26 USC 808 - Policyholder dividends deduction

Collapse to view only § 808. Policyholder dividends deduction

§ 804. Life insurance deductions
§ 805. General deductions
[§ 806. Repealed.
§ 807. Rules for certain reserves
§ 808. Policyholder dividends deduction
[§ 809. Repealed.
[§ 810. Repealed.

§ 804. Life insurance deductions

For purposes of this part, the term “life insurance deductions” means the general deductions provided in section 805.

(Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 722; amended Pub. L. 99–514, title X, § 1011(b)(2), Oct. 22, 1986, 100 Stat. 2389; Pub. L. 115–97, title I, § 13512(b)(4), Dec. 22, 2017, 131 Stat. 2143.)

§ 805. General deductions

(a) General ruleFor purposes of this part, there shall be allowed the following deductions:

(1) Death benefits, etc.

(2) Increases in certain reserves

(3) Policyholder dividends

(4) Dividends received by company

(A) In generalThe deductions provided by sections 243 and 245 (as modified by subparagraph (B))—

(i) for 100 percent dividends received, and

(ii) for the life insurance company’s share of the dividends (other than 100 percent dividends) received.

(B) Application of section 246(b)In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), 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—

(i) the deduction allowed under section 172,

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

(iii) any capital loss carryback to the taxable year under section 1212(a)(1),

but such limit shall not apply for any taxable year for which there is a loss from operations.

(i) In general

(ii) Treatment of dividends from noninsurance companies

(D) Special rules for certain dividends from insurance companies

(i) In generalIn 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—(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,

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 reductionThe reduction under this clause for a dividend is an amount equal to—(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

(iv) Portion of dividend attributable to prorated amountsFor 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

(E) Certain dividends received by foreign corporations

(F) Increase in policy cash valuesFor purposes of subparagraphs (C) and (D)—

(i) In generalThe 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—(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 valueFor 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]

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

(7) Reimbursable dividendsThe 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

Except as provided in paragraph (3), no amount shall be allowed as a deduction under this part in respect of policyholder dividends.

(b) ModificationsThe modifications referred to in subsection (a)(8) are as follows:

(1) Interest

(2) Charitable, etc., contributions and giftsIn applying section 170—

(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—

(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

(iv) any capital loss carryback to the taxable year under section 1212(a)(1), and

(B) under regulations prescribed by the Secretary, a rule similar to the rule contained in section 170(d)(2)(B) (relating to special rule for net operating loss carryovers) shall be applied.

(3) Amortizable bond premium

(A) In general

(B) Cross reference

(4) Dividends received deduction

(Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 722; amended Pub. L. 99–514, title VI, § 611(a)(5), title VIII, § 805(c)(6), title X, § 1011(b)(4), title XVIII, § 1821(p), Oct. 22, 1986, 100 Stat. 2249, 2362, 2389, 2842; Pub. L. 100–203, title X, § 10221(c)(2), Dec. 22, 1987, 101 Stat. 1330–409; Pub. L. 104–188, title I, § 1702(h)(3), Aug. 20, 1996, 110 Stat. 1873; Pub. L. 105–34, title X, § 1084(b)(1), Aug. 5, 1997, 111 Stat. 954; Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), (I), Dec. 19, 2014, 128 Stat. 4044; Pub. L. 115–97, title I, §§ 13511(a), (b)(4)–(6), 13512(b)(5), (6), Dec. 22, 2017, 131 Stat. 2142, 2143.)

[§ 806. Repealed. Pub. L. 115–97, title I, § 13512(a), Dec. 22, 2017, 131 Stat. 2142]

§ 807. Rules for certain reserves

(a) Decrease treated as gross incomeIf for any taxable year—

(1) the opening balance for the items described in subsection (c), exceeds

(2)

(A) the closing balance for such items, reduced by

(B) the amount of the policyholders’ share of tax-exempt interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,

such excess shall be included in gross income under section 803(a)(2).

(b) Increase treated as deductionIf for any taxable year—

(1)

(A) the closing balance for the items described in subsection (c), reduced by

(2) the opening balance for such items,

such excess shall be taken into account as a deduction under section 805(a)(2).

(1) The life insurance reserves (as defined in section 816(b)).

(2) The unearned premiums and unpaid losses included in total reserves under section 816(c)(2).

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

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

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

(6) Reasonable special contingency reserves under contracts of group term life insurance or group accident and health insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or for a combination thereof.

For purposes of paragraph (3), the appropriate rate of interest is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract. For purposes of paragraph (2) and section 805(a)(1), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846.

(d) Method of computing reserves for purposes of determining income

(1) Determination of reserve

(A) In generalFor purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of—

(i) the net surrender value of such contract, or

(ii) 92.81 percent of the reserve determined under paragraph (2).

(B) Variable contractsFor purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of—

(i) the greater of—(I) the net surrender value of such contract, or(II) the portion of the reserve that is separately accounted for under section 817, plus

(ii) 92.81 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i).

(D) No double counting

(2) Amount of reserve

(3) Tax reserve methodFor purposes of this subsection—

(A) In generalThe term “tax reserve method” means—

(i) Life insurance contracts

(ii) Annuity contracts

(iii) Noncancellable accident and health insurance contracts

(iv) Other contractsIn the case of any contract not described in clause (i), (ii), or (iii)—(I) the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract (as of the date the reserve is determined), or(II) if no reserve method has been prescribed by the National Association of Insurance Commissioners which covers such contract, a reserve method which is consistent with the reserve method required under clause (i), (ii), or (iii) or under subclause (I) of this clause as of the date the reserve is determined for such contract (whichever is most appropriate).

(B) Definition of CRVM and CARVMFor purposes of this paragraph—

(i) CRVM

(ii) CARVM

(4) Statutory reserves

(e) Special rules for computing reserves

(1) Net surrender valueFor purposes of this section—

(A) In generalThe 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

(2) Qualified supplemental benefits

(A) Qualified supplemental benefits treated separately

(B) Qualified supplemental benefit

(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.

(C) Supplemental benefitsFor 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).

(3) Certain contracts issued by foreign branches of domestic life insurance companies

(A) In general

(B) Qualified foreign contractFor 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.

(4) Special rules for contracts issued before January 1, 1989, under existing plans of insurance, with term insurance or annuity benefitsFor purposes of this part—

(A) In general

(B) Benefits to which this paragraph applies

(5) Special rules for treatment of certain nonlife reserves

(A) In generalThe amount taken into account for purposes of subsections (a) and (b) as—

(i) the opening balance of the items referred to in subparagraph (B), and

(ii) the closing balance of such items,

shall be 80 percent of the amount which (without regard to this subparagraph) would have been taken into account as such opening or closing balance, as the case may be.

(B) Description of items

(6) Reporting rules

(f) Adjustment for change in computing reserves

(1) Treatment as change in method of accountingIf the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between—

(A) the amount of the item at the close of the taxable year, computed on the new basis, and

(B) the amount of the item at the close of the taxable year, computed on the old basis,

as is attributable to contracts issued before the taxable year shall be taken into account under section 481 as adjustments attributable to a change in method of accounting initiated by the taxpayer and made with the consent of the Secretary.

(2) Termination as life insurance company

(Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 726; amended Pub. L. 99–514, title X, § 1023(b), title XVIII, § 1821(a), (s), Oct. 22, 1986, 100 Stat. 2399, 2837, 2843; Pub. L. 100–203, title X, § 10241(a)–(b)(2)(A), Dec. 22, 1987, 101 Stat. 1330–419, 1330–420; Pub. L. 101–508, title XI, § 11302(a), Nov. 5, 1990, 104 Stat. 1388–449; Pub. L. 104–188, title I, § 1704(t)(61), Aug. 20, 1996, 110 Stat. 1890; Pub. L. 104–191, title III, § 321(b), Aug. 21, 1996, 110 Stat. 2058; Pub. L. 105–34, title X, § 1084(b)(2), Aug. 5, 1997, 111 Stat. 954; Pub. L. 108–218, title II, § 205(b)(1), (2), Apr. 10, 2004, 118 Stat. 610; Pub. L. 113–295, div. A, title II, § 221(a)(68), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, §§ 13513(a), 13517(a)(1)–(3), Dec. 22, 2017, 131 Stat. 2143–2145; Pub. L. 115–141, div. U, title IV, § 401(a)(141), Mar. 23, 2018, 132 Stat. 1191.)

§ 808. Policyholder dividends deduction

(a) Policyholder dividend defined

(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.

(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) in excess of interest determined at the prevailing State assumed rate for such contract.

(2) Premium adjustment

(3) Experience-rated refund

(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.

(f) Coordination of 1984 fresh-start adjustment with acceleration of policyholder dividends deduction through change in business practice

(1) In general

(2) Year of change

(3) Accelerated policyholder dividends deduction defined

(4) 1984 fresh-start adjustment for policyholder dividends

(5) Separate application with respect to lines of business

(6) Subsection not to apply to mere change in dividend amount

(7) Subsection not to apply to policies issued after December 31, 1983

(A) In general

(B) Exchanges of substantially similar policies

(8) Subsection to apply to policies provided under employee benefit plans

(g) Prevailing State assumed interest rate

For purposes of this subchapter—

(1) In general

(2) When rate determined

(Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 732; amended Pub. L. 99–514, title XVIII, § 1821(b), (c), Oct. 22, 1986, 100 Stat. 2838; Pub. L. 108–218, title II, § 205(b)(3), Apr. 10, 2004, 118 Stat. 610; Pub. L. 115–97, title I, § 13517(b)(1), Dec. 22, 2017, 131 Stat. 2147.)

[§ 809. Repealed. Pub. L. 108–218, title II, § 205(a), Apr. 10, 2004, 118 Stat. 610]

[§ 810. Repealed. Pub. L. 115–97, title I, § 13511(b)(1), Dec. 22, 2017, 131 Stat. 2142]