26 USC 807 - Rules for certain reserves

Editorial Notes

Codification

Another section 1084(span) of Puspan. L. 105–34 amended sections 101 and 264 of this title.

Prior Provisions

A prior section 807, act Aug. 16, 1954, ch. 736, 68A Stat. 259, related to adjustment for certain reserves, prior to the general revision of this part by act Mar. 13, 1956, ch. 83, § 2, 70 Stat. 36.

Amendments

2018—Subsec. (e)(5)(A)(i). Puspan. L. 115–141 substituted “subparagraph (B)” for “subparagraph (C)”.

2017—Subsec. (c). Puspan. L. 115–97, § 13517(a)(1), directed the general amendment of the second sentence of subsec. (c), which was executed by substituting “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.” for “For purposes of paragraph (3), the appropriate rate of interest for any obligation is whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” in concluding provisions.

Subsec. (d)(1), (2). Puspan. L. 115–97, § 13517(a)(2)(A), (C), added pars. (1) and (2) and struck out former pars. (1) and (2) which read as follows:

“(1) In general.—For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract shall be the greater of—

“(A) the net surrender value of such contract, or

“(B) the reserve determined under paragraph (2).

In no event shall the reserve determined under the preceding sentence for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in paragraph (6)).

“(2) Amount of reserve.—The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using—

“(A) the tax reserve method applicable to such contract,

“(B) the greater of—

“(i) the applicable Federal interest rate, or

“(ii) the prevailing State assumed interest rate, and

“(C) the prevailing commissioners’ standard tables for mortality and morbidity adjusted as appropriate to reflect the risks (such as substandard risks) incurred under the contract which are not otherwise taken into account.”

Subsec. (d)(3)(A)(iii). Puspan. L. 115–97, § 13517(a)(2)(D), substituted “, the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined” for “(other than a qualified long-term care insurance contract, as defined in section 7702B(span)), a 2-year full preliminary term method”.

Subsec. (d)(3)(A)(iv)(I). Puspan. L. 115–97, § 13517(a)(2)(E), substituted “(as of the date the reserve is determined)” for “(as of the date of issuance)”.

Subsec. (d)(3)(A)(iv)(II). Puspan. L. 115–97, § 13517(a)(2)(F), substituted “as of the date the reserve is determined for” for “as of the date of the issuance of”.

Subsec. (d)(3)(B). Puspan. L. 115–97, § 13517(a)(2)(G), (H), substituted “applicable to the contract and in effect as of the date the reserve is determined” for “in effect on the date of the issuance of the contract” in cls. (i) and (ii).

Subsec. (d)(4) to (6). Puspan. L. 115–97, § 13517(a)(2)(A), (B), redesignated par. (6) as (4) and struck out former pars. (4) and (5) which related to applicable Federal and prevailing State assumed interest rates and prevailing commissioners’ standard tables, respectively.

Subsec. (e)(2). Puspan. L. 115–97, § 13517(a)(3)(C), amended par. (2) generally. Prior to amendment, par. (2) related to supplemental benefits.

Puspan. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (3) as (2) and struck out former par. (2) which related to issuance date in case of group contracts.

Subsec. (e)(3), (4). Puspan. L. 115–97, § 13517(a)(3)(B), redesignated pars. (4) and (6) as (3) and (4), respectively. Former par. (3) redesignated (2).

Subsec. (e)(5). Puspan. L. 115–97, § 13517(a)(3)(A), (B), redesignated par. (7) as (5) and struck out former par. (5) which related to treatment of substandard risks.

Subsec. (e)(6). Puspan. L. 115–97, § 13517(a)(3)(D), added par. (6). Former par. (6) redesignated (4).

Subsec. (e)(7). Puspan. L. 115–97, § 13517(a)(3)(B), redesignated par. (7) as (5).

Subsec. (f)(1). Puspan. L. 115–97, § 13513(a), amended par. (1) generally. Prior to amendment, par. (1) related to 10-year spread method of computation.

2014—Subsec. (e)(7)(B), (C). Puspan. L. 113–295 redesignated subpar. (C) as (B) and struck out former subpar. (B) which related to transitional rule.

2004—Subsecs. (a)(2)(B), (span)(1)(B). Puspan. L. 108–218, § 205(span)(1), struck out “the sum of (i)” before “the amount” and struck out “plus (ii) any excess described in section 809(a)(2) for the taxable year,” after “to which section 264(f) applies,”.

Subsec. (d)(1). Puspan. L. 108–218, § 205(span)(2)(A), substituted “paragraph (6)” for “section 809(span)(4)(B)” in concluding provisions.

Subsec. (d)(6). Puspan. L. 108–218, § 205(span)(2)(B), added par. (6).

1997—Subsec. (a)(2)(B). Puspan. L. 105–34, § 1084(span)(2)(A), substituted “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,” for “interest,”.

Subsec. (span)(1)(B). Puspan. L. 105–34, § 1084(span)(2)(B), substituted “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,” for “interest,”.

1996—Subsec. (d)(3)(A)(iii). Puspan. L. 104–191 inserted “(other than a qualified long-term care insurance contract, as defined in section 7702B(span))” after “insurance contract”.

Subsec. (d)(3)(B)(ii). Puspan. L. 104–188 substituted “Commissioners’ Annuities” for “Commissoners’ Annuities”.

1990—Subsec. (e)(7). Puspan. L. 101–508 added par. (7).

1987—Subsec. (c). Puspan. L. 100–203, § 10241(span)(2)(A), substituted “whichever of the following rates is the highest as of the time such obligation first did not involve life, accident, or health contingencies: the applicable Federal interest rate under subsection (d)(2)(B)(i), the prevailing State assumed interest rate under subsection (d)(2)(B)(ii), or the rate of interest assumed by the company in determining the guaranteed benefit.” for “the higher of the prevailing State assumed interest rate as of the time such obligation first did not involve life, accident, or health contingencies or the rate of interest assumed by the company (as of such time) in determining the guaranteed benefit.” in third to last sentence.

Subsec. (d)(2)(B). Puspan. L. 100–203, § 10241(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the prevailing State assumed interest rate, and”.

Subsec. (d)(4). Puspan. L. 100–203, § 10241(span)(1), substituted “Applicable Federal interest rate; prevailing State assumed interest rate” for “Prevailing State assumed interest rate” in span and amended text generally, revising and restating as subpars. (A) and (B) provisions of former subpars. (A) to (D).

1986—Subsec. (c). Puspan. L. 99–514, § 1023(span), inserted at end “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.”

Puspan. L. 99–514, § 1821(a), inserted at end “In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract.”

Subsec. (d)(5)(C). Puspan. L. 99–514, § 1821(s), inserted at end “When the Secretary by regulation changes the table applicable to a type of contract, the new table shall be treated (for purposes of subparagraph (B) and for purposes of determining the issue dates of contracts for which it shall be used) as if it were a new prevailing commissioner’s standard table adopted by the twenty-sixth State as of a date (no earlier than the date the regulation is issued) specified by the Secretary.”

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Puspan. L. 115–97, title I, § 13513(span), Dec. 22, 2017, 131 Stat. 2143, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”

Puspan. L. 115–97, title I, § 13517(c), Dec. 22, 2017, 131 Stat. 2147, provided that:

“(1)In general.—The amendments made by this section [amending this section and sections 808, 811, 846, 848, 954, and 7702 of this title] shall apply to taxable years beginning after December 31, 2017.

“(2)Transition rule.—For the first taxable year beginning after December 31, 2017, the reserve with respect to any contract (as determined under section 807(d) of the Internal Revenue Code of 1986) at the end of the preceding taxable year shall be determined as if the amendments made by this section had applied to such reserve in such preceding taxable year.

“(3)Transition relief.—

“(A)In general.—If—

“(i) the reserve determined under section 807(d) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) with respect to any contract as of the close of the year preceding the first taxable year beginning after December 31, 2017, differs from

“(ii) the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2),

then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) 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), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) or 832(c)(4) of such Code, as applicable.

“(ii) If the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) or 832(span)(1)(C) of such Code, as applicable.”

Effective Date of 2014 Amendment

Amendment by Puspan. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(span) of Puspan. L. 113–295, set out as a note under section 1 of this title.

Effective Date of 2004 Amendment

Puspan. L. 108–218, title II, § 205(c), Apr. 10, 2004, 118 Stat. 610, provided that: “The amendments made by this section [amending this section and sections 808, 812, 817, and 842 of this title and repealing section 809 of this title] shall apply to taxable years beginning after December 31, 2004.”

Effective Date of 1997 Amendment

Amendment by Puspan. L. 105–34 applicable to contracts issued after June 8, 1997, in taxable years ending after such date, with special provisions relating to changes in contracts to be treated as new contracts, see section 1084(d) of Puspan. L. 105–34, set out as a note under section 101 of this title.

Effective Date of 1996 Amendment

Amendment by Puspan. L. 104–191 applicable to contracts issued after Dec. 31, 1997, see section 321(f) of Puspan. L. 104–191, set out as an Effective Date note under section 7702B of this title.

Effective Date of 1990 Amendment

Puspan. L. 101–508, title XI, § 11302(span), Nov. 5, 1990, 104 Stat. 1388–450, provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning on or after September 30, 1990.”

Effective Date of 1987 Amendment

Puspan. L. 100–203, title X, § 10241(c), Dec. 22, 1987, 101 Stat. 1330–420, provided that: “The amendments made by this section [amending this section and section 812 of this title] shall apply to contracts issued in taxable years beginning after December 31, 1987.”

Effective Date of 1986 Amendment

Amendment by section 1023(span) of Puspan. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, except as otherwise provided, see section 1023(e) of Puspan. L. 99–514, set out as an Effective Date note under section 846 of this title.

Amendment by section 1821(a), (s) of Puspan. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Puspan. L. 98–369, div. A, to which such amendment relates, see section 1881 of Puspan. L. 99–514, set out as a note under section 48 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Puspan. L. 98–369, set out as a note under section 801 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Puspan. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Puspan. L. 99–514, as amended, set out as a note under section 401 of this title.

Treatment of Certain Assessment Life Insurance Companies

Puspan. L. 98–369, div. A, title II, § 217(f), July 18, 1984, 98 Stat. 763, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

“(1)Mortality and morbidity tables.—In the case of a contract issued by an assessment life insurance company, the mortality and morbidity tables used in computing statutory reserves for such contract shall be used for purposes of paragraph (2)(C) of section 807(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this subtitle [subtitle A (§§ 211–219) of title II of div. A of Puspan. L. 98–369]) if such tables were—

“(A) in use since 1965, and

“(B) developed on the basis of the experience of assessment life insurance companies in the State in which such assessment life insurance company is domiciled.

“(2)Treatment of certain mutual assessment life insurance companies.—In the case of any contract issued by a mutual assessment life insurance company which—

“(A) has been in existence since 1965, and

“(B) operates under chapter 13 or 14 of the Texas Insurance Code,

for purposes of part I of subchapter L of chapter 1 of the Internal Revenue Code of 1986, the amount of the life insurance reserves for such contract shall be equal to the amount taken into account with respect to such contract in determining statutory reserves.

“(3)Statutory reserves.—For purposes of this subsection, the term ‘statutory reserves’ has the meaning given to such term by [former] section 809(span)(4)(B) of such Code.”

Special Rule for Companies Using Net Level Reserve Method for Noncancellable Accident and Health Insurance Contracts

Puspan. L. 98–369, div. A, title II, § 217(n), July 18, 1984, 98 Stat. 766, as amended by Puspan. L. 99–514, § 2, title XVIII, § 1823, Oct. 22, 1986, 100 Stat. 2095, 2845, provided that: “A company shall be treated as meeting the requirements of section 807(d)(3)(A)(iii) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], as amended by this Act, with respect to any directly-written noncancellable accident and health insurance contract (whether under existing or new plans of insurance) for any taxable year if—

“(1) such company—

“(A) was using the net level reserve method to compute at least 99 percent of its statutory reserves on such contracts as of December 31, 1982, and

“(B) received more than half its total direct premiums in 1982 from directly-written noncancellable accident and health insurance,

“(2) after December 31, 1983, and through such taxable year, such company has continuously used the net level reserve method for computing at least 99 percent of its tax and statutory reserves on such contracts, and

“(3) for any such contract for which the company does not use the net level reserve method, such company uses the same method for computing tax reserves as such company uses for computing its statutory reserves.”