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Page:United States Statutes at Large Volume 98 Part 1.djvu/776

 98 STAT. 728

PUBLIC LAW 98-369—JULY 18, 1984 •1'

National Association of Insurance Commissioners which is in effect on the date of the issuance of the "(ii) CARVM.—The term 'CARVM' means the Commissoners' Annuities Reserve Valuation Method prescribed by the National Association of Insurance Commissioners which is in effect on the date of the issuance of the contract. "(C) No ADDITIONAL RESERVE DEDUCTION ALLOWED FOR DEFICIENCY RESERVES.—Nothing in any reserve method described under this paragraph shall permit any increase in the reserve because the net premium (computed on the basis of assumptions required under this subsection) exceeds the actual premiums or other consideration charged for the benefit. "(4) PREVAILING STATE ASSUMED INTEREST RATE.—For purposes

^« " ' '

of this subsection— "(A) IN GENERAL.—The term 'prevailing State assumed interest rate' means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of the nonforfeiture laws of a State on interest rates for reserves shall not be taken into account. "(B) W H E N RATE DETERMINED.—Except as provided in

subparagraph (C), the prevailing State assumed rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued. "(C) ELECTION FOR NONANNUITY CONTRACTS.—In the case of a contract other than an annuity contract, the issuer may elect (at such time and in such manner as the Secretary shall by regulations prescribe) to determine the prevailing State assumed rate as of the beginning of the calendar year preceding the calendar year in which the contract was issued. "(D) RATE FOR NONCANCELLABLE ACCIDENT AND HEALTH INSURANCE CONTRACTS.—If there is no prevailing State as-

sumed^ interest rate applicable under subparagraph (A) to any noncancellable accident and health insurance contract when it is issued, the prevailing State assumed interest rate for such contract shall be the prevailing State assumed interest rate which would be determined under subparagraph (A) for a whole life insurance contract issued on the date on which the noncancellable accident and health insurance contract is issued. "(5) PREVAILING COMMISSIONERS' STANDARD TABLES.—For purposes of this subsection— "(A) IN GENERAL.—The term 'prevailing commissioners' standard tables' means, with respect to any contract, the most recent commissioners' standard tables prescribed by the National Association of Insurance Commissioners which are permitted to be used in computing reserves for that type of contract under the insurance laws of at least 26 States when the contract was issued. "(B) INSURER MAY USE OLD TABLES FOR 3 YEARS WHEN TABLES CHANGE.—If the prevailing commissioners' standard

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Page:United States Statutes at Large Volume 98 Part 1.djvu/777

 PUBLIC LAW 98-369—JULY 18, 1984 tables as of the beginning of any calendar year (hereinafter in this subparagraph referred to as the 'year of change') is different from the prevailing commissioners' standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners' standard tables as of the beginning of the preceding calendar year with respect to any contract issued after the change and before the close of the 3-year period beginning on the first day of the year of change. (C) SPECIAL RULE FOR CONTRACTS FOR WHICH THERE ARE

NO COMMISSIONERS' STANDARD TABLES.—If there are no commissioners' standard tables applicable to any contract when it is issued, the mortality and morbidity tables used for purposes of paragraph (2)(C) shall be determined under regulations prescribed by the Secretary. it "(D) SPECIAL RULE FOR CONTRACTS ISSUED BEFORE 1948.— If— 10 iut: "(i) a contract was issued before 1948, and "(ii) there were no commissioners' standard tables > applicable to such contract when it was issued, the mortality and morbidity tables used in computing statutory reserves for such contracts shall be used for purposes -1 of paragraph (2)(C). "(E) SPECIAL RULE WHERE MORE THAN i TABLE OR OPTION

APPLICABLE.—If, with respect to any category of risks, there are 2 or more tables (or options under 1 or more tables) which meet the requirements of subparagraph (A) (or, where applicable, subparagraph (B) or (O), the table (and option thereunder) which generally yields the lowest reserves shall be used for purposes of paragraph (2)(C). "(e) SPECIAL RULES FOR COMPUTING RESERVES.— "(1) N E T SURRENDER VALUE.—For purposes

of this section— "(A) IN GENERAL.—The net surrender value of any contract shall be determined— "(i) with regard to any penalty or charge which would be imposed on surrender, but "(ii) without regard to any market value adjustment on surrender. "(B) SPECIAL RULE FOR PENSION PLAN CONTRACTS.—In the

case of a pension plan contract, the balance in the policyholder's fund shall be treated as the net surrender value of such contract. For purposes of the preceding sentence, such balance shall be determined with regard to any penalty or forfeiture which would be imposed on surrender but without regard to any market value adjustment. "(2) ISSUANCE DATE IN CASE OF GROUP CONTRACTS.—For purposes of this section, in the case of a group contract, the date on which such contract is issued shall be the date as of which the master plan is issued (or, with respect to a benefit guaranteed to a participant after such date, the date as of which such benefit is guaranteed). 'f^' "(3) SUPPLEMENTAL BENEFITS.— "(A) QUALIFIED SUPPLEMENTAL BENEFITS TREATED SEPA-

RATELY.—For purposes of this part, the amount of the life insurance reserve for any qualified supplemental benefit— "(i) shall be computed separately as though such benefit were under a separate contract, and

98 STAT. 729

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license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/778

 98 STAT. 730

PUBLIC LAW 98-369—JULY 18, 1984 "(ii) shall, except to the extent otherwise provided in regulations, be the reserve taken into account for purposes of the annual statement approved by the National Association of Insurance Commissioners. "(B) SUPPLEMENTAL BENEFITS WHICH ARE NOT QUALIFIED

I '.,-7

SUPPLEMENTAL BENEFITS.—In the case of any supplemental benefit described in subparagraph (D) which is not a qualified supplemental benefit, the amount of the reserve determined under paragraph (2) of subsection (d) shall, except to the extent otherwise provided in regulations, be the reserve taken into account for purposes of the annual statement approved by the National Association of Insurance Commissioners. "(C) QUALIFIED SUPPLEMENTAL BENEFIT.—For purposes of this paragraph, the term 'qualified supplemental benefit' means any supplemental benefit described in subparagraph (D)if"(i) there is a separately identified premium or charge for such benefit, and "(ii) any net surrender value under the contract attributable to any other benefit is not available to fund such benefit. "(D) SUPPLEMENTAL BENEFITS.—For purposes of this paragraph, the supplemental benefits described in this subparagraph are any— "(i) guaranteed insurability, "(ii) accidental death or disability benefit, "(iii) convertibility, "(iv) disability waiver benefit, or "(v) other benefit prescribed by regulations, which is supplemental to a contract for which there is a reserve described in subsection (c).

"(4) CERTAIN CONTRACTS ISSUED BY FOREIGN BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES.—

.^

"(A) IN GENERAL.—In the case of any qualified foreign contract, the amount of the reserve shall be not less than the minimum reserve required by the laws, regulations, or administrative guidance of the regulatory authority of the foreign country referred to in subparagraph (B) (but not to exceed the net level reserves for such contract). "(B) QUALIFIED FOREIGN CONTRACT.—For purposes of subparagraph (A), the term 'qualified foreign contract' means any contract issued by a foreign life insurance branch (which has its principal place of business in a foreign country) of a domestic life insurance company if— (i) such contract is issued on the life or health of a resident of such country, "(ii) such domestic life insurance company was required by such foreign country (as of the time it began operations in such country) to operate in such country through a branch, and "(iii) such foreign country is not contiguous to the United States. "(5) T R E A T M E N T OF SUBSTANDARD RISKS.— "(A) SEPARATE COMPUTATION.—Except

to the extent provided in regulations, the amount of the life insurance reserve for any qualified substandard risk shall be computed

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Page:United States Statutes at Large Volume 98 Part 1.djvu/779

 PUBLIC LAW 98-369—JULY 18, 1984 separately under subsection (d)(l) from any other reserve under the contract. "(B) QUALIFIED SUBSTANDARD RISK.—For purposes of subparagraph (A), the term 'qualified substandard risk' means any substandard risk if— "(i) the insurance company maintains a separate reserve for such risk, "(ii) there is a separately identified premium or charge for such risk, "(iii) the amount of the net surrender value under the contract is not increased or decreased by reason of such risk, and "(iv) the net surrender value under the contract is not regularly used to pay premium charges for such risk.

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"(C)

LIMITATION ON AMOUNT OF LIFE INSURANCE RE-

98 STAT. 731

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SERVE.—The amount of the life insurance reserve determined for any qualified substandard risk shall in no event exceed the sum of the separately identified premiums charged for such risk plus interest less mortality charges for such risk.

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"(D) LIMITATION ON AMOUNT OF CONTRACTS TO WHICH

PARAGRAPH APPLIES.—The aggregate amount of insurance in force under contracts to which this paragraph applies shall not exceed 10 percent of the insurance in force (other than term insurance) under life insurance contracts of the company.

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"(6) SPECIAL RULES FOR CONTRACTS ISSUED BEFORE JANUARY i,

1989, UNDER EXISTING PLANS OF INSURANCE, WITH TERM INSURANCE OR ANNUITY BENEFITS.—For purposes of this part— "(A) IN GENERAL.—In the case of a life insurance contract issued before January 1, 1989, under an existing plan of insurance, the life insurance reserve for any benefit to which this paragraph applies shall be computed separately under subsection (d)(1) from any other reserve under the contract. "(B) BENEFITS TO WHICH THIS PARAGRAPH APPLIES.—This

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paragraph applies to any term insurance or annuity benefit with respect to which the requirements of clauses (i) and (ii) of paragraph (3)(C) are met. "(C) EXISTING PLAN OF INSURANCE.—For purposes of this paragraph, the term 'existing plan of insurance' means, with respect to any contract, any plan of insurance which was filed by the company using such contract in one or more States before January 1, 1984, and is on file in the appropriate State for such contract.

"(f) ADJUSTMENT FOR CHANGE IN COMPUTING RESERVES.— "(1) 10-YEAR SPREAD,—

^.4 .^

"(A) IN GENERAL.—For purposes of this part, if the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between— "(i) the amount of the item at the close of the taxable year, computed on the new basis, and "(ii) the amount of the item at the close of the taxable year, computed on the eld basis.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/780

 98 STAT. 732

Ante, p. 722.

Ante, p. 721.

PUBLIC LAW 98-369—JULY 18, 1984 as is attributable to contracts issued before the taxable year shall be taken into account under the method provided in subparagraph (B). "(B) METHOD.—The method provided in this subparagraph is as follows: "(i) if the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), Vio of such excess shall be taken into account, for each of the succeeding 10 taxable years, as a deduction under section 805(a)(2); or "(ii) if the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), Vio of such excess shall be included in gross income, for each of the 10 succeeding taxable years, under section 803(a)(2). "(2) TERMINATION AS U F E INSURANCE COMPANY.—Except as

provided in section 381(c)(22) (relating to carryovers in certain corporate readjustments), if for any taxable year the taxpayer is not a life insurance company, the balance of any adjustments under this subsection shall be taken into account for the preceding taxable year. 26 USC 808.

"SEC. 808. POLICYHOLDER DIVIDENDS DEDUCTION.

"(a) POLICYHOLDER DIVIDEND DEFINED.—For purposes of this part, the term 'policyholder dividend' means any dividend or similar distribution to policyholders in their capacity as such. "(b) CERTAIN AMOUNTS INCLUDED.—For purposes of this part, the term 'policyholder dividend' includes— "(1) any amount paid or credited (including as an increase in benefits) where the amount is not fixed in the contract but depends on the experience of the company or the discretion of the management, "(2) excess interest, "(3) premium adjustments, and "(4) experience-rated refunds. "(c) AMOUNT OF DEDUCTION.—

Post, p. 733.

"(1) IN GENERAL.—Except as limited by paragraph (2), the deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year. "(2) REDUCTION IN CASE OF MUTUAL COMPANIES.—In the case of a mutual life insurance company, the deduction for policyholder dividends for any taxable year shall be reduced by the amount determined under section 809. "(d) DEFINITIONS.—For purposes of this section— "(1) EXCESS INTEREST.—The term 'excess interest' means any amount in the nature of interest— "(A) paid or credited to a policyholder in his capacity as such, and "(B) determined at a rate in excess of the prevailing State assumed interest rate for such contract. "(2) PREMIUM ADJUSTMENT.—The term 'premium adjustment' means any reduction in the premium under an insurance or annuity contract which (but for the reduction) would have been required to be paid under the contract.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/781

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 733

"(3) EXPERIENCE-RATED REFUND.—The term 'experience-rated refund' means any refund or credit based on the experience of the contract or group involved. "(e) TREATMENT OF POLICYHOLDER DIVIDENDS.—For purposes of this part, any policyholder dividend which— "(1) increases the cash surrender value of the contract or other benefits payable under the contract, or "(2) reduces the premium otherwise required to be paid, shall be treated as paid to the policyholder and returned by the policyholder to the company as a premium.. "SEC. 809. REDUCTION IN CERTAIN DEDUCTIONS OF MUTUAL LIFE INSURANCE COMPANIES.

26 USC 809.

"(a) GENERAL RULE.—

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"(1) PoucYHOLDER DIVIDENDS.—In the case of any mutual life insurance company, the amount of the deduction allowed under section 808 shall be reduced (but not below zero) by the differential earnings amount.

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I

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Ante, p. 732.

"(2) REDUCTION IN RESERVE DEDUCTION IN CERTAIN CASES.—In

the case of any mutual life insurance company, if the differential earnings amount exceeds the amount allowable as a deduction under section 808 for the taxable year (determined without regard to this section), such excess shall be taken into account under subsections (a) and (b) of section 807. "(3) DIFFERENTIAL EARNINGS AMOUNT.—For purposes of this section, the term 'differential earnings amount' means, with respect to any taxable year, an amount equal to the product of— "(A) the life insurance company's average equity base for the taxable year, multiplied by "(B) the differential earnings rate for such taxable year. "(b) AVERAGE EQUITY BASE.—For purposes of this section— "(1) IN GENERAL.—The term 'average equity base' means, with respect to any taxable year, the average of^ "(A) the equity base determined as of the close of the taxable year, and "(B) the equity base determined as of the close of the preceding taxable year. "(2) EQUITY BASE.—The term 'equity base' means an amount determined in the manner prescribed by regulations equal to— "(A) the surplus and capital, "(B) adjusted as provided in paragraphs (3), (4), (5), and (6) of this subsection. "(3) INCREASE FOR NONADMITTED FINANCIAL ASSETS.—

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"(A) IN GENERAL.—The amount of the surplus and capital shall be increased by the amount of the nonadmitted finanni tjf cial assets. "(B) NONADMITTED FINANCIAL ASSETS.—For purposes of subparagraph (A), the term 'nonadmitted financial asset' means any nonadmitted asset of the company which is— "(i) a bond, "(ii) stock, - ; "(iii) real estate, "(iv) a mortgage loan on real estate, or "(v) any other invested asset. "(4) INCREASE WHERE STATUTORY RESERVES EXCEED TAX RESERVES.—

Ante, p. 726.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/782

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 734

"(A) IN GENERAL.—If^

Ante, p. 726.

Post, p. 740.

"(i) the aggregate amount of statutory reserves, exceeds iO?-i "(ii) the aggregate amount of tax reserves, the amount of the surplus and capital shall be increased by ID the amount of such excess. "(B) DEFINITIONS.—For purposes of this paragraph— "(i) STATUTORY RESERVES.—The term 'statutory reserves' means the aggregate amount set forth in the annual statement with respect to items described in section 807(c). Such term shall not include any reserve -BUfJKt ^: attributable to a deferred and uncollected premium if the establishment of such reserve is not permitted under section 811(c). "(ii) TAX RESERVES.—The term 'tax reserves' means the aggregate of the items described in section 807(c) as determined for purposes of section 807. "(5) INCREASE BY AMOUNT OF CERTAIN OTHER RESERVES.—The

amount of the surplus and capital shall be increased by the sum of— "(A) the amount of any mandatory securities valuation reserve, "(B) the amount of any deficiency reserve, and "(C) the amount of any voluntary reserve or similar liability not described in subparagraph (A) or (B). "(6) ADJUSTMENT FOR NEXT YEAR'S POLICYHOLDER DIVIDENDS.—

The amount of the surplus and capital shall be increased by 50 percent of the amount of any provision for policyholder dividends (or other similar liability) payable in the following taxable year. (c) DIFFERENTIAL EARNINGS RATE.—

"(1) IN GENERAL.—For purposes of this section, the differential earnings rate for any taxable year is the excess of— "(A) the imputed earnings rate for the taxable year, over "(B) the average mutual earnings rate for the second calendar year preceding the calendar year in which the srf',? taxable year begins. "(2) TRANSITIONAL RULE.—The differential earnings rate— "(A) for any taxable year beginning in 1984, or "(B) for purposes of computing the amount of underpayment under section 6655 (including the application of section 6655(d)(3)) for any taxable year beginning in 1985, shall be equal to 7.8 percent. (d) IMPUTED EARNINGS RATE.—

•^B

"(1) IN GENERAL.—For purposes of this section, the imputed earnings rate for any taxable year is— "(A) 16.5 percent in the case of taxable years beginning in 1984, and "(B) in the case of taxable years beginning after 1984, an - amount which bears the same ratio to 16.5 percent as the current stock earnings rate for the taxable year bears to the base period stock earnings rate. "(2) CURRENT STOCK EARNINGS RATE.—For purposes of this subsection, the term 'current stock earnings rate' means, with respect to any taxable year, the average of the stock earnings rates determined under paragraph (4) for the 3 calendar years preceding the calendar year in which the taxable year begins.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/783

 PUBLIC LAW 98-369—JULY 18, 1984

-

98 STAT. 735

"(3) BASE PERIOD STOCK EARNINGS RATE.—For purposes of this subsection, the base period stock earnings rate is the average of the stock earnings rates determined under paragraph (4) for calendar years 1981, 1982, and 1983. "(4) STOCK EARNINGS RATE.—

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"(A) IN GENERAL.—For purposes of this subsection, the stock earnings rate for any calendar year is the numerical average of the earnings rates of the 50 largest stock companies. "(B) EARNINGS RATE.—For purposes of subparagraph (A), ^•. the earnings rate of any stock company is the percentage (determined by the Secretary) which— "(i) the statement gain or loss from operations for the ^ calendar year of such company, is of "(ii) such company's average equity base for such pr. year. "(C) 50 LARGEST STOCK COMPANIES.—For purposes of this •iiu). paragraph, the term '50 largest stock companies' means a group (as determined by the Secretary) of stock life insurer ance companies which consists of the 50 largest stock life insurance companies which are subject to tax under this "O0e t part. The Secretary may by regulations provide for exclusion from the group determined under the preceding senffrie^ tence of any stock life insurance company if (i) the equity of 4 such company is not great enough for such company to be 1

of the 50 largest stock life insurance companies if the determination were made on the basis of equity, and (ii) by gj. f reason of the small equity base of such company, it has an jj earnings rate which would seriously distort the stock earnings rate. fsrijfc "(D) TREATMENT OF AFFILIATED GROUPS.—For purposes of this paragraph, all stock life insurance companies which aamol ^^^ members of the same affiliated group shall be treated as one stock life insurance company. "(e) AVERAGE MUTUAL EARNINGS RATE.—For purposes of this section, the average mutual earnings rate for any calendar year is the percentage (determined by the Secretary) which— "(1) the aggregate statement gain or loss from operations for such year of mutual life insurance companies, is of "(2) their aggregate average equity bases for such year. "(f) RECOMPUTATION IN SUBSEQUENT YEAR.— "(1) INCLUSION IN INCOME WHERE RECOMPUTED AMOUNT

'•^ GREATER.—In the case of any mutual life insurance company, if— «. "(A) the recomputed differential earnings amount for any taxable year, exceeds "(B) the differential earnings amount determined under this section for such taxable year, such excess shall be included in life insurance gross income for the succeeding taxable year. "(2)

DEDUCTION WHERE RECOMPUTED AMOUNT SMALLER.—In

the case of any mutual life insurance company, if— "(A) the differential earnings amount determined under this section for any taxable year, exceeds "(B) the recomputed differential earnings amount for such taxable year.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/784

 98 STAT. 736

PUBLIC LAW 98-369—JULY 18, 1984 such excess shall be allowed as a life insurance deduction for the succeeding taxable year. "(3) RECOMPUTED DIFFERENTIAL EARNINGS AMOUNT.—For purposes of this subsection, the term 'recomputed differential earnings amount' means, with respect to any taxable year, the amount which would be the differential earnings amount for such taxable year if the average mutual earnings rate taken into account under subsection (c)(2) were the average mutual earnings rate for the calendar year in which the taxable year begins. "(4) SPECIAL RULE WHERE COMPANY CEASES TO BE MUTUAL U F E INSURANCE COMPANY.—Except as provided in section 381(c)(22),

if—

Ante, p. 732.

"(A) a life insurance company is a mutual life insurance company for any taxable year, but "(B) such life insurance company is not a mutual life insurance company for the succeeding taxable year, any adjustment under paragraph (1) or (2) by reason of the recomputed differential earnings amount for the first of such taxable years shall be taken into account for the first of such taxable years. "(g) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— "(1) STATEMENT GAIN OR LOSS FROM OPERATIONS.—The term 'statement gain or loss from operations' means the net gain or loss from operations required to be set forth in the annual statement— "(A) determined with regard to policyholder dividends (as defined in section 808) but without regard to Federal income taxes, "(B) determined on the basis of the tax reserves rather than statutory reserves, and "(C) properly adjusted for realized capital gains and losses and other relevant items. "(2) OTHER TERMS.—Except as otherwise provided in this section, the terms used in this section shall have the same respective meanings as when used in the annual statement. "(3) DETERMINATIONS BASED ON AMOUNT SET FORTH IN ANNUAL

STATEMENT.—Except as otherwise provided in this section or in regulations, all determinations under this section shall be made on the basis of the amounts required to be set forth on the annual statement. "(4) ANNUAL STATEMENT.—The term 'annual statement' means the annual statement for life insurance companies approved by the National Association of Insurance Commissioners. "(5) REDUCTION IN EQUITY BASE FOR PORTION OF EQUITY ALLOCABLE TO LIFE INSURANCE BUSINESS IN NONCONTIGUOUS WESTERN HEMISPHERE COUNTRIES.—The equity base of any mutual life

insurance company shall be reduced by an amount equal to the portion of the equity base attributable to the life insurance business multiplied by a fraction— <H "(A) the numerator of which is the portion of the tax reserves which is allocable to life insurance contracts issued foj Qj^ ^jjg jjfg Qf residents of countries in the Western Hemisphere which are not contiguous to the United States, and

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text:
Author:Paul Janet

Works

 * La Famille (Family)
 * Histoire de la philosophie dans l’antiquité et dans le temps moderne (History of philosophy in ancient and modern times)
 * Histoire de la science politique (History of political science)
 * Philosophie de la Révolution Française (Philosophy of the French Revolution)
 * Théorie de la morale (Theory of morality)
 * The Materialism of the Present Day. A Critique of Dr. Büchner's System
 * The Materialism of the Present Day. A Critique of Dr. Büchner's System

title: Author:Paul Janet


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/785

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 737

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"(B) the denominator of which is the amount of the tax reserves allocable to life insurance contracts. The preceding sentence shall not apply unless the fraction determined under the preceding sentence exceeds V20. "(6) SPECIAL RULE FOR CERTAIN CONTRACTS ISSUED BEFORE JAN-

UARY 1, 1985.—In determining the amount of tax reserves of a subsidiary of a mutual insurance company for purposes of subsection (b)(4), section 811(d) shall not apply with respect to any life insurance contract issued before January 1, 1985, under a plan of life insurance in existence on July 1, 1983.

Post, p. 740.

"(h) TREATMENT OF STOCK COMPANIES OWNED BY MUTUAL LIFE INSURANCE COMPANIES.— "(1) TREATMENT AS MUTUAL LIFE INSURANCE COMPANIES FOR PURPOSES OF DETERMINING STOCK EARNINGS RATES AND MUTUAL

EARNINGS RATES.—Solely for purposes of subsections (d) and (e), a stock life insurance company shall be treated as a mutual life insurance company if stock possessing— "(A) at least 80 percent of the total combined voting power of all classes of stock of such stock life insurance • ^ company entitled to vote, or

"(B) at least 80 percent of the total value of shares of all classes of stock of such stock life insurance company, is owned at any time during the calendar year directly (or through the application of section 318) by one or more mutual life insurance companies. "(2)

TREATMENT

OF

AFFILIATED GROUP WHICH INCLUDES

MUTUAL PARENT AND STOCK SUBSIDIARY,—In the case of an affiliated group of corporations which includes a common parent which is a mutual life insurance company and one or more stock life insurance companies, for purposes of determining the average equity base of such common parent (and the statement gain or loss from operations)— "(A) stock in such stock life insurance companies held by such common parent (and dividends on such stock) shall not be taken into account, and In •> "(B) such common parent and such stock life insurance companies shall be treated as though they were one mutual fc * life insurance company. "(3) ADJUSTMENT WHERE STOCK COMPANY NOT MEMBER OF AFFILIATED GROUP.—In the case of any stock life insurance com-

pany which is described in paragraph (1) but is not a member of an affiliated group described in paragraph (2), under regulations, proper adjustments shall be made in the average equity bases (and statement gains or losses from operations) of mutual life insurance companies owning stock in such company as may be necessary or appropriate to carry out the purposes of this section. "(i) TRANSITIONAL RULE FOR CERTAIN HIGH SURPLUS MUTUAL LIFE INSURANCE COMPANIES.—

"(1) IN GENERAL.—For purposes of subsection (a)(3), the average equity base of a high surplus mutual life insurance company for any taxable year shall not include the applicable percentage of the excess equity base of such company for such taxable year. "(2) DEFINITIONS.—For purposes of this subsection— "(A) EXCESS EQUITY BASE.—The term 'excess equity base' means the excess of—

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/786

 98 STAT. 738

PUBLIC LAW 98-369—JULY 18, 1984 yjii mi; fioftfifiil K ' T Tfjfc ,

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"(i) the average equity base of the company for the taxable year, over "(ii) the amount which would be its average equity base if its equity percentage equaled the following percentage: "For taxable years beginning in: 1984 1985 or 1986 1987 or 1988

The percentage is: 14.5 14 13.5

In no case shall the excess equity base for any taxable year be greater than the excess equity base for the company's first taxable year beginning in 1984. "(B) APPLICABLE PERCENTAGE.—The term 'applicable percentage' means the percentage determined in accordance with the following table: "For taxable years beginning in: 1984 1985 1986 1987 1988 1989 or thereafter

The applicable percentage is: 100 80 60 40 20 0.

"(C) HIGH SURPLUS MUTUAL LIFE INSURANCE COMPANY.—

The term 'high surplus mutual life insurance company' means any mutual life insurance company if, for the taxable year beginning in 1984, its equity percentage exceeded 14.5 percent. "(D) EQUITY PERCENTAGE.—The term 'equity percentage' means, with respect to any mutual life insurance company, the percentage which— "(i) the average equity base of such company (determined under this section without regard to this subsection) for a taxable year bears to "(ii) the average of— "(I) the assets of such company as of the close of the preceding taxable year, and "(II) the assets of such company as of the close of the taxable year. For purposes of the preceding sentence, the assets of a company shall include all assets taken into account under this section in determining its equity base (after applying the principles of subsection (h)). 26 USC 810.

"SEC. 810. OPERATIONS LOSS DEDUCTION.

"(a) DEDUCTION ALLOWED.—There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of— "(1) the operations loss carryovers to such year, plus "(2) the operations loss carrybacks to such year. For purposes of this part, the term 'operations loss deduction' means the deduction allowed by this subsection. "(b) OPERATIONS Loss CARRYBACKS AND CARRYOVERS.— "(1) YEARS TO WHICH LOSS MAY BE CARRIED.—The loss from operations for any taxable year (hereinafter in this section referred to as the 'loss year') shall be— "(A) an operations loss carryback to each of the 3 taxable years preceding the loss year,, „ _. _ ^. _

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Page:United States Statutes at Large Volume 98 Part 1.djvu/787

 PUBLIC LAW 98-369—JULY 18, 1984 -le:;

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"(B) an operations loss carryover to each of the 15 taxable years following the loss year, and "(C) if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 15 taxable years described in subparagraph (B).

98 STAT. 739

t-. ^,, -•.

"(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.—The entire

amount of the loss from operations for any loss year shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess (if any) of the amount of such loss over the sum of the offsets (as defined in subsection (d)) for each of the prior taxable years to which such loss may be carried. "(3) ELECTION FOR OPERATIONS LOSS CARRYBACKS.—In the case of a loss from operations for any taxable year, the taxpayer may elect to relinquish the entire carryback period for such loss. Such election shall be made by the due date (including extensions of time) for filing the return for the taxable year of the loss from operations for which the election is to be in effect, and, once made for any taxable year, such election shall be irrevocable for that taxable year. "(c) COMPUTATION OF Loss FROM OPERATIONS.—For purposes of this section— "(1) IN GENERAL.—The term 'loss from operations' means the excess of the life insurance deductions for any taxable year over the life insurance gross income for such taxable year. "(2) MODIFICATIONS.—For purposes of paragraph (1)— wv. "(A) the operations loss deduction shall not be allowed, and "(B) the deductions allowed by sections 243 (relating to dividends received by corporations), 244 (relating to dividends received on certain preferred stock of public utilities), and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246(b) as modified by section 805(a)(4).

'H 33U m

Ante, p. 722.

"(d) OFFSET DEFINED.—

1 I

"(1) IN GENERAL.—For purposes of subsection (b)(2), the term 'offset' means, with respect to any taxable year, an amount equal to that increase in the operations loss deduction for the taxable year which reduces the life insurance company taxable income (computed without regard to paragraphs (2) and (3) of section 804) for such year to zero. . Ante, p. 722. "(2) OPERATIONS LOSS DEDUCTION.—For purposes of paragraph

(1), the operations loss deduction for any taxable year shall be computed without regard to the loss from operations for the loss year or for any taxable year thereafter. "(e) N E W COMPANY DEFINED.—For purposes of this part, a life insurance company is a new company for any taxable year only if such taxable year begins not more than 5 years after the first day on which it (or any predecessor, if section 381(c)(22) applies) was authorized to do business as an insurance company. "(f) APPLICATION OF SUBTITLES A AND F IN RESPECT OF OPERATION

LOSSES.—Except as provided in section 805(b)(5), subtitles A and F shall apply in respect of operation loss carrybacks, operation loss carryovers, and the operations loss deduction under this part, in the same manner and to the same extent as such subtitles apply in

26 USC l, 6001.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/788

 98 STAT. 740

Post, p. 741.

PUBLIC LAW 98-369—JULY 18, 1984 respect of net operating loss carrybacks, net operating loss carryovers, and the net operating loss deduction. "(g) TRANSITIONAL RULE.—For purposes of this section and section 812 (as in effect before the enactment of the Life Insurance Tax Act of 1984), this section shall be treated as a continuation of such section 812.

"Subpart D—Accounting, Allocation, and Foreign Provisions "Sec. "Sec. "Sec. "Sec.

26 USC 811.

811. Accounting provisions. 812. Definition of company's share and policyholders' share. 813. Foreign life insurance companies. 814. Contiguous country branches of domestic hfe insurance companies. "Sec. 815. Distributions to shareholders from pre-1984 policyholders surplus account. "SEC. 811. ACCOUNTING PROVISIONS. "(a) METHOD OF ACCOUNTING.—All computations entering into the

determination of the taxes imposed by this part shall be made— "(1) under an accrual method of accounting, or "(2) to the extent permitted under regulations prescribed by the Secretary, under a combination of an accrual method of accounting with any other method permitted by this chapter (other than the cash receipts and disbursements method). To the extent not inconsistent with the preceding sentence or any other provision of this part, all such computations shall be made in a manner consistent with the manner required for purposes of the annual statement approved by the National Association of Insurance Commissioners. "(b) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.—

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"(1) IN GENERAL.—The appropriate items of income, deductions, and adjustments under this part shall be adjusted to reflect the appropriate amortization of premium and the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a life insurance company. Such amortization and accrual shall be determined— "(A) in accordance with the method regularly employed by such company, if such method is reasonable, and "(B) in all other cases, in accordance with regulations prescribed by the Secretary. "(2) SPECIAL RULES.—

"(A) AMORTIZATION OF BOND PREMIUM.—In the case of any bond (as defined in section 171(d)), the amount of bond premium, and the amortizable bond premium for the taxable year, shall be determined under section 171(b) as if the election set forth in section 171(c) had been made. "(B) CONVERTIBLE EVIDENCE OF INDEBTEDNESS.—In no case shall the amount of premium on a convertible evidence of indebtedness include any amount attributable to the conversion features of the evidence of indebtedness. "(3) EXCEPTION.—No accrual of discount shall be required under paragraph (1) on any bond (as defined in section 171(d)), except in the case of discount which is— "(A) interest to which section 103 applies, or "(B) original issue discount (as defined in section 1232(b)).

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/789

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 741

"(c) No DOUBLE COUNTING.—Nothing in this part shall permit— "(1) a reserve to be established for any item unless the gross amount of premiums and other consideration attributable to such item are required to be included in life insurance gross income, "(2) the same item to be counted more than once for reserve purposes, or "(3) any item to be deducted (either directly or as an increase in reserves) more than once. "(d) METHOD OF COMPUTING RESERVES ON CONTRACT WHERE INTEREST Is GUARANTEED BEYOND END OF TAXABLE YEAR.—For purposes

of this part (other than section 816), amounts in the nature of interest to be paid or credited under any contract for any period which is computed at a rate which— "(1) exceeds the prevailing State assumed interest rate for the contract for such period, and "(2) is guaranteed beyond the end of the taxable year on which the reserves are being computed, shall be taken into account in computing the reserves with respect to such contract as if such interest were guaranteed only up to the end of the taxable year. "(e) SHORT TAXABLE YEARS.—If any return of a corporation made under this part is for a period of less than the entire calendar year (referred to in this subsection as 'short period'), then section 443 shall not apply in respect to such period, but life insurance company taxable income shall be determined, under regulations prescribed by the Secretary, on an annual basis by a ratable daily projection of the appropriate figures for the short period.

Post, p. 748. ^J^ "'

"SEC. 812. DEFINITION OF COMPANY'S SHARE AND POLICYHOLDERS' SHARE.

26 USC 812.

i "(a) GENERAL RULE. — "(1) COMPANY'S SHARE.—For

purposes of section 805(a)(4), the term 'company's share' means, with respect to any taxable year, the percentage obtained by dividing— "(A) the company's share of the net investment income for the taxable year, by "(B) the net investment income for the taxable year.

Ante, p. 722.

t

"(2) POLICYHOLDERS' SHARE.—For purposes of section 807, the

Ante, p. 726.

t

term 'policyholders' share' means, with respect to any taxable year, the excess of 100 percent over the percentage determined under paragraph (1).

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"(b) COMPANY'S SHARE OF NET INVESTMENT INCOME.—

"(1) IN GENERAL.—For purposes of this section, the company's share of net investment income is the excess (if any) of— "(A) the net investment income for the taxable year, over "(B) the sum of^ "(i) the policy interest, for the taxable year, plus "(ii) the gross investment income's proportionate share of policyholder dividends for the taxable year. "(2) POLICY INTEREST.—For purposes of this subsection, the term 'policy interest' means— "(A) required interest (at the prevailing State assumed rate) on reserves under section 807(c) (other than paragraph (2) thereof), "(B) the deductible portion of excess interest, and

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/790

 98 STAT. 742

PUBLIC LAW 98-369—JULY 18, 1984 —f

"(C) the deductible portion of any amount (whether or not a poUcyholder dividend), and not taken into account under subparagraph (A) or (B), credited to— "(i) a poHcyholder's fund under a pension plan contract for employees (other than retired employees), or "(ii) a deferred annuity contract before the annuity starting date. "(3)

Ante, pp. 732, "^33.

Ante, p. 726.

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i

GROSS INVESTMENT INCOME'S PROPORTIONATE SHARE OF

POLICYHOLDER DIVIDENDS.—For purposes of paragraph (1), the gross investment income's proportionate share of policyholder dividends is— "(A) the deduction for policyholders' dividends determined under sections 808 and 809 for the taxable year, but not including— "(i) the deductible portion of excess interest, "(ii) the deductible portion of policyholder dividends „. on contracts referred to in clauses (i) and (ii) of paragraph (2)(C), and "(iii) the deductible portion of the premium and mortality charge adjustments with respect to contracts paying excess interest for such year, multiplied by "(B) the fraction— "(i) the numerator of which is gross investment income for the taxable year (reduced by the policy interest for such year), and "(ii) the denominator of which is life insurance gross income (including tax-exempt interest) reduced by the excess (if any) of the closing balance for the items described in section 807(c) over the opening balance for such items for the taxable year. "(c) NET INVESTMENT INCOME.—For purposes of this section, the term 'net investment income' means 90 percent of gross investment income. "(d) GROSS INVESTMENT INCOME.—For purposes of this section, the term 'gross investment income' means the sum of the following: "(1) INTEREST, ETC.—The gross amount of income from— "(A) interest (including tax-exempt interest), dividends, rents, and royalties, "(B) the entering into of any lease, mortgage, or other instrument or agreement from which the life insurance company derives interest, rents, or royalties, and "(C) the alteration or termination of any instrument or agreement described in subparagraph (B). "(2) SHORT-TERM CAPITAL GAIN.—The amount (if any) by which the net short-term capital gain exceeds the net long-term capital loss. "(3) TRADE OR BUSINESS INCOME.—The gross income from any trade or business (other than an insurance business) carried on by the life insurance company, or by a partnership of which the life insurance company is a partner. In computing gross income under this paragraph, there shall be excluded any item described in paragraph (1). Except as provided in paragraph (2), in computing gross investment income under this subsection, there shall be excluded any gain from the sale or exchange of a capital asset, and any gain considered as gain from the sale or exchange of a capital asset. ^^

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/791

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 743

"(e) DIVIDENDS FROM CERTAIN SUBSIDIARIES NOT INCLUDED IN GROSS INVESTMENT INCOME.—For purposes of this section, the term

'gross investment income' shall not include any dividend received by the life insurance company which is a 100-percent dividend (as defined in section 805(a)(4)(C)). Such term also shall not include any dividend described in section 805(a)(4)(D) (relating to certain dividends in the case of foreign corporations). "(f) No DOUBLE COUNTING.—Under regulations, proper adjustments shall be made in the application of this section to prevent an item from being counted more than once. "SEC 813. FOREIGN LIFE INSURANCE COMPANIES.

Ante, p. 722..

26 USC 813.

"(a) ADJUSTMENT WHERE SURPLUS HELD IN THE UNITED STATES IS LESS THAN SPECIFIED MINIMUM.—

"(1) IN GENERAL.—In the case of any foreign company taxable under this part, if— "(A) the required surplus determined under paragraph (2), exceeds "(B) the surplus held in the United States, then its income effectively connected with the conduct of an insurance business within the United States shall be increased by an amount determined by multiplying such excess by such company's current investment yield. "(2) REQUIRED SURPLUS.—For purposes of this subsection— "(A) IN GENERAL.—The term 'required surplus' means the amount determined by multiplying the taxpayer's total insurance liabilities on United States business by a percentage for the taxable year determined and proclaimed by the Secretary under subparagraph (B). "(B) DETERMINATION OF PERCENTAGE.—The percentage de•mmk termined and proclaimed by the Secretary under this subparagraph shall be based on such data with respect to domestic life insurance companies for the preceding taxable year as the Secretary considers representative. Such perI,^ centage shall be computed on the basis of a ratio the ^" numerator of which is the excess of the assets over the total insurance liabilities, and the denominator of which is the j^ total insurance liabilities. "(3) CURRENT INVESTMENT YIELD.—For purposes of this subsection— "(A) IN GENERAL.—The term 'current investment yield' [means the percent obtained by dividing— "(i) the net investment income on assets held in the ^ United States, by "(ii) the mean of the assets held in the United States during the taxable year.

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"(B) DETERMINATIONS BASED ON AMOUNT SET FORTH IN THE

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ANNUAL STATEMENT.—Except as otherwise provided in regulations, determinations under subparagraph (A) shall be made on the basis of the amounts required to be set forth on the annual statement approved by the National Association of Insurance Commissioners. "(4) OTHER DEFINITIONS.—For purposes of this subsection— "(A) SURPLUS HELD IN THE UNITED STATES.—The surplus

held in the United States is the excess of the assets (determined under section 8060t)X3XC)) held in the United States

Ante, p. 724.

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Author:Arnold Burges Johnson

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Articles in Popular Science Monthly

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title: Author:Arnold Burges Johnson


text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/792

 98 STAT. 744

PUBLIC LAW 98-369—JULY 18, 1984 Ml 0

Post, p. 748. Ante, p. 726.

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over the total insurance liabilities on United States business. "(B) TOTAL INSURANCE LIABILITIES.—For purposes of this subsection, the term 'total insurance liabilities' means the sum of the total reserves (as defined in section 816(c)) plus " (to the extent not included in total reserves) the items referred to in paragraphs (3), (4), (5), and (6) of section 807(c). "(5) REDUCTION OF SECTION 881 TAXES.—In the case of any foreign company taxable under this part, there shall be determined— "(A) the amount which would be subject to taxes under section 881 if the amount taxable under such section were 8l m determined without regard to sections 103 and 894, and "(B) the amount of the increase provided by paragraph The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which is the same proportion of such tax as the amount referred to in subparagraph (B) is of the amount referred to in subparagraph (A); but such reduction in taxes shall not exceed the increase in taxes under this part by reason of the increase provided by paragraph (1). "(b) ADJUSTMENT TO LIMITATION ON DEDUCTION FOR POLICYHOLDER DIVIDENDS IN THE CASE OF FOREIGN MUTUAL LIFE INSURANCE COMPA-

Ante, p. 733.

NiES.—For purposes of section 809, the equity base of any foreign mutual life insurance company as of the close of any taxable year shall be increased by the amount of any excess determined under paragraph (1) of subsection (a) with respect to such taxable year. "(c) CROSS REFERENCE.—

"For taxation of foreign corporations carrying on life insurance business within the United States, see section 842. 26 USC 814.

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"SEC. 814. CONTIGUOUS COUNTRY BRANCHES OF DOMESTIC LIFE INSURANCE COMPANIES. "(a) EXCLUSION OF ITEMS.—In the case of a domestic mutual

insurance company which— "(1) is a life insurance company, "(2) has a contiguous country life insurance branch, and "(3) makes the election provided by subsection (g) with respect to such branch, there shall be excluded from each item involved in the determination of life insurance company taxable income the items separately accounted for in accordance with subsection (c). "(b) CONTIGUOUS COUNTRY LIFE INSURANCE BRANCH.—For purposes of this section, the term contiguous country life insurance branch means a branch which— "(1) issues insurance contracts insuring risks in connection with the lives or health of residents of a country which is contiguous to the United States, "(2) has its principal place of business in such contiguous country, and "(3) would constitute a mutual life insurance company if such branch were a separate domestic insurance company. For purposes of this section, the term 'insurance contract' means any life, health, accident, or annuity contract or reinsurance contract or any contract relating thereto.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/793

 PUBLIC LAW 98-369—JULY 18, 1984 "(c) SEPARATE ACCOUNTING REQUIRED.—Any taxpayer which makes the election provided by subsection (g) shall establish and maintain a separate account for the various income, exclusion, deduction, asset, reserve, liability, and surplus items properly attributable to the contracts described in subsection (b). Such separate accounting shall be made— "(1) in accordance with the method regularly employed by such company, if such method clearly reflects income derived from, and the other items attributable to, the contracts described in subsection (b), and "(2) in all other cases, in accordance with regulations prescribed by the Secretary. "(d) RECOGNITION OF GAIN ON ASSETS IN BRANCH ACCOUNT.—If the

aggregate fair market value of all the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account established pursuant to subsection (c) exceeds the aggregate adjusted basis of such assets for purposes of determining gain, then the domestic life insurance company shall be treated as having sold all such assets on the first day of the first taxable year for which the election is in effect at their fair market value on such first day. Notwithstanding any other provision of this chapter, the net gain shall be recognized to the domestic life insurance company on the deemed sale described in the preceding sentence. "(e) TRANSACTIONS BETWEEN CONTIGUOUS COUNTRY BRANCH AND DOMESTIC LIFE INSURANCE COMPANY.— "(1) REIMBURSEMENT FOR HOME OFFICE SERVICES, ETC.—Any

payment, transfer, reimbursement, credit, or allowance which is made from a separate account established pursuant to subsection (c) to one or more other accounts of a domestic life insurance company as reimbursement for costs incurred for or with respect to the insurance (or reinsurance) of risks accounted for in such separate account shall be taken into account by the domestic life insurance company in the same manner as if such payment, transfer, reimbursement, credit, or allowance had been received from a separate person. "(2) REPATRIATION OF INCOME.—

"(A) IN GENERAL.—Except as provided in subparagraph (B), any amount directly or indirectly transferred or credited from a branch account established pursuant to subsection (c) to one or more other accounts of such company shall, unless such transfer or credit is a reimbursement to which paragraph (1) applies, be added to the income of the domestic life insurance company. "(B) LIMITATION.—The addition provided by subparagraph (A) for the taxable year with respect to any contiguous country life insurance branch shall not exceed the amount by which— "(i) the aggregate decrease in the tentative LICTI of the domestic life insurance company for the taxable year and for all prior taxable years resulting solely from the application of subsection (a) of this section with respect to such branch, exceeds "(ii) the amount of additions to tentative LICTI pursuant to subparagraph (A) with respect to such contiguous country branch for all prior taxable years.

98 STAT. 745

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/794

 98 STAT. 746

PUBLIC LAW 98-369—JULY 18, 1984 "(C) TRANSITIONAL RULE.—For purposes of this paragraph, in the case of a prior taxable year beginning before January 1, 1984, the term 'tentative LICTI' means Hfe insurance company taxable income determined under this part (as in effect for such year) without regard to this paragraph.

"(f) OTHER RULES.— J.±-. ?. ^^. J "(1) TREATMENT OF FOREIGN TAXES.—

.^, ^ 26 USC 901.

"(A) IN GENERAL.—No income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States which is attributable to income excluded under subsection (a) shall be taken into account for purposes of subpart A of part III of subchapter N (relating to foreign tax credit) or allowable as a deduction, "(B) TREATMENT OF REPATRIATED AMOUNTS.—For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall be treated as a dividend paid by a foreign corporation, and the taxes paid to any foreign country or possession of the United States with respect to such amount shall be deemed to have been paid by such branch. "(2) UNITED STATES SOURCE INCOME ALLOCABLE TO CONTIGUOUS

^'-^•'' COUNTRY BRANCH.—For purposes of sections 881, 882, and 1442, each contiguous country life insurance branch shall be treated as a foreign corporation. Such sections shall be applied to each such branch in the same manner as if such sections contained the provisions of any treaty to which the United States and the contiguous country are parties, to the same extent such provisions would apply if such branch were incorporated in such contiguous country. "(g) ELECTION.—A taxpayer may make the election provided by this subsection with respect to any contiguous country for any taxable year. An election made under this subsection for any taxable year shall remain in effect for all subsequent taxable years, except that it may be revoked with the consent of the Secretary. The election provided by this subsection shall be made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof) with respect to which such election is made, and such election and any approved revocation thereof shall be made in the manner provided by the Secretary. "(h) SPECIAL RULE FOR DOMESTIC STOCK LIFE INSURANCE COMPA-

NIES.—At the election of a domestic stock life insurance company which has a contiguous country life insurance branch described in subsection (b) (without regard to the mutual requirement in subsection (b)(3)), the assets of such branch may be transferred to a foreign corporation organized under the laws of the contiguous country without the application of section 367 or 1491. Subsection (a) shall apply to the stock of such foreign corporation as if such domestic company were a mutual company and as if the stock were an item described in subsection (c). Subsection (e)(2) shall apply to amounts transferred or credited to such domestic company as if such domestic company and such foreign corporation constituted one domestic mutual life insurance company. The insurance contracts which may be transferred pursuant to this subsection shall include only those

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/795

 PUBLIC LAW 98-369—JULY 18, 1984 which are similar to the types of insurance contracts issued by a mutual life insurance company. Notwithstanding the first sentence of this subsection, if the aggregate fair market value of the invested assets and tangible property which are separately accounted for by the domestic life insurance company in the branch account exceeds the aggregate adjusted basis of such assets for purposes of determining gain, the domestic life insurance company shall be deemed to have sold all such assets on the first day of the taxable year for which the election under this subsection applies and the net gain shall be recognized to the domestic life insurance company on the deemed sale, but not in excess of the proportion of such net gain which equals the proportion which the aggregate fair market value of such assets which are transferred pursuant to this subsection is of the aggregate fair market value of all such assets. "SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS FROM PRE.1984 POLICYHOLDERS SURPLUS ACCOUNT.

"(a) GENERAL RULE.—In the case of a stock life insurance company which has an existing policyholders surplus account, the tax imposed by section 801 for any taxable year shall be the amount which would be imposed by such section for such year on the sum of— "(1) life insurance company taxable income for such year (but not less than zero), plus "(2) the amount of direct and indirect distributions during such year to shareholders from such account. "(b) ORDERING RULE.—For purposes of this section, any distribution to shareholders shall be treated as made— "(1) first out of the shareholders surplus account, to the extent thereof, "(2) then out of the policyholders surplus account, to the extent thereof, and "(3) finally, out of other accounts. "(c) SHAREHOLDERS SURPLUS ACCOUNT.—

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"(1) IN GENERAL.—Each stock life insurance company which has an existing policyholders surplus account shall continue its shareholders surplus account for purposes of this part. "(2) ADDITIONS TO ACCOUNT.—The amount added to the shareholders surplus account for any taxable year beginning after December 31, 1983, shall be the excess of— "(A) the sum of— "(i) the life insurance company's taxable income (but not below zero), "(ii) the special deductions provided by section 806, and "(iii) the deductions for dividends received provided by sections 243, 244, and 245 (as modified by section 805(a)(4)) and the amount of interest excluded from gross income under section 103, over "(B) the taxes imposed for the taxable year by section 801 (determined without regard to this section). "(3) SUBTRACTIONS FROM ACCOUNT.—There shall be subtracted from the shareholders surplus account for any taxable year the amount which is treated under this section as distributed out of such account. "(d) POLICYHOLDERS SURPLUS ACCOUNT.—

98 STAT. 747

 * 3^»^^

26 USC 815.

Ante, p. 720. "

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Ante, p. 724.

Ante, p. 722. Ante, p. 720.

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/796

 98 STAT. 748

PUBLIC LAW 98-369—JULY 18, 1984 "(1) IN GENERAL.—Each stock life insurance company which has an existing policyholders surplus account shall continue such account. "(2) No ADDITIONS TO ACCOUNT.—No amount shall be added to the policyholders surplus account for any taxable year beginning after December 31, 1983. "(3) SUBTRACTIONS FROM ACCOUNT.—There shall be subtracted from the policyholders surplus account for any taxable year an amount equal to the sum oJF— "(A) the amount which (without regard to subparagraph (B)) is treated under this section as distributed out of the policyholders surplus account, and "(B) the amount by which the tax imposed for the taxable year by section 801 is increeised by reason of this section.

Ante, p. 720.

"(e) EXISTING POLICYHOLDERS SURPLUS ACCOUNT.—For purposes of

' '

this section, the term 'existing policyholders surplus account means any policyholders surplus account which has a balance as of the close of December 31, 1983. "(f) OTHER RULES APPLICABLE TO POLICYHOLDERS SURPLUS ACCOUNT CONTINUED.—Except to the extent inconsistent with the pro-

Ante, p. 747.

visions of this part, the provisions of subsections (d), (e), (f), and (g) of section 815 (and of sections 6501(c)(6), 6501(k), 6511(d)(6), 6601(d)(3), and 6611(fK4)) as in effect before the enactment of the Tax Reform Act of 1984 are hereby made applicable in respect of any policyholders surplus account for which there was a balance as of December 31, 1983. ...„ sni

26 USC 816.

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"Sec. 816. Life insurance company defined. "Sec. 817. Treatment of variable contracts. "Sec. 818. Other definitions and special rules.

"SEC. 816. LIFE INSURANCE COMPANY DEFINED.

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"Subpart E—Dennitions and Special Rules

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"(a) LIFE INSURANCE COMPANY DEFINED.—For purposes of this subtitle, the term 'life insurance company' means an insurance company which is engaged in the business of issuing life insurance and annuity contracts (either separately or combined with accident and health insurance), or noncancellable contracts of health and accident insurance, if^ "(1) its life insurance reserves (as defined in subsection (b)), plus "(2) unearned premiums, and unpaid losses (whether or not ascertained), on noncancellable life, accident, or health policies not included in life insurance reserves, comprise more than 50 percent of its total reserves (as defined in subsection (c)). For purposes of the preceding sentence, the term 'insurance company means any company more than half of the business of which during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies. "(b) LIFE INSURANCE RESERVES DEFINED.—

"(1) IN GENERAL.—For purposes of this part, the term 'life insurance reserves' means amounts— "(A) which are computed or estimated on the basis of recognized mortality or morbidity tables and assumed rates of interest, and

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/797

 PUBLIC LAW 98-369—JULY 18, 1984 "(B) which are set aside to mature or liquidate, either by payment or reinsurance, future unaccrued claims arising from life insurance, annuity, and noncancellable accident and health insurance contracts (including life insurance or annuity contracts combined with noncancellable accident and health insurance) involving, at the time with respect to which the reserve is computed, life, accident, or health contingencies. "(2) RESERVES MUST BE REQUIRED BY LAW.—Except— "(A) in the case of policies covering life, accident, and health insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, and "(B) as provided in paragraph (3), in addition to the requirements set forth in paragraph (1), life insurance reserves must be required by law. "(3) ASSESSMENT COMPANIES.—In the case of an assessment life insurance company or association, the term 'life insurance reserves' includes— "(A) sums actually deposited by such company or association with State officers pursuant to law as guaranty or reserve funds, and "(B) any funds maintained, under the charter or articles of incorporation or association (or bylaws approved by a State insurance commissioner) of such company or association, exclusively for the payment of claims arising under certificates of membership or policies issued on the assessment plan and not subject to any other use. "(4) AMOUNT OF RESERVES.—For purposes of this subsection, subsection (a), and subsection (c), the amount of any reserve (or portion thereof) for any taxable year shall be the mean of such reserve (or portion thereof) at the beginning and end of the taxable year. "(c) TOTAL RESERVES DEFINED.—For purposes of subsection (a), the term 'total reserves' means— "(1) life insurance reserves, "(2) unearned premiums, and unpaid losses (whether or not ascertained), not included in life insurance reserves, and "(3) all other insurance reserves required by law. "(d) ADJUSTMENTS IN RESERVES FOR POLICY LOANS.—For purposes

only of determining under subsection (a) whether or not an insurance company is a life insurance company, the life insurance reserves, and the total reserves, shall each be reduced by an amount equal to the mean of the aggregates, at the beginning and end of the taxable year, of the policy loans outstanding with respect to contracts for which life insurance reserves are maintained. "(e) GUARANTEED RENEWABLE CONTRACTS.—For purposes of this part, guaranteed renewable life, accident, and health insurance shall be treated in the same manner as noncancellable life, accident, and health insurance. "(f) AMOUNTS NOT INVOLVING LIFE, ACCIDENT, OR HEALTH CONTIN-

GENCIES.—For purposes only of determining under subsection (a) whether or not an insurance company is a life insurance company, amounts set aside and held at interest to satisfy obligations under contracts which do not contain permanent guarantees with respect to life, accident, or health contingencies shall not be included in reserves described in paragraph (1) or (3) of subsection (c).

98 STAT. 749

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text:
Page:United States Statutes at Large Volume 98 Part 1.djvu/798

 98 STAT. 750

PUBLIC LAW 98-369—JULY 18, 1984 "(g)

BURIAL AND FUNERAL BENEFIT INSURANCE COMPANIES.—A

burial or funeral benefit insurance company engaged directly in the manufacture of funeral supplies or the performance of funeral services shall not be taxable under this part but shall be taxable under section 821 or section 831. 26 USC 817.

Ante, p. 726.

Ante, p. 722.

"SEC. 817. TREATMENT OF VARIABLE CONTRACTS.

"(a) INCREASES AND DECREASES IN RESERVES.—For purposes of subsections (a) and (b) of section 807, the sum of the items described in section 807(c) taken into account as of the close of the taxable year with respect to any variable contract shall, under regulations prescribed by the Secretary, be adjusted— "(1) by subtracting therefrom an amount equal to the sum of the amounts added from time to time (for the taxable year) to the reserves separately accounted for in accordance with subsection (c) by reason of appreciation in value of assets (whether or not the assets have been disposed of), and "(2) by adding thereto an amount equal to the sum of the amounts subtracted from time to time (for the tsixable year) from such reserves by reason of depreciation in value of assets (whether or not the assets have been disposed of). The deduction allowable for items described in paragraphs (1) and (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence. "(b) ADJUSTMENT TO BASIS OF ASSETS HELD IN SEGREGATED ASSET

Ante, p. 733.

ACCOUNT.—In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be— "(1) increased by the amount of any appreciation in value, and "(2) decreased by the amount of any depreciation in value, to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts. "(c) SEPARATE ACCOUNTING.—For purposes of this part (other than section 809), a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made— "(1) in accordance with the method regularly employed by such company, if such method is reasonable, and "(2) in all other cases, in accordance with regulations prescribed by the Secretary. "(d) VARIABLE CONTRACT DEFINED.—For purposes of this part, the term 'variable contract' means a contract— "(1) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company, "(2) which— "(A) provides for the payment of annuities, or 1. "(B) is a life insurance contract, and "(3) under which—

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Page:United States Statutes at Large Volume 98 Part 1.djvu/799

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 751

"(A) in the case of an annuity contract, the amounts paid in, or the amount paid out, reflect the investment return and the market value of the segregated asset account, or "(B) in the case of a life insurance contract, the amount of the death benefit (or the period of coverage) is adjusted on the basis of the investment return and the market value of the segregated asset account. If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such cessation. "(e) PENSION PLAN CONTRACTS TREATED AS PAYING ANNUITY.—A

pension plan contract which is not a life, accident, or health, property, casualty, or liability insurance contract shall be treated as a contract which provides for the payments of annuities for purposes of subsection (d).

r^ inn << ):

"(f) OTHER SPECIAL RULES.— "(1) LIFE INSURANCE RESERVES.—For

purposes of subsection (b)(1)(A) of section 816, the reflection of the investment return and the market value of the segregated asset account shall be considered an assumed rate of interest. "(2) ADDITIONAL SEPARATE COMPUTATIONS.—Under regulations prescribed by the Secretary, such additional separate computations shall be made, with respect to the items separately accounted for in accordance with subsection (c), as may be necessary to carry out the purposes of this section and this part.

"(g)

Ante, p. 748.

KS.-

VARIABLE ANNUITY CONTRACTS TREATED AS ANNUITY CON-

TRACTS.—For purposes of this part, the term 'annuity contract' includes a contract which provides for the payment of a variable annuity computed on the basis of^ "(1) recognized mortality tables, and "(2)(A) the investment experience of a segregated asset account, or "(B) the company-wide investment experience of the company. Paragraph (2)(B) shall not apply to any company which issues contracts which are not variable contracts. "(h) TREATMENT OF CERTAIN NONDIVERSIFIED CONTRACTS.—

"(1) IN GENERAL.—For purposes of subchapter L, section 72 (relating to annuities), and section 7702(a) (relating to definition of life insurance contract), a variable contract (other than a pension plan contract) which is otherwise described in this section and which is based on a segregated asset account shall not be treated as an annuity, endowment, or life insurance contract for any period (and any subsequent period) for which the investments made by such account are not, in accordance with regulations prescribed by the Secretary, adequately diversified. For purposes of this paragraph and paragraph (2), beneficial interests in a regulated investment company or in a trust shall not be treated as 1 investment if all of the beneficial interests in such company or trust are held by 1 or more segregated asset accounts of 1 or more insurance companies. "(2) SAFE HARBOR FOR DIVERSIFICATION.—A segregated asset account shall be treated as meeting the requirements of paragraph (1) for any quarter of a taxable year if as of the close of such quarter— "(A) it meets the requirements of section 851(b)(4), and

Post, p. 767

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Page:United States Statutes at Large Volume 98 Part 1.djvu/800

 98 STAT. 752

PUBLIC LAW 98-369—JULY 18, 1984 "(B) no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(4)(A)(i). "(3) SPECIAL RULE FOR VARIABLE LIFE INSURANCE CONTRACTS

INVESTING IN UNITED STATES OBLIGATiONS.—In the case of a segregated asset account with respect to variable life insurance contracts, paragraph (1) shall not apply in the case of securities issued by the United States Treasury which are owned by a regulated investment company or by a trust all the beneficial interests in which are held by 1 or more segregated asset accounts of the company issuing the contract, "(4) INDEPENDENT INVESTMENT ADVISORS PERMITTED.—Nothing

in this subsection shall be construed as prohibiting the use of independent investment advisors. 26 USC 818.

,., ^ • '

53 Stat. 67.

53 Stat. 83.

"SEC. 818. OTHER DEFINITIONS AND SPECIAL RULES.

"(a) PENSION PLAN CONTRACTS.—For purposes of this part, the term 'pension plan contract' means any contract— "(1) entered into with trusts which (as of the time the contracts were entered into) were deemed to be trusts described in section 401(a) and exempt from tax under section 501(a) (or trusts exempt from tax under section 165 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws); "(2) entered into under plans which (as of the time the contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939; "(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (19), (20), and (22) of section 401(a); "(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) WEIS an organization described in section 501(c)(3) which was exempt from tax under section 501(a) (or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws), or purchased to provide retirement annuities for employees described in section 403(b)(l)(A)(ii) by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing; "(5) entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under -contracts entered into with individual retirement annuities described in section 408(b); or "(6) purchased by— "(A) a governmental plan (within the meaning of section 414(d)), or "(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, for use in satisfying an obligation of such government, political subdivision, or agency or instrumentality to provide a benefit Ln^ under a plan described in subparagraph (A).

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Page:United States Statutes at Large Volume 98 Part 1.djvu/801

 PUBLIC LAW 98-369—JULY 18, 1984 "(b) TREATMENT OF CAPITAL GAINS AND LOSSES, ETC.—In the case of a life insurance company— "(1) in applying section 1231(a), the term 'property used in the trade or business shall be treated as including only— "(A) property used in carrying on an insurance business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in carrying on an insurance business, held for more than 1 year, which is not described in section 1231(b)(1)(A), (B), or (C), and "(B) property described in section 1231(b)(2), and "(2) in applying section 1221(2), the reference to property used in trade or business shall be treated as including only property used in carrying on an insurance business. "(c) GAIN ON PROPERTY HELD ON DECEMBER 31, 1958 AND CERTAIN SUBSTITUTED PROPERTY ACQUIRED AFTER 1958.— "(1) PROPERTY HELD ON DECEMBER 31, 1958.—In the case of

property held by the taxpayer on December 31, 1958, if^ "(A) the fair market value of such property on such date exceeds the adjusted basis for determining gain as of such date, and "(B) the taxpayer has been a life insurance company at all times on and after December 31, 1958, the gain on the sale or other disposition of such property shall be treated as an amount (not less than zero) equal to the amount by which the gain (determined without regard to this subsection) exceeds the difference between the fair market value on December 31, 1958, and the adjusted basis for determining gain as of such date. "(2) CERTAIN PROPERTY ACQUIRED AFTER DECEMBER 31, 1958.— In the case of property acquired after December 31, 1958, and having a substituted basis (within the meaning of section 1016(b))— "(A) for purposes of paragraph (1), such property shall be deemed held continuously by the taxpayer since the beginning of the holding period thereof, determined with reference to section 1223, "(B) the fair market value and adjusted basis referred to in paragraph (1) shall be that of that property for which the holding period taken into account includes December 31, 1958, "(C) paragraph (1) shall apply only if the property or propenrties the holding periods of which are taken into account were held only by life insurance companies after December 31, 1958, during the holding periods so taken into account, "(D) the difference between the fair market value and adjusted basis referred to in paragraph (1) shall be reduced (to not less than zero) by the excess of (i) the gain that would have been recognized but for this subsection on all prior sales or dispositions after December 31, 1958, of properties referred to in subparagraph (C), over (ii) the gain which was recognized on such sales or other dispositions, and "(E) the basis of such property shall be determined as if the gain which would have been recognized but for this subsection were recognized gain.

31 194 0 - 86 - 26: QL. 3 Part 1

98 STAT. 753

Post, p. 944.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/802

 98 STAT. 754

PUBLIC LAW 98-369—JULY 18, 1984 "(3) PROPERTY DEFINED.—For purposes of paragraphs (1) and (2), the term 'property' does not include insurance and annuity contracts and property described in paragraph (1) of section 1221. "(d) INSURANCE OR ANNUITY CONTRACT INCLUDES CONTRACTS SUPPLEMENTARY THERETO.—For purposes of this part, the term 'insur-

ance or annuity contract' includes any contract supplementary thereto. "(e)

SPECIAL RULE FOR CONSOUDATED RETURNS.—If an

election

under section 1504(c)(2) is in effect with respect to an affiliated group for the taxable year, all items of the members of such group which are not life insurance companies shall not be taken into account in determining the amount of the tentative LICTI of members of such group which are life insurance companies. "(f) ALLOCATION OF CERTAIN ITEMS FOR PURPOSES OF FOREIGN TAX CREDIT, ETC.—

Ante, p. 732. Ante, p. 726. Ante, p. 722.

"(1) IN GENERAL.—Under regulations, in applying sections 861, 862, and 863 to a life insurance company, the deduction for policyholder dividends (determined under section 808(c)), reserve adjustments under subsections (a) and (b) of section 807, and death benefits and other amounts described in section 805(a)(1) shall be treated as items which cannot definitely be allocated to an item or class of gross income. "(2) ELECTION OF ALTERNATIVE ALLOCATION.—

"(A) IN GENERAL.—On or before September 15, 1985, any life insurance company may elect to treat items described in paragraph (1) as properly apportioned or allocated among items of gross income to the extent (and in the manner) prescribed in regulations. "(B) ELECTION IRREVOCABLE.—Any election under subparagraph (A), once made, may be revoked only with the consent of the Secretary." (b) TECHNICAL AND CONFORMING AMENDMENTS.—

26 USC 72. 26 USC 80. 26 USC 243.

26 USC 381. 26 USC 401.

26 USC 453B.

(1) Subclause (IV) of section 72(e)(5)(D)(i) is amended by striking out "section 805(d)(3)" and inserting in lieu thereof "section 818(a)(3)". (2) Subsection (a) of section 80 (relating to restoration of value of certain securities) is amended by striking out "802" and inserting in lieu thereof "801". (3)(A) Subparagraph (C) of section 243(b)(3) (relating to effect of election) is amended by striking out clause (iii), by adding "and" at the end of clause (ii), and by redesignating clause (iv) as clause (iii). (B) Paragraph (6) of section 243(b) (relating to special rules for insurance companies) is amended by striking out "section 802" and inserting in lieu thereof "section 801". (4) Subsection (d) of section 381 (relating to carryover in certain corporate acquisitions) is amended by striking out "section 812(f)" and inserting in lieu thereof "section 810". (5) Paragraph (24) of section 401(a) (relating to qualified pension, profit-sharing, and stock bonus plans) is amended by striking out "section 805(d)(6)" and inserting in lieu thereof "section 818(a)(6)". (6)(A) Paragraph (1) of section 453B(e) (relating to life insurance companies) is amended by striking out "section 801(a)" and inserting in lieu thereof "section 816(a)'.

I jss'i £

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Page:United States Statutes at Large Volume 98 Part 1.djvu/803

 PUBLIC LAW 98-369—JULY 18, 1984 (B) Paragraph (2) of section 453B(e) is amended to read as follows:

98 STAT. 755 26 USC 453B.

"(2) SPECIAL RULE WHERE U F E INSURANCE COMPANY ELECTS TO

TREAT INCOME AS NOT RELATED TO INSURANCE BUSINESS.—Paragraph (1) shall not apply to any transfer or deemed transfer of an installment obligation if the life insurance company elects (at such time and in such manner as the Secretary may by regulations prescribe) to determine its life insurance company taxable income— "(A) by returning the income on such installment obligation under the installment method prescribed in section 453, and "(B) as if such income were an item attributable to a noninsurance business (as defined in section 806(c)(3))." (7) Paragraph (5) of section 542(b) (relating to certain dividend income received from a nonincludible life insurance company) is amended by striking out "section 802" and inserting in lieu thereof "section 801. (8) Subsection (b) of section 594 (relating to alternative tax for mutual savings banks conducting life insurance business) is amended by striking out "section 801" and inserting in lieu thereof "section 816. (9) Paragraph (4) of section 832(b) (defining premiums earned) is amended by striking out "section 801(b)" and inserting in lieu thereof "section 816(b) but determined as provided in section 807" and by striking out "section 801" and inserting in lieu thereof "section 816". (10) Section 841 (relating to credit for foreign taxes) is amended— (A) by striking out "section 802", each place it appears and inserting in lieu thereof "section 801", and (B) by striking out "section 802(b)" and inserting in lieu thereof "section 801(b)". (UXA) Subsection (a) of section 844 (relating to special loss carryover rules) is amended— (i) by striking out "section 812", and inserting in lieu thereof "section 810 (or the corresponding provisions of prior law),", and (ii) by striking out "section 812(a)" and inserting in lieu thereof "section 810(a)". (B) Subsection (b) of section 844 is amended— (i) by striking out "section 812(a)" and inserting in lieu thereof "section 810(a)", and (ii) by striking out "section 812(b)(l)(C)" in paragraph (2) and inserting in lieu thereof "section 810(b)(l)(C)". (12) Section 891 (relating to doubling of rates of tax on citizens and corporations of certain foreign countries) is amended by striking out "802" and inserting in lieu thereof "801". (13XA) Subsection (b) of section 953 (relating to income from insurance of United States risks) is amended by striking out paragraph (1) and by redesignating paragraphs (2), (3), (4), and (5) as paragraphs (1), (2), (3), and (4), respectively. (B) Paragraph (2) of section 953(b), as redesignated by subparagraph (A), is amended to read as follows: "(2) The following provisions of subchapter L shall not apply: "(A) The special life insurance company deduction and the small life insurance company deduction.

Ante, p. 724^ 26 USC 542.

26 USC 594.

26 USC 832.

26 USC 841.

26 USC 844.

26 USC 891. 26 USC 953.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/804

 98 STAT. 756 Ante, p. 722. Ante, p. 755.

26 USC 1016. 26 USC 1035. 26 USC 1201. 26 USC 1232A. 26 USC 1351.

26 USC 1503.

PUBLIC LAW 98-369—JULY 18, 1984 "(B) Section 805(a)(5) (relating to operations loss deduction). "(C) Section 832(c)(5) (relating to certain capital losses)." (C) Paragraph (3) of section 953(b), as redesignated by subparagraph (A), is amended by— (i) striking out "section 809(c)(1)" and inserting in lieu thereof "section 803(a)(l)", and (ii) by striking out "section 809(c)(2)" and inserting in lieu thereof "section 803(a)(2)", and (iii) by striking out "section 809(d)(2)" and inserting in lieu thereof "section 805(a)(2)". (D) Paragraph (2) of section 953(a) is amended by striking out ", (2), and (3)" and inserting in lieu thereof "and (2)". (E) Paragraph (4) of section 953(b), as redesignated by subparagraph (A), is amended by striking out "paragraph (4)" and inserting in lieu thereof "paragraph (3)", (14) Paragraph (17) of section 1016(a) is amended by striking out "section 818(b)" each place it appears and inserting in lieu thereof "section 811(b)". (15) Paragraph (1) of section 1035(b) (defining endowment contract) is amended by striking out "section 801" and inserting in lieu thereof "section 816". (16) Paragraph (1) of section 1201(b) (relating to cross references) is amended by striking out "section 802(a)(2)" and inserting in lieu thereof "section 801(a)(2)". (17) Subparagraph (B) of section 1232A(c)(4) (relating to original issue discount) is amended by striking out "section 818(b)" and inserting in lieu thereof "section 811(b)". (18)(A) Paragraph (1) of section 1351(a) (relating to treatment of recoveries of foreign expropriation losses) is amended by striking out "802" each place it appears and inserting in lieu thereof "801". (B) Paragraph (2) of section 1351(c) (relating to amount of recovery) is amended by striking out "section 810(c)" and inserting in lieu thereof "section 807(c)". (C) Paragraph (3) of section 1351(i) (relating to adjustments for succeeding years) is amended by striking out "section 812" and inserting in lieu thereof "section 810". (19XA) Subsection (c) of section 1503 (relating to special rules for application of certain losses against income of insurance companies taxed under section 802) is amended by striking out "section 802" each place it appears and inserting in lieu thereof "section 801". (B) Paragraph (1) of section 1503(c) is amended by striking out the third sentence. (C) The subsection heading of section 1503(c) is amended by striking out "SECTION 802" and inserting in lieu thereof "SECTION 801".

26 USC 1504. 26 USC 1561.

(20) Subsections (b)(2), (c)(D, and (c)(2)(A) of section 1504 (defining affiliated group) are each amended by striking out "section 802" and inserting in lieu thereof "section 801". (21XA) Subsection (a) of section 1561 (relating to limitations on certain multiple tax benefits in the case of certain controlled corporations) is amended— (i) by striking out paragraphs (3) and (4), by adding "and" at the end of paragraph (1), and by striking out the comma

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Page:United States Statutes at Large Volume 98 Part 1.djvu/805

 PUBLIC LAW 98-369—JULY 18, 1984 at the end of paragraph (2) and inserting in lieu thereof a period, and (ii) by striking out "paragraphs (2), (3), and (4)" in the last sentence and inserting in lieu thereof "paragraph (2)", (B) Subsection (b) of section 1561 is amended— (i) by striking out paragraphs (3) and (4) and by adding "and" at the end of paragraph (1), and (ii) by striking out ", (2), (3), or (4)" and inserting in lieu thereof "or (2)". (22) Subsections (a)(4) and (b)(2)(D) of section 1563 (defining controlled group of corporations) are each amended by striking out "section 802" and inserting in lieu thereof "section 8 0 1 '. (23) Paragraph (2) of section 4371 (relating to imposition of tax on policies issued by foreign insurers) is amended by striking out "section 819" and inserting in lieu thereof "section 813. (24)(A) Subsection (c) of section 6501 (relating to limitations on assessment and collection) is amended by striking out paragraph (6) and by redesignating paragraph (7) as paragraph (6). (B) Subsection (k) of section 6501 (relating to reductions of policyholders surplus account of life insurance companies) is hereby repealed. (25) Subsection (d) of section 6511 (relating to limitations on credit or refund) is amended by striking out paragraph (6) and by redesignating paragraph (7) as paragraph (6). (26) Subsection (d) of section 6601 (relating to interest on underpayments, etc.) is amended by striking out paragraph (3) and by redesignating paragraph (4) as paragraph (3). (27) Subsection (0 of section 6611 (relating to interest on overpayments) is amended by striking out paragraph (4). SEC. 212. CERTAIN REINSURANCE AGREEMENTS. (a) IN GENERAL.—Part IV 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. 845. CERTAIN REINSURANCE AGREEMENTS. "(a) ALLOCATION IN CASE OP REINSURANCE AGREEMENT INVOLVING TAX AVOIDANCE OR EVASION.—In the case of 2 or more related

persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may— "(1) allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement, "(2) recharacterize any such items, or "(3) make any other adjustment, if he determines that such allocation, recharacterization, or adjustment is necessary to reflect the proper source and character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person. "(b) REINSURANCE CONTRACT HAVING SIGNIFICANT TAX AVOIDANCE

EFFECT.—If the Secretary determines that any reinsurance contract has a significant tax avoidance effect on any party to such contract, the Secretary may make proper adjustments with respect to such party to eliminate such tax avoidance effect (including treating such

98 STAT. 757

26 USC 1561.

26 USC 1563. 26 USC 4371. 26 USC 6501.

26 USC 6511. 26 USC 6601. 26 USC 6611.

26 USC 845.

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Page:United States Statutes at Large Volume 98 Part 1.djvu/806

 98 STAT. 758

PUBLIC LAW 98-369—JULY 18, 1984 contract with respect to such party as terminated on December 31 of each year and reinstated on January 1 of the next year)." (b) CLERICAL AMENDMENT.—The table of sections for such part IV is amended by adding at the end thereof the following new item: "Sec. 845. Certain reinsurance agreements."

PART II—EFFECTIVE DATE; TRANSITIONAL RULES Subpart A—Effective Date 26 USC 801 note. SEC. 215. EFFECTIVE DATE.

The amendments made by this subtitle shall apply to taxable years beginning after December 31, 1983. Subpart B—Transitional Rules 26 USC 801 note.

SEC. 216. RESERVES COMPUTED ON NEW BASIS; FRESH START. (a) RECOMPUTATION OF RESERVES.—

26 USC 801. Ante, p. 748.

Ante, p. 726.

(1) IN GENERAL.—As of the beginning of the first taxable year beginning after December 31, 1983, for purposes of subchapter L of the Internal Revenue Code of 1954 (other than section 816 thereof), the reserve for any contract shall be recomputed as if the amendments made by this subtitle had applied to such contract when it was issued. (2) PREMIUMS EARNED.—For the first taxable year beginning after December 31, 1983, in determining "premiums earned on insurance contracts during the taxable year" as provided in section 832(b)(4) of the Internal Revenue Code of 1954, life insurance reserves which are included in unearned premiums on outstanding business at the end of the preceding taxable year shall be determined as provided in section 807 of the Internal Revenue Code of 1954, as amended by this subtitle, as though section 807 was applicable to such reserves in such preceding taxable year. (3) ISSUANCE DATE FOR GROUP CONTRACTS.—For purposes of

this subsection, the issuance date of any group contract shall be determined under section 807(e)(2) of the Internal Revenue Code of 1954 (as added by this subtitle), except that if such issuance date cannot be determined, the issuance date shall be determined on the basis prescribed by the Secretary of the Treasury or his delegate for purposes of this subsection. (b) FRESH START.—

26 USC 1 et seq.

(1) IN GENERAL.—Except as provided in paragraph (2), in the case of any insurance company, any change in the method of accounting (and any change in the method of computing reserves) between such company's first taxable year beginning after December 31, 1983, and the preceding taxable year which is required solely by the amendments made by this subtitle shall be treated as not being a change in the method of accounting (or change in the method of computing reserves) for purposes of the Internal Revenue Code of 1954. (2) TREATMENT OF ADJUSTMENTS FROM YEARS BEFORE 1984.— (A) ADJUSTMENTS ATTRIBUTABLE TO DECREASES IN RE-

SERVES.—No adjustment under section 810(d) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act) attributable to any

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Page:United States Statutes at Large Volume 98 Part 1.djvu/807

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 759

decrease in reserves as a result of a change in a taxable year beginning before 1984 shall be taken into account in any taxable year beginning after 1983. (B) ADJUSTMENTS ATTRIBUTABLE TO INCREASES IN RESERVES.—

(i) IN GENERAL.—Any adjustment under section 810(d) of the Internal Revenue Code of 1954 (as so in effect) attributable to an increase in reserves as a result of a change in a taxable year beginning before 1984 shall be taken into account in taxable years beginning after 1983 to the extent that— (I) the amount of the adjustments which would be taken into account under such section in taxable years beginning after 1983 without regard to this subparagraph, exceeds (II) the amount of any fresh start adjustment attributable to contracts for which there was such an increase in reserves as a result of such change. (ii) FRESH START ADJUSTMENT.—For purposes of clause

(i), the fresh start adjustment with respect to any contract is the excess (if any) of— (I) the reserve attributable to such contract as of the close of the taxpayer's last taxable year beginning before January 1, 1984, over (II) the reserve for such contract as of the beginning of the taxpayer's first taxable year beginning after 1983 as recomputed under subsection (a) of this section. (C) RELATED INCOME INCLUSIONS NOT TAKEN INTO ACCOUNT

TO THE EXTENT DEDUCTION DISALLOWED UNDER SUBPARAGRAPH (b).—No premium shall be included in income to the extent such premium is directly related to an increase in a reserve for which a deduction is disallowed by subparagraph (B). (3) REINSURANCE TRANSACTIONS, AND RESERVE STRENGTHENING, AFTER SEPTEMBER 27, 1983.—

(A) IN GENERAL.—Paragraph (1) shall not apply (and section 807(f) of the Internal Revenue Code of 1954 as Ante, p. 726. amended by this subtitle shall apply)— (i) to any reserve transferred pursuant to— (I) a reinsurance agreement entered into after September 27, 1983, and before January 1, 1984, or (II) a modification of a reinsurance agreement made after September 27, 1983, and before January 1, 1984, and (ii) to any reserve strengthening reported for Federal income tax purposes after September 27, 1983, for a taxable year ending before January 1, 1984. Clause (ii) shall not apply to the computation of reserves on any contract issued if such computation employs the reserve practice used for purposes of the most recent annual statement filed before September 27, 1983, for the type of contract with respect to which such reserves are set up. (B) TREATMENT OF RESERVE ATTRIBUTABLE TO SECTION

818(c) ELECTION.—In the case of any reserve described in subparagraph (A), for purposes of section 807(f) of the Internal Revenue Code of 1954, any change in the treatment of

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