and end of the taxable year and dividing the sum of the products by the mean of the total adjusted reserves at the beginning and end of the taxable year. (c) MAXIMUM DEDUCTION.-The reserve and other policy liability deduction allowed by subsection (a) of this section shall in no case exceed an amount equal to the amount which would be determined under subsection (b) of section 804 if such subsection applied with respect to the taxable year. SEC. 813. ADJUST MENT FOR CERTAIN RESERVES. In the case of a life insurance company writing contracts other than life insurance, annuity, and noncancellable health and accident insurance contracts (including life insurance or annuity contracts combined with noncancellable health and accident insurance), the term "adjustment for certain reserves" means, for purposes of this subpart, an amount equal to 34 percent of the unearned premiums and unpaid losses on such other contracts which are not included in life insurance reserves (as defined in section 801(b)). For purposes of this section, such unearned premiums shall not be considered to be less than 25 percent of the net premiums written during the taxable year on such other contracts. Subpart C-Miscellaneous Provisions Sec. 816. Foreign life insurance companies. SEC. 816. FOREIGN LIFE INSURANCE COMPANIES. (a) CARRYING ON UNITED STATES INSURANCE BUSINESS.-A foreign life insurance company carrying on a life insurance business within the United States, if with respect to its United States business it would qualify as a life insurance company under section 801, shall be taxable in the same manner as a domestic life insurance company; except that the determinations necessary for purposes of this subtitle shall be made on the basis of the income, disbursements, assets, and liabilities reported in the annual statement for the taxable year of the United States business of such company on the form approved for life insurance companies by the National Association of Insurance Commissioners. (b) No UNITED STATES INSURANCE BUSINESS.-Foreign life insurance companies not carrying on an insurance business within the United States shall not be taxable under this part but shall be taxable as other foreign corporations. SEC. 817. DENIAL OF DOUBLE DEDUCTIONS. Nothing in this part shall permit the same item to be deducted more than once. Appendix II-Continued SEC. 818. CERTAIN NEW INSURANCE COMPANIES. (a) GENERAL RULE.-If the taxable year begins not more than 9 years after the first day on which the taxpayer was authorized to do business as an insurance company, then (1) for purposes of subpart A, the life insurance taxable income shall not exceed (A) the amount of the net gain from operations after dividends to policyholders, reduced by (B) (i) the net investment income allocable to non-life insurance reserves and (ii) the special reduction for dividends received provided by subsection (c); or (2) for purposes of subpart B, the life insurance company taxable income shall not exceed (A) the amount of the net gain from operations after dividends to policyholders, reduced by (B) the special reduction for dividends received provided by subsection (c). For purposes of this subsection, the net gain from operations after dividends to policyholders shall be computed in the manner required for purposes of the annual statement approved by the National Convention of Insurance Commissioners, except that no reduction shall be made for any Federal income tax. (b) LIMITATION.-This section shall not reduce the tax for any taxable year below the amount which (but for this section) would be imposed by section 802 or section 811, as the case may be, computed without the applicable limitation on the reserve and other policy liability deduction contained in section 804(b) or section 812(c). (c) SPECIAL RULE FOR DIVIDENDS RECEIVED.-The reduction referred to in paragraph (1)(B) (ii) and in paragraph (2)(B) of subsection (a) shall be an amount computed under section 804(b)(3), except that, for purposes of such computation, the maximum limitation referred to in section 804(b) (3) (B) (ii) shall be (1) in the case of a taxable year with respect to which tax is imposed by section 802, the amount by which (A) the net investment income (reduced by the net investment income allocable to non-life insurance reserves), exceeds (B) the life insurance taxable income (computed without regard to the reduction provided by this subsection); or (2) in the case of a taxable year with respect to which tax is imposed by section 811, the amount by which (A) the sum of the net investment income and the amount of the adjustment for certain reserves provided in section 813, exceeds (B) the life insurance company taxable income (computed without regard to the reduction provided by this subsection). APPENDIX III: CHAPTER 1, SUBCHAPTER Q, PART I (ORIGINAL) 1 (Readjustment Between Years With Respect to Income) Sections 1301-1304, 68A Stat. 334-336 PART I-INCOME ATTRIBUTABLE TO SEVERAL TAXABLE YEARS Sec. 1301. Compensation from an employment. Sec. 1302. Income from an invention or artistic work. Sec. 1303. Income from back pay. Sec. 1304. Rules applicable to this part. SEC. 1301. COMPENSATION FROM AN EMPLOYMENT. (a) LIMITATION ON TAX.-If an individual or partnership (1) engages in an employment as defined in subsection (b); and (2) the employment covers a period of 36 months or more (from the beginning to the completion of such employment); and (3) the gross compensation from the employment received or accrued in the taxable year of the individual or partnership is not less than 80 percent of the total compensation from such employment, then the tax attributable to any part of the compensation which is included in the gross income of any individual shall not be greater than the aggregate of the taxes attributable to such part had it been included in the gross income of such individual ratably over that part of the period which precedes the date of such receipt or accrual. (b) DEFINITION OF AN EMPLOYMENT. For purposes of this section, the term "an employment" means an arrangement or series of arrangements for the performance of personal services by an individual or partnership to effect a particular result, regardless of the number of sources from which compensation therefor is obtained. (c) RULE WITH RESPECT TO PARTNERS.-An individual who is a member of a partnership receiving or accruing compensation from an employment of the type described in subsection (a) shall be entitled to the benefits of that subsection only if the individual has been a member of the partnership continuously for a period of 36 months or the period of the employment immediately preceding the receipt or accrual. In such a case the tax attributable to the part of the compensation which is includible in the gross income of the individual shall not be greater than the aggregate of the taxes which would have been attributable to that part had it been included in the gross income of the individual ratably over the period in which it was earned or the period during which the individual continuously was a member of the partnership, whichever period is the shorter. For purposes of this subsection, a member of a partnership shall be deemed to have been a member of the partnership for any period, ending immediately prior to becoming such a member, in which he was an employee of such partnership, if during the taxable year he received or accrued compensation attributable to employment by the partnership during such period. SEC. 1302. INCOME FROM AN INVENTION OR ARTISTIC WORK. (a) LIMITATION ON TAX.-If— (1) an individual includes in gross income amounts in respect of a particular invention or artistic work created by the individual; and (2) the work on the invention or the artistic work covered a period of 24 months or more (from the beginning to the completion thereof); and (3) the amounts in respect of the invention or the artistic work includible in gross income for the taxable year are not less than 80 percent of the gross income in respect of such invention or artistic work in the taxable year plus the gross income therefrom in previous taxable years and the 12 months immediately succeeding the close of the taxable year, then the tax attributable to the part of such gross income of the taxable year which is not taxable as a gain from the sale or exchange of a capital asset held for more than 6 months shall not be greater than the aggregate of the taxes attributable to such part had it been received ratably over, in the case of an invention, that part of the period preceding the close of the taxable year or 60 months, whichever is shorter, or, in the case of an artistic work, that part of the period preceding the close of the taxable year but not more than 36 months. (b) DefinitioNS.-For purposes of this section— (1) INVENTION.-The term "invention" means a patent covering an invention of the individual. (2) ARTISTIC WORK.-The term "artistic work" means a literary, musical, or artistic composition or a copyright covering a literary, musical, or artistic composition. 1 Amendments to the original Part I of Subchapter Q of Chapter 1, as existing prior to its revision by P.L. 88-272, § 232(a), are set forth on pages 482 to 486 above. |