26 USC § 812 - Definition of company’s share and policyholders’ share

(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.

(2) Policyholders’ share

For purposes of section 807, the term “policyholders’ share” means, with respect to any taxable year, the excess of 100 percent over the percentage determined under paragraph (1).

(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 greater of the prevailing State assumed rate or the applicable Federal interest rate) on reserves under section 807 (c) (other than paragraph (2) thereof),

(B) the deductible portion of excess interest,

(C) the deductible portion of any amount (whether or not a policyholder dividend), and not taken into account under subparagraph (A) or (B), credited to—

(i) a policyholder’s fund under a pension plan contract for employees (other than retired employees), or

(ii) a deferred annuity contract before the annuity starting date, and

(D) interest on amounts left on deposit with the company.

In any case where neither the prevailing State assumed interest rate nor the applicable Federal interest rate is used, another appropriate rate shall be used for purposes of subparagraph (A).

(3) 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 section 808 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 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.

For purposes of subparagraph (B)(ii), life insurance gross income shall be determined by including tax-exempt interest and by applying section 807 (a)(2)(B) as if it did not contain clause (i) thereof.

(c) Net investment income

For purposes of this section, the term “net investment income” means—

(1) except as provided in paragraph (2), 90 percent of gross investment income; or

(2) in the case of gross investment income attributable to assets held in segregated asset accounts under variable contracts, 95 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,

(C) the alteration or termination of any instrument or agreement described in subparagraph (B), and

(D) the increase for any taxable year in the 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.

(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.

(e) Dividends from certain subsidiaries not included in gross investment income

(1) In general

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.

(2) 100 percent dividend defined

(A) In general

Except as provided in subparagraphs (B) and (C), the term “100 percent dividend” means any dividend if the percentage used for purposes of determining the deduction allowable under section 243, 244, or 245 (b) is 100 percent.

(B) Certain dividends out of tax-exempt interest, etc.

The term “100 percent dividend” does not include any distribution by a corporation to the extent such distribution is out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this subparagraph).

(C) Certain dividends received by foreign corporations

The term “100 percent dividends” does not include any dividend described in section 805 (a)(4)(E) (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.

Source

(Added Pub. L. 98–369, div. A, title II, § 211(a),July 18, 1984, 98 Stat. 741; amended Pub. L. 99–514, title XVIII, § 1821(i),Oct. 22, 1986, 100 Stat. 2840; Pub. L. 100–203, title X, § 10241(b)(2)(B),Dec. 22, 1987, 101 Stat. 1330–420; Pub. L. 100–647, title I, § 1018(h)(1), title II, § 2004(p)(2),Nov. 10, 1988, 102 Stat. 3583, 3608; Pub. L. 104–188, title I, § 1602(b)(2),Aug. 20, 1996, 110 Stat. 1833; Pub. L. 105–34, title X, § 1084(b)(3),Aug. 5, 1997, 111 Stat. 955; Pub. L. 108–218, title II, § 205(b)(4),Apr. 10, 2004, 118 Stat. 610.)

Codification

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

Prior Provisions

A prior section 812, added Pub. L. 86–69, § 2(a),June 25, 1959, 73 Stat. 127; amended Pub. L. 87–858, § 3(d)(1),Oct. 23, 1962, 76 Stat. 1137; Pub. L. 88–571, § 1(a),Sept. 2, 1964, 78 Stat. 857; Pub. L. 94–455, title VIII, § 806(d)(1), title XIX, § 1901(a)(99),Oct. 4, 1976, 90 Stat. 1598, 1781; Pub. L. 97–34, title II, § 207(b),Aug. 13, 1981, 95 Stat. 225, related to operations loss deductions, prior to the general revision of this part by Pub. L. 98–369, § 211(a).

Another prior section 812, act Aug. 16, 1954, ch. 736, § 812, as added Mar. 13, 1956, ch. 83, § 2,70 Stat. 45, related to reserve and other policy liability deduction, prior to the general revision of this part by Pub. L. 86–69, § 2(a).

Amendments

2004—Subsec. (b)(3)(A). Pub. L. 108–218substituted “section 808” for “sections 808 and 809”.

1997—Subsec. (d)(1)(D). Pub. L. 105–34added subpar. (D).

1996—Subsec. (g). Pub. L. 104–188struck out subsec. (g) which read as follows: “Treatment of Interest Partially Tax-Exempt Under Section 133.—For purposes of this section and subsections (a) and (b) ofsection 807, the terms ‘gross investment income’ and ‘tax-exempt interest’ shall not include any interest received with respect to a securities acquisition loan (as defined in section 133 (b)). Such interest shall not be included in life insurance gross income for purposes of subsection (b)(3).”

1988—Subsec. (b)(2). Pub. L. 100–647, § 2004(p)(2), substituted “In any case where neither the prevailing State assumed interest rate nor the applicable Federal interest rate is used, another appropriate rate shall be used for purposes of subparagraph (A).” for “In any case where the prevailing State assumed rate is not used, another appropriate rate shall be treated as the prevailing State assumed rate for purposes of subparagraph (A).”

Subsec. (e). Pub. L. 100–647, § 1018(h)(1), amended subsec. (e) generally. Prior to amendment, subsec. (e) read as follows: “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).”

1987—Subsec. (b)(2). Pub. L. 100–203substituted “at the greater of the prevailing State assumed rate or the applicable Federal interest rate” for “at the prevailing State assumed rate or, where such rate is not used, another appropriate rate” in subpar. (A), and inserted provision at end that in any case where the prevailing State assumed rate is not used, another appropriate rate be treated as the prevailing State assumed rate for purposes of subpar. (A).

1986—Subsec. (b)(2). Pub. L. 99–514, § 1821(i)(1), inserted “or, where such rate is not used, another appropriate rate” after “assumed rate”, in subpar. (A) and added subpar. (D).

Subsec. (b)(3)(B). Pub. L. 99–514, § 1821(i)(2), struck out “(including tax-exempt interest)” after “insurance gross income” in cl. (ii) and inserted at end “For purposes of subparagraph (B)(ii), life insurance gross income shall be determined by including tax-exempt interest and by applying section 807 (a)(2)(B) as if it did not contain clause (i) thereof.”

Subsec. (c). Pub. L. 99–514, § 1821(i)(3), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “For purposes of this section, the term ‘net investment income’ means 90 percent of gross investment income.”

Subsec. (g). Pub. L. 99–514, § 1821(i)(4), added subsec. (g).

Effective Date of 2004 Amendment

Amendment by Pub. L. 108–218applicable to taxable years beginning after Dec. 31, 2004, see section 205(c) ofPub. L. 108–218, set out as a note under section 807 of this title.

Effective Date of 1997 Amendment

Amendment by Pub. L. 105–34applicable 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) ofPub. L. 105–34, set out as a note under section 101 of this title.

Effective Date of 1996 Amendment

Amendment by section 1602(b)(1) ofPub. L. 104–188applicable to loans made after Aug. 20, 1996, with exception, and provisions relating to certain refinancings, see section 1602(c) ofPub. L. 104–188, set out as an Effective Date of Repeal note under former section 133 of this title.

Effective Date of 1988 Amendment

Section 1018(h)(2) ofPub. L. 100–647provided that: “The amendment made by paragraph (1) [amending this section] shall take effect as if included in the amendments made by section 211 of the Tax Reform Act of 1984 [Pub. L. 98–369].”

Amendment by section 2004(p)(2) ofPub. L. 100–647effective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) ofPub. L. 100–647, set out as a note under section 56 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–203applicable to contracts issued in taxable years beginning after Dec. 31, 1987, see section 10241(c) ofPub. L. 100–203, set out as a note under section 807 of this title.

Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 ofPub. 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 ofPub. 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 Pub. L. 99–514require 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 ofPub. L. 99–514, as amended, set out as a note under section 401 of this title.