Cases: Southwestern Life Ins. Co. v. United States, 560 F.2d 627 (5th Cir. 1977); Bankers Union Life Ins. Co. v. Commissioner, 62 T.C. 661 (1974); Unum Life Ins. Co. v. United States, 897 F.2d 599 (1st Cir. 1990)
Final rules 1
(a) General rule For purposes of this part, there shall be allowed the following deductions:
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(1) Death benefits, etc. All claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and annuity contracts.
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(2) Increases in certain reserves The net increase in reserves which is required by section 807(b) to be taken into account under this paragraph.
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(3) Policyholder dividends The deduction for policyholder dividends (determined under section 808(c)).
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(4) Dividends received by company
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(A) In general The deductions provided by sections 243 and 245 (as modified by subparagraph (B))—
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(G), struck out “, 244,” after “sections 243” in introductory provisions.
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(i) for 100 percent dividends received, and
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(ii) for the life insurance company’s share of the dividends (other than 100 percent dividends) received.
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(B) Application of section 246(b) In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections 243(a)(1) and 245 shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3)), computed without regard to—
Amended 1986, 1987, 2014, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(5), redesignated cls. (iii) and (iv) as (ii) and (iii), respectively.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(I), struck out “, 244(a),” after “sections 243(a)(1)” in introductory provisions and in cl. (iii).
- 1987 Pub. L. 100-203 Pub. L. 100–203 substituted “shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3))” for “shall be 80 percent of the life insurance company taxable income”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 611(a)(5), substituted “80 percent” for “85 percent” in introductory provisions.
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(i) the deduction allowed under section 172,
Amended 1986, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(5), redesignated cl. (ii) as (i) and struck out former cl. (i) which read as follows: “the small life insurance company deduction,”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1011(b)(4), struck out “the special life insurance company deduction and” before “the small life”.
(ii) the deductions allowed by sections 243(a)(1) and 245, and
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(5), redesignated cl. (iii) as (ii). Former cl. (ii) redesignated (i).
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13511(b)(4), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the operations loss deduction provided by section 810,”.
(iii) any capital loss carryback to the taxable year under section 1212(a)(1),
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(5), redesignated cls. (iii) and (iv) as (ii) and (iii), respectively.
but such limit shall not apply for any taxable year for which there is a loss from operations.
(C) 100 percent dividend For purposes of subparagraph (A)—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(p), added subpars. (C) and (D), redesignated former subpar. (D) as (E), and struck out former subpar. (C) which read as follows: “For purposes of subparagraph (A), the term ‘100 percent dividend’ means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence).”
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(i) In general Except as provided in clause (ii), the term “100 percent dividend” means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 245(b) is 100 percent.
Amended 2014
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(G), struck out “, 244,” after “section 243”.
(ii) Treatment of dividends from noninsurance companies The term “100 percent dividend” does not include any distribution by a corporation which is not an insurance company to the extent such distribution is out of tax-exempt interest, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, or out of dividends which are not 100 percent dividends (determined with the application of this clause as if it applies to distributions by all corporations including insurance companies).
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1084(b)(1)(A), inserted “, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,” after “tax-exempt interest”.
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(D) Special rules for certain dividends from insurance companies
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(p), added subpars. (C) and (D), redesignated former subpar. (D) as (E), and struck out former subpar. (C) which read as follows: “For purposes of subparagraph (A), the term ‘100 percent dividend’ means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence).”
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(i) In general In the case of any 100 percent dividend paid to any life insurance company out of the earnings and profits for any taxable year beginning after December 31, 1983, of another life insurance company if—
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(I) the paying company’s share determined under section 812 for such taxable year, exceeds
(II) the receiving company’s share determined under section 812 for its taxable year in which the dividend is received or accrued,
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the deduction allowed under section 243 or 245(b) (as the case may be) shall be reduced as provided in clause (ii).
(ii) Amount of reduction The reduction under this clause for a dividend is an amount equal to—
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(I) the portion of such dividend attributable to prorated amounts, multiplied by
(II) the percentage obtained by subtracting the share described in subclause (II) of clause (i) from the share described in subclause (I) of such clause.
(iii) Prorated amounts For purposes of this subparagraph, the term “prorated amounts” means tax-exempt interest, the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, and dividends other than 100 percent dividends.
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1084(b)(1)(B), substituted “, the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, and” for “and”.
(iv) Portion of dividend attributable to prorated amounts For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts—
(I) any dividend by the paying corporation shall be treated as paid first out of earnings and profits for taxable years beginning after December 31, 1983, attributable to prorated amounts (to the extent thereof), and
(II) by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter.
(v) Subparagraph to apply to dividends from other insurance companies Rules similar to the rules of this subsection shall apply in the case of 100 percent dividends paid by an insurance company which is not a life insurance company.
(E) Certain dividends received by foreign corporations Subparagraph (A)(i) (and not subparagraph (A)(ii)) shall apply to any dividend received by a foreign corporation from a domestic corporation which would be a 100 percent dividend if section 1504(b)(3) did not apply for purposes of applying section 243(b)(2).
Amended 1986, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188 substituted “243(b)(2)” for “243(b)(5)”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1821(p), added subpars. (C) and (D), redesignated former subpar. (D) as (E), and struck out former subpar. (C) which read as follows: “For purposes of subparagraph (A), the term ‘100 percent dividend’ means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 244 is 100 percent. Such term does not include any dividend to the extent it is a distribution out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this sentence).”
(F) Increase in policy cash values For purposes of subparagraphs (C) and (D)—
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34, § 1084(b)(1)(C), added subpar. (F).
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(i) In general The increase in the policy cash value for any taxable year with respect to policy or contract is the amount of the increase in the adjusted cash value during such taxable year determined without regard to—
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(I) gross premiums paid during such taxable year, and
(II) distributions (other than amounts includible in the policyholder’s gross income) during such taxable year to which section 72(e) applies.
(ii) Adjusted cash value For purposes of clause (i), the term “adjusted cash value” means the cash surrender value of the policy or contract increased by the sum of—
(I) commissions payable with respect to such policy or contract for the taxable year, and
(II) asset management fees, surrender charges, mortality and expense charges, and any other fees or charges specified in regulations prescribed by the Secretary which are imposed (or which would be imposed were the policy or contract canceled) with respect to such policy or contract for the taxable year.
[(5) Repealed. Pub. L. 115–97, title I, § 13511(b)(5), Dec. 22, 2017, 131 Stat. 2142]
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13511(b)(5), struck out par. (5) which provided for the operations loss deduction determined under section 810.
(6) Assumption by another person of liabilities under insurance, etc., contracts The consideration (other than consideration arising out of indemnity reinsurance) in respect of the assumption by another person of liabilities under insurance and annuity contracts.
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(7) Reimbursable dividends The amount of policyholder dividends which—
(A) are paid or accrued by another insurance company in respect of policies the taxpayer has reinsured, and
(B) are reimbursable by the taxpayer under the terms of the reinsurance contract.
(8) Other deductions Subject to the modifications provided by subsection (b), all other deductions allowed under this subtitle for purposes of computing taxable income.
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Except as provided in paragraph (3), no amount shall be allowed as a deduction under this part in respect of policyholder dividends.
(b) Modifications The modifications referred to in subsection (a)(8) are as follows:
Amended 1986, 2014, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13511(a), redesignated par. (5) as (4) and struck out former par. (4) which did not allow the net operating loss deduction provided in section 172, except as provided by section 844.
- 2014 Pub. L. 113-295 Pub. L. 113–295, § 221(a)(41)(G), struck out “, 244,” after “sections 243”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 805(c)(6), redesignated pars. (3) to (6) as (2) to (5), respectively.
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(1) Interest In applying section 163 (relating to deduction for interest), no deduction shall be allowed for interest in respect of items described in section 807(c).
(2) Charitable, etc., contributions and gifts In applying section 170—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 805(c)(6), redesignated par. (3) as (2). Former par. (2), which provided that section 166(c) (relating to reserve for bad debts) shall not apply, was struck out.
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(A) the limit on the total deductions under such section provided by section 170(b)(2) shall be 10 percent of the life insurance company taxable income computed without regard to—
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(6), redesignated cl. (v) as (iv).
(i) the deduction provided by section 170,
(ii) the deductions provided by paragraphs (3) and (4) of subsection (a),
(iii) any net operating loss carryback to the taxable year under section 172, and
Amended 1986, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(6), redesignated cl. (iv) as (iii) and struck out former cl. (iii) which read as follows: “the small life insurance company deduction,”.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1011(b)(4), which directed that subsec. (b)(3)(A)(iii) be amended by striking out “the special life insurance company deduction and” before “the small life”, was executed to subsec. (b)(2)(A)(iii) to reflect the probable intent of Congress and the redesignation of subsec. (b)(3) as (b)(2) by Pub. L. 99–514, § 805(c)(6).
(iv) any capital loss carryback to the taxable year under section 1212(a)(1), and
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(6), redesignated cl. (v) as (iv). Former cl. (iv) redesignated (iii).
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13511(b)(6), amended cl. (iv) generally. Prior to amendment, cl. (iv) read as follows: “any operations loss carryback to the taxable year under section 810, and”.
(B) under regulations prescribed by the Secretary, a rule similar to the rule contained in section 170(d)(2)(B) [OLRC note: See References in Text note below.] (relating to special rule for net operating loss carryovers) shall be applied.
(3) Amortizable bond premium
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 805(c)(6), redesignated pars. (3) to (6) as (2) to (5), respectively.
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(A) In general Section 171 shall not apply.
(B) Cross reference For rules relating to amortizable bond premium, see section 811(b).
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(4) Dividends received deduction Except as provided in subsection (a)(4), the deductions for dividends received provided by sections 243 and 245 shall not be allowed.
Amended 1986, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13511(a), redesignated par. (5) as (4) and struck out former par. (4) which did not allow the net operating loss deduction provided in section 172, except as provided by section 844.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 805(c)(6), redesignated pars. (3) to (6) as (2) to (5), respectively.