26 CFR 1.826-7 - Examples.

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§ 1.826-7 Examples.

The application of section 826 may be illustrated by the following examples:

Example 1.
For the taxable year 1963, R, a reciprocal underwriter subject to the taxes imposed by section 821(a), has the following items (determined before applying any election under section 826):
Gross income under sec. 832 $578
Gross investment income 50
Deductions under sec. 832 (as modified by sec. 823(b)):
Deduction for amounts paid by R to attorney-in-fact A $100
All other deductions 500
Total deductions under sec. 832 600
Deductions under sec. 822(c) 40
Incurred losses 400
Protection against loss deduction 4
Underwriting gain 0
Mutual insurance company taxable income 0
Unused loss 22
Credit or refund for taxes paid 0
Assume that the deductions of attorney-in-fact A allocable to the income received by A from R are 60 and the tax paid by A allocable to the income received from R is 16. If R elects to be subject to the limitation provided in section 826(b), the results for 1963 would be as follows:
Gross income under sec. 832 $578
Gross investment income 50
Deductions under sec. 832 (as modified by sec. 823(b)):
Deduction for amounts paid by R to attorney-in-fact A $60
All other deductions 500
Total deduction under sec. 832 560
Deductions under sec. 822(c) 40
Incurred losses 400
Underwriting gain 8
Protection against loss deduction 6
Mutual insurance company taxable income 12
Unused loss 0
Credit or refund for taxes paid 16
Under the provisions of section 826(b), R's deduction for amounts paid or incurred to the attorney-in-fact in the taxable year 1963 would be limited to the deductions of A allocable to the income received by A from R. Thus, R's deductions under section 832 (as modified by section 823(b)) for 1963 would be 60 (the deductions of A which are allocable to the income received by A from R). As a result of making the election under section 826(a) for the taxable year 1963, R's underwriting gain would be 8, and its statutory underwriting income would be 2 (the underwriting gain of 8 minus the protection against loss deduction of 6 - of which 4 represents the amount determined under section 824(a)(1)(A) - and 2 represents the amount determined under section 824(a)(1)(B) - or 8 minus 6). R's mutual insurance company taxable income for 1963 would be 12, consisting of taxable investment income of 10 (gross investment income minus deductions under section 822(c), or 50 minus 40) plus statutory underwriting income of 2. Since all of R's mutual insurance company taxable income of 12 is attributable to the limitation under section 826(b), the entire amount is subject to the surtax under section 821(a)(2) without regard to the $25,000 surtax exemption. The credit of 16, representing that part of the tax paid by A which is allocable to the income received by A from R, may be applied by R against its taxes with respect to its mutual insurance company taxable income of 12 for 1963, and R would be entitled to a refund of any excess of the amount of such credit over its tax liability for 1963.

Under the provisions of section 826(d), no portion of the amount added to the protection against loss account in 1963 by reason of the election under section 826(a), 2 (25 percent of the amount by which the consolidated underwriting gain exceeds 25 percent of the underwriting gain determined without regard to the election under section 826(a), or the amount by which 25 percent of 8 exceeds 25 percent of 0), may remain in such account beyond the taxable year 1968.

Example 2.
For the taxable year 1963, F is a corporate attorney-in-fact subject to the taxes imposed by section 11(b) and (c) of the Code. F files its return on the calendar year basis and reports income received from its reciprocal and the deductions allocable thereto under the same method of accounting used by its reciprocal in reporting its deductions for amounts paid to R. F properly consents to provide the information required by paragraph (b) of § 1.826-3. In addition to its attorney-in-fact business, F owns real estate for investment purposes, and operates a real estate management service. For the taxable year 1963, F has gross income from these various sources as follows:
Attorney-in-fact fees
$85,000
Real estate management fees
18,000
Rental income
25,000
F allocates its expenses for the taxable year on the basis of their direct relation to each source of income. During 1963, F acquired property for use in its attorney-in-fact operations which entitled F to an investment credit of $800 under section 38. For 1963, F determines that the tax paid by it which is attributable to its reciprocal is $21,863, computed as follows:
Attorney-in-fact fees Real estate management Rental income Total
Gross income $85,000 $18,000 $25,000 $128,000
Allocable expenses 25,000 3,000 35,000 63,000
Taxable income (loss) 60,000 15,000 (10,000) 65,000
Normal tax (30 percent) 18,000 4,500 0 19,500
Surtax exemption 20,000 5,000 0 25,000
Income subject to surtax 40,000 10,000 0 40,000
Surtax (22 percent) 8,800 2,200 0 8,800
Total tax 26,800 6,700 0 28,300
Investment credit 800 0 0 800
1963 tax liability 26,000 6,700 0 27,500
1963 tax paid 27,500
Allocation of tax paid 21,863 5,637 0 27,500
Under paragraph (b)(1) of § 1.826-5, F computes its taxable income from its attorney-in-fact fees to be $60,000 ($85,000 minus $25,000), and its taxable income from its real estate management to be $15,000 ($18,000 minus $3,000). Since F's rental operations resulted in a $10,000 loss for the taxable year ($25,000 minus $35,000), F's taxable income from its rental operations is zero. Using the 30 percent rate provided by section 11(b), F computes its normal tax to be $18,000 on its attorney-in-fact fees and $4,500 on its real estate management operations. F's normal tax on total income is $19,500. The $3,000 difference between the normal tax on F's total income and the normal taxes on F's profitable operations results from the loss on F's rental operations. Under paragraph (b)(3) of § 1.826-5, F allocates its surtax exemption as follows: $20,000 $60,000/$75,000 × $25,000) to its attorney-in-fact fees; and $5,000 $15,000/$75,000 × $25,000) to its real estate management operations. F computes its surtax on its profitable operations at the 22 percent rate provided by section 11(c) as follows: $8,800 (22 percent of $40,000) on attorney-in-fact fees; and $2,200 (22 percent of $10,000) on real estate management income. F adds its normal tax and surtax on its profitable operations and determines its total tax to be $26,800 on its attorney-in-fact operations; $6,700 on its real estate management operations; and $28,300 on its total income. F must allocate its investment credit on the same basis as it used to allocate its expenses. Thus, F's entire investment credit must be allocated to its attorney-in-fact operations. Accordingly, F's 1963 tax liability is $26,000 on its attorney-in-fact fees; $6,700 on its real estate management operations; $0 on its rental operations; and $27,500 on its total income. Under paragraph (b)(7) of § 1.826-5, F allocates $21,863 ($26,000/$32,700 × $27,500) of its 1963 tax paid to its attorney-in-fact fees; and $5,637 ($6,700/$32,700 × $27,500) of its 1963 tax paid to its real estate management business. F's reciprocal will be allowed a credit or refund of $21,863 for taxes paid by F which are attributable to F's income received from its reciprocal.
Example 3.
Assume the same facts as in example 2, and assume further that in 1966 F sustains a net operating loss on its overall operations of $5,000. In carrying the loss back to 1963 as a net operating loss deduction under section 172, F must allocate the deduction under the same method it used in allocating its 1963 deductions. Thus, if the loss was entirely attributable to F's rental operations for the taxable year 1966, F would reduce its taxable income attributable to those operations by the entire amount of the loss and would recompute the tax attributable to those operations under paragraph (b) of § 1.826-5. As recomputed in the table below, F's 1963 tax liability from attorney-in-fact fees would be $19,800 and F's total tax liability would be $24,900.
Attorney-in-fact fees Real estate management Rental income Total
Gross income $85,000 $18,000 $25,000 $128,000
Allocable expenses 25,000 3,000 35,000 63,000
Net operating loss deduction 0 0 5,000 5,000
Taxable income (loss) 60,000 15,000 (15,000) 60,000
Normal tax (30 percent) 18,000 4,500 0 18,000
Surtax exemption 20,000 5,000 0 25,000
Income subject to surtax 40,000 10,000 0 35,000
Surtax (22 percent) 8,800 2,200 0 7,700
Total tax 26,800 6,700 0 25,700
Investment credit 800 0 0 800
1963 tax liability 26,000 6,700 0 24,900
1963 tax paid 24,900
Allocation of tax paid 19,800 5,100 0 24,900
As a result of its 1966 net operating loss, F would be entitled to a refund of $2,600 (1963 taxes paid of $27,500 minus recomputed 1963 taxes of $24,900). Under paragraph (a) of § 1.826-6, F would be required to notify its reciprocal of its claim for refund and of the amount of the refund or credit attributable to taxes paid on income received from the reciprocal. Since the 1963 tax paid by F attributable to its reciprocal (as recomputed) is less than the amount claimed in 1963 by F's reciprocal as a credit, F's reciprocal would be required, under section 826(g), to add the difference - $2,063 ($21,863 minus $19,800), to its tax liability for 1966. Thus, F's reciprocal would first compute its tax liability for 1966 without regard to section 826(g) and then would increase such liability by $2,063.
[T.D. 6681, 28 FR 11126, Oct. 17, 1963]

This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part.

This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].

It is not guaranteed to be accurate or up-to-date, though we do refresh the database weekly. More limitations on accuracy are described at the GPO site.


United States Code
U.S. Code: Title 26 - INTERNAL REVENUE CODE

§ 1 - Tax imposed

§ 21 - Expenses for household and dependent care services necessary for gainful employment

§ 23 - Adoption expenses

§ 25 - Interest on certain home mortgages

§ 25A - Hope and Lifetime Learning credits

§ 28 - Renumbered § 45C]

§ 30 - Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(2)(A), Dec. 19, 2014, 128 Stat. 4037]

§ 36B - Refundable credit for coverage under a qualified health plan

§ 38 - General business credit

§ 40 - Alcohol, etc., used as fuel

§ 41 - Credit for increasing research activities

§ 42 - Low-income housing credit

§ 43 - Enhanced oil recovery credit

§ 45D - New markets tax credit

§ 46 - Amount of credit

§ 47 - Rehabilitation credit

§ 52 - Special rules

§ 56 - Adjustments in computing alternative minimum taxable income

§ 58 - Denial of certain losses

§ 61 - Gross income defined

§ 62 - Adjusted gross income defined

§ 66 - Treatment of community income

§ 67 - 2-percent floor on miscellaneous itemized deductions

§ 72 - Annuities; certain proceeds of endowment and life insurance contracts

§ 101 - Certain death benefits

§ 103 - Interest on State and local bonds

§ 103A - Repealed. Pub. L. 99–514, title XIII, § 1301(j)(1), Oct. 22, 1986, 100 Stat. 2657]

§ 108 - Income from discharge of indebtedness

§ 110 - Qualified lessee construction allowances for short-term leases

§ 129 - Dependent care assistance programs

§ 132 - Certain fringe benefits

§ 148 - Arbitrage

§ 149 - Bonds must be registered to be tax exempt; other requirements

§ 150 - Definitions and special rules

§ 152 - Dependent defined

§ 162 - Trade or business expenses

§ 163 - Interest

§ 165 - Losses

§ 166 - Bad debts

§ 168 - Accelerated cost recovery system

§ 170 - Charitable, etc., contributions and gifts

§ 171 - Amortizable bond premium

§ 179 - Election to expense certain depreciable business assets

§ 179A - Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(34)(A), Dec. 19, 2014, 128 Stat. 4042]

§ 197 - Amortization of goodwill and certain other intangibles

§ 199 - Income attributable to domestic production activities

§ 216 - Deduction of taxes, interest, and business depreciation by cooperative housing corporation tenant-stockholder

§ 221 - Interest on education loans

§ 263A - Capitalization and inclusion in inventory costs of certain expenses

§ 267 - Losses, expenses, and interest with respect to transactions between related taxpayers

§ 274 - Disallowance of certain entertainment, etc., expenses

§ 280C - Certain expenses for which credits are allowable

§ 280F - Limitation on depreciation for luxury automobiles; limitation where certain property used for personal purposes

§ 280G - Golden parachute payments

§ 301 - Distributions of property

§ 304 - Redemption through use of related corporations

§ 305 - Distributions of stock and stock rights

§ 324

§ 336 - Gain or loss recognized on property distributed in complete liquidation

§ 337 - Nonrecognition for property distributed to parent in complete liquidation of subsidiary

§ 338 - Certain stock purchases treated as asset acquisitions

§ 351 - Transfer to corporation controlled by transferor

§ 355 - Distribution of stock and securities of a controlled corporation

§ 357 - Assumption of liability

§ 358 - Basis to distributees

§ 362 - Basis to corporations

§ 367 - Foreign corporations

§ 382 - Limitation on net operating loss carryforwards and certain built-in losses following ownership change

§ 383 - Special limitations on certain excess credits, etc.

§ 401 - Qualified pension, profit-sharing, and stock bonus plans

§ 401 note - Qualified pension, profit-sharing, and stock bonus plans

§ 402A - Optional treatment of elective deferrals as Roth contributions

§ 403 - Taxation of employee annuities

§ 404 - Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan

§ 408 - Individual retirement accounts

§ 408A - Roth IRAs

§ 409 - Qualifications for tax credit employee stock ownership plans

§ 410 - Minimum participation standards

§ 411 - Minimum vesting standards

§ 414 - Definitions and special rules

§ 417 - Definitions and special rules for purposes of minimum survivor annuity requirements

§ 419A - Qualified asset account; limitation on additions to account

§ 420 - Transfers of excess pension assets to retiree health accounts

§ 441 - Period for computation of taxable income

§ 442 - Change of annual accounting period

§ 444 - Election of taxable year other than required taxable year

§ 446 - General rule for methods of accounting

§ 453 - Installment method

§ 453A - Special rules for nondealers

§ 458 - Magazines, paperbacks, and records returned after the close of the taxable year

§ 460 - Special rules for long-term contracts

§ 461 - General rule for taxable year of deduction

§ 465 - Deductions limited to amount at risk

§ 466 - Repealed. Pub. L. 99–514, title VIII, § 823(a), Oct. 22, 1986, 100 Stat. 2373]

§ 467 - Certain payments for the use of property or services

§ 468A - Special rules for nuclear decommissioning costs

§ 468B - Special rules for designated settlement funds

§ 469 - Passive activity losses and credits limited

§ 471 - General rule for inventories

§ 472 - Last-in, first-out inventories

§ 475 - Mark to market accounting method for dealers in securities

§ 481 - Adjustments required by changes in method of accounting

§ 482 - Allocation of income and deductions among taxpayers

§ 483 - Interest on certain deferred payments

§ 493

§ 504 - Status after organization ceases to qualify for exemption under section 501(c)(3) because of substantial lobbying or because of political activities

§ 514 - Unrelated debt-financed income

§ 527 - Political organizations

§ 585 - Reserves for losses on loans of banks

§ 597 - Treatment of transactions in which Federal financial assistance provided

§ 642 - Special rules for credits and deductions

§ 643 - Definitions applicable to subparts A, B, C, and D

§ 645 - Certain revocable trusts treated as part of estate

§ 663 - Special rules applicable to sections 661 and 662

§ 664 - Charitable remainder trusts

§ 672 - Definitions and rules

§ 679 - Foreign trusts having one or more United States beneficiaries

§ 701 - Partners, not partnership, subject to tax

§ 702 - Income and credits of partner

§ 703 - Partnership computations

§ 704 - Partner’s distributive share

§ 705 - Determination of basis of partner’s interest

§ 706 - Taxable years of partner and partnership

§ 707 - Transactions between partner and partnership

§ 708 - Continuation of partnership

§ 709 - Treatment of organization and syndication fees

§ 721 - Nonrecognition of gain or loss on contribution

§ 722 - Basis of contributing partner’s interest

§ 723 - Basis of property contributed to partnership

§ 724 - Character of gain or loss on contributed unrealized receivables, inventory items, and capital loss property

§ 731 - Extent of recognition of gain or loss on distribution

§ 732 - Basis of distributed property other than money

§ 733 - Basis of distributee partner’s interest

§ 734 - Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction

§ 735 - Character of gain or loss on disposition of distributed property

§ 736 - Payments to a retiring partner or a deceased partner’s successor in interest

§ 737 - Recognition of precontribution gain in case of certain distributions to contributing partner

§ 741 - Recognition and character of gain or loss on sale or exchange

§ 742 - Basis of transferee partner’s interest

§ 743 - Special rules where section 754 election or substantial built-in loss

§ 751 - Unrealized receivables and inventory items

§ 752 - Treatment of certain liabilities

§ 753 - Partner receiving income in respect of decedent

§ 754 - Manner of electing optional adjustment to basis of partnership property

§ 755 - Rules for allocation of basis

§ 761 - Terms defined

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

§ 817A - Special rules for modified guaranteed contracts

§ 832 - Insurance company taxable income

§ 845 - Certain reinsurance agreements

§ 846 - Discounted unpaid losses defined

§ 848 - Capitalization of certain policy acquisition expenses

§ 852 - Taxation of regulated investment companies and their shareholders

§ 860E - Treatment of income in excess of daily accruals on residual interests

§ 860G - Other definitions and special rules

§ 863 - Special rules for determining source

§ 864 - Definitions and special rules

§ 865 - Source rules for personal property sales

§ 874 - Allowance of deductions and credits

§ 882 - Tax on income of foreign corporations connected with United States business

§ 883 - Exclusions from gross income

§ 884 - Branch profits tax

§ 892 - Income of foreign governments and of international organizations

§ 894 - Income affected by treaty

§ 897 - Disposition of investment in United States real property

§ 901 - Taxes of foreign countries and of possessions of United States

§ 902 - Deemed paid credit where domestic corporation owns 10 percent or more of voting stock of foreign corporation

§ 904 - Limitation on credit

§ 907 - Special rules in case of foreign oil and gas income

§ 911 - Citizens or residents of the United States living abroad

§ 924

§ 925

§ 927

§ 934 - Limitation on reduction in income tax liability incurred to the Virgin Islands

§ 936 - Puerto Rico and possession tax credit

§ 937 - Residence and source rules involving possessions

§ 954 - Foreign base company income

§ 956 - Investment of earnings in United States property

§ 957 - Controlled foreign corporations; United States persons

§ 960 - Special rules for foreign tax credit

§ 963 - Repealed. Pub. L. 94–12, title VI, § 602(a)(1), Mar. 29, 1975, 89 Stat. 58]

§ 985 - Functional currency

§ 987 - Branch transactions

§ 988 - Treatment of certain foreign currency transactions

§ 989 - Other definitions and special rules

§ 1017 - Discharge of indebtedness

§ 1032 - Exchange of stock for property

§ 1059 - Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends

§ 1060 - Special allocation rules for certain asset acquisitions

§ 1092 - Straddles

§ 1202 - Partial exclusion for gain from certain small business stock

§ 1221 - Capital asset defined

§ 1244 - Losses on small business stock

§ 1248 - Gain from certain sales or exchanges of stock in certain foreign corporations

§ 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

§ 1275 - Other definitions and special rules

§ 1286 - Tax treatment of stripped bonds

§ 1291 - Interest on tax deferral

§ 1293 - Current taxation of income from qualified electing funds

§ 1294 - Election to extend time for payment of tax on undistributed earnings

§ 1295 - Qualified electing fund

§ 1296 - Election of mark to market for marketable stock

§ 1297 - Passive foreign investment company

§ 1298 - Special rules

§ 1301 - Averaging of farm income

§ 1361 - S corporation defined

§ 1368 - Distributions

§ 1374 - Tax imposed on certain built-in gains

§ 1377 - Definitions and special rule

§ 1378 - Taxable year of S corporation

§ 1397D - Qualified zone property defined

§ 1397E - Credit to holders of qualified zone academy bonds

§ 1402 - Definitions

§ 1441 - Withholding of tax on nonresident aliens

§ 1443 - Foreign tax-exempt organizations

§ 1445 - Withholding of tax on dispositions of United States real property interests

§ 1471 - Withholdable payments to foreign financial institutions

§ 1472 - Withholdable payments to other foreign entities

§ 1473 - Definitions

§ 1474 - Special rules

§ 1502 - Regulations

§ 1503 - Computation and payment of tax

§ 1504 - Definitions

§ 1561 - Limitations on certain multiple tax benefits in the case of certain controlled corporations

§ 3401 - Definitions

§ 5000 - Certain group health plans

§ 5000A - Requirement to maintain minimum essential coverage

§ 6001 - Notice or regulations requiring records, statements, and special returns

§ 6011 - General requirement of return, statement, or list

§ 6015 - Relief from joint and several liability on joint return

§ 6033 - Returns by exempt organizations

§ 6035 - Basis information to persons acquiring property from decedent

§ 6038 - Information reporting with respect to certain foreign corporations and partnerships

§ 6038A - Information with respect to certain foreign-owned corporations

§ 6038B - Notice of certain transfers to foreign persons

§ 6038D - Information with respect to foreign financial assets

§ 6039I - Returns and records with respect to employer-owned life insurance contracts

§ 6041 - Information at source

§ 6043 - Liquidating, etc., transactions

§ 6045 - Returns of brokers

§ 6046A - Returns as to interests in foreign partnerships

§ 6049 - Returns regarding payments of interest

§ 6050E - State and local income tax refunds

§ 6050H - Returns relating to mortgage interest received in trade or business from individuals

§ 6050I-1

§ 6050K - Returns relating to exchanges of certain partnership interests

§ 6050M - Returns relating to persons receiving contracts from Federal executive agencies

§ 6050P - Returns relating to the cancellation of indebtedness by certain entities

§ 6050S - Returns relating to higher education tuition and related expenses

§ 6060 - Information returns of tax return preparers

§ 6061 - Signing of returns and other documents

§ 6065 - Verification of returns

§ 6081 - Extension of time for filing returns

§ 6103 - Confidentiality and disclosure of returns and return information

§ 6109 - Identifying numbers

§ 6302 - Mode or time of collection

§ 6402 - Authority to make credits or refunds

§ 6411 - Tentative carryback and refund adjustments

§ 6655 - Failure by corporation to pay estimated income tax

§ 6662 - Imposition of accuracy-related penalty on underpayments

§ 6695 - Other assessable penalties with respect to the preparation of tax returns for other persons

§ 6851 - Termination assessments of income tax

§ 7520 - Valuation tables

§ 7654 - Coordination of United States and certain possession individual income taxes

§ 7701 - Definitions

§ 7702 - Life insurance contract defined

§ 7805 - Rules and regulations

§ 7872 - Treatment of loans with below-market interest rates

§ 7874 - Rules relating to expatriated entities and their foreign parents

U.S. Code: Title 29 - LABOR
Statutes at Large
Public Laws
Presidential Documents

Reorganization ... 1978 Plan No. 4

Title 26 published on 16-Jun-2017 03:58

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 26 CFR Part 1 after this date.

  • 2017-06-30; vol. 82 # 125 - Friday, June 30, 2017
    1. 82 FR 29719 - Regulations Regarding Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons, Information Reporting and Backup Withholding on Payments Made to Certain U.S. Persons, and Portfolio Interest Treatment; Correction
      GPO FDSys XML | Text
      DEPARTMENT OF THE TREASURY, Internal Revenue Service
      Correcting amendment.
        Effective Date: These corrections are effective June 30, 2017. Applicability Date: The corrections to §§ 1.1441-0; 1.1441-1(b)(7)(ii)(B), (e)(3)(iv)(B) and (C), (e)(4)(ii)(B)( 11 ), (e)(4)(ix)(D), (e)(5)(ii) through (e)(5)(ii)(B), (e)(5)(ii)(D) through (e)(5)(v)(B)( 3 ), (e)(5)(v)(B)( 5 ) through (e)(5)(v)(D), and (f) through (f)(4); 1.1441-1T; 1.1441-3(d)(1); 1.1441-4; 1.6045-1(m)(2)(ii) and (n)(12)(ii); and 1.6049-5(c)(1) through (c)(4) are applicable on January 6, 2017.
      26 CFR Part 1

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