1996—
For purposes of this subtitle, the term "life insurance company" means an insurance company which is engaged in the business of issuing life insurance and annuity contracts (either separately or combined with accident and health insurance), or noncancellable contracts of health and accident insurance, if—
(1) its life insurance reserves (as defined in subsection (b)), plus
(2) unearned premiums, and unpaid losses (whether or not ascertained), on noncancellable life, accident, or health policies not included in life insurance reserves,
comprise more than 50 percent of its total reserves (as defined in subsection (c)). For purposes of the preceding sentence, the term "insurance company" means any company more than half of the business of which during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies.
For purposes of this part, the term "life insurance reserves" means amounts—
(A) which are computed or estimated on the basis of recognized mortality or morbidity tables and assumed rates of interest, and
(B) which are set aside to mature or liquidate, either by payment or reinsurance, future unaccrued claims arising from life insurance, annuity, and noncancellable accident and health insurance contracts (including life insurance or annuity contracts combined with noncancellable accident and health insurance) involving, at the time with respect to which the reserve is computed, life, accident, or health contingencies.
Except—
(A) in the case of policies covering life, accident, and health insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, and
(B) as provided in paragraph (3),
in addition to the requirements set forth in paragraph (1), life insurance reserves must be required by law.
In the case of an assessment life insurance company or association, the term "life insurance reserves" includes—
(A) sums actually deposited by such company or association with State officers pursuant to law as guaranty or reserve funds, and
(B) any funds maintained, under the charter or articles of incorporation or association (or bylaws approved by a State insurance commissioner) of such company or association, exclusively for the payment of claims arising under certificates of membership or policies issued on the assessment plan and not subject to any other use.
For purposes of this subsection, subsection (a), and subsection (c), the amount of any reserve (or portion thereof) for any taxable year shall be the mean of such reserve (or portion thereof) at the beginning and end of the taxable year.
For purposes of subsection (a), the term "total reserves" means—
(1) life insurance reserves,
(2) unearned premiums, and unpaid losses (whether or not ascertained), not included in life insurance reserves, and
(3) all other insurance reserves required by law.
For purposes only of determining under subsection (a) whether or not an insurance company is a life insurance company, the life insurance reserves, and the total reserves, shall each be reduced by an amount equal to the mean of the aggregates, at the beginning and end of the taxable year, of the policy loans outstanding with respect to contracts for which life insurance reserves are maintained.
For purposes of this part, guaranteed renewable life, accident, and health insurance shall be treated in the same manner as noncancellable life, accident, and health insurance.
For purposes only of determining under subsection (a) whether or not an insurance company is a life insurance company, amounts set aside and held at interest to satisfy obligations under contracts which do not contain permanent guarantees with respect to life, accident, or health contingencies shall not be included in reserves described in paragraph (1) or (3) of subsection (c).
A burial or funeral benefit insurance company engaged directly in the manufacture of funeral supplies or the performance of funeral services shall not be taxable under this part but shall be taxable under section 831.
For purposes of this section and section 842(b)(2)(B)(i), the terms "life insurance reserves" and "total reserves" shall not include deficiency reserves.
(Added
A prior section 816, act Aug. 16, 1954, ch. 736, §816, as added Mar. 13, 1956, ch. 83, §2,
1988—Subsec. (g).
Subsec. (h).
1987—Subsec. (h).
1986—Subsec. (h).
Amendment by section 1010(f)(6) of
Amendment by section 2004(q)(1) of
Amendment by
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
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
"(1)
"(2)
"(3)
"(4)
"(A) on the return of the taxpayer for its first taxable year beginning after December 31, 1983, and
"(B) in such manner as the Secretary of the Treasury or his delegate may prescribe."
[
["(2)
["(3)
For purposes of subsections (a) and (b) of section 807, the sum of the items described in section 807(c) taken into account as of the close of the taxable year with respect to any variable contract shall, under regulations prescribed by the Secretary, be adjusted—
(1) by subtracting therefrom an amount equal to the sum of the amounts added from time to time (for the taxable year) to the reserves separately accounted for in accordance with subsection (c) by reason of appreciation in value of assets (whether or not the assets have been disposed of), and
(2) by adding thereto an amount equal to the sum of the amounts subtracted from time to time (for the taxable year) from such reserves by reason of depreciation in value of assets (whether or not the assets have been disposed of).
The deduction allowable for items described in paragraphs (1) and (6) of section 805(a) with respect to variable contracts shall be reduced to the extent that the amount of such items is increased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depreciation) not reflected in adjustments under the preceding sentence.
In the case of variable contracts, the basis of each asset in a segregated asset account shall (in addition to all other adjustments to basis) be—
(1) increased by the amount of any appreciation in value, and
(2) decreased by the amount of any depreciation in value,
to the extent such appreciation and depreciation are from time to time reflected in the increases and decreases in reserves or other items referred to in subsection (a) with respect to such contracts.
For purposes of this part, a life insurance company which issues variable contracts shall separately account for the various income, exclusion, deduction, asset, reserve, and other liability items properly attributable to such variable contracts. For such items as are not accounted for directly, separate accounting shall be made—
(1) in accordance with the method regularly employed by such company, if such method is reasonable, and
(2) in all other cases, in accordance with regulations prescribed by the Secretary.
For purposes of this part, the term "variable contract" means a contract—
(1) which provides for the allocation of all or part of the amounts received under the contract to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company,
(2) which—
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) provides for funding of insurance on retired lives as described in section 807(c)(6), and
(3) under which—
(A) in the case of an annuity contract, the amounts paid in, or the amount paid out, reflect the investment return and the market value of the segregated asset account,
(B) in the case of a life insurance contract, the amount of the death benefit (or the period of coverage) is adjusted on the basis of the investment return and the market value of the segregated asset account, or
(C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.
If a contract ceases to reflect current investment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such cessation. Paragraph (3) shall be applied without regard to whether there is a guarantee, and obligations under such guarantee which exceed obligations under the contract without regard to such guarantee shall be accounted for as part of the company's general account.
A pension plan contract which is not a life, accident, or health, property, casualty, or liability insurance contract shall be treated as a contract which provides for the payments of annuities for purposes of subsection (d).
For purposes of subsection (b)(1)(A) of section 816, the reflection of the investment return and the market value of the segregated asset account shall be considered an assumed rate of interest.
Under regulations prescribed by the Secretary, such additional separate computations shall be made, with respect to the items separately accounted for in accordance with subsection (c), as may be necessary to carry out the purposes of this section and this part.
For purposes of this part, the term "annuity contract" includes a contract which provides for the payment of a variable annuity computed on the basis of—
(1) recognized mortality tables, and
(2)(A) the investment experience of a segregated asset account, or
(B) the company-wide investment experience of the company.
Paragraph (2)(B) shall not apply to any company which issues contracts which are not variable contracts.
For purposes of subchapter L, section 72 (relating to annuities), and section 7702(a) (relating to definition of life insurance contract), a variable contract (other than a pension plan contract) which is otherwise described in this section and which is based on a segregated asset account shall not be treated as an annuity, endowment, or life insurance contract for any period (and any subsequent period) for which the investments made by such account are not, in accordance with regulations prescribed by the Secretary, adequately diversified.
A segregated asset account shall be treated as meeting the requirements of paragraph (1) for any quarter of a taxable year if as of the close of such quarter—
(A) it meets the requirements of section 851(b)(3), and
(B) no more than 55 percent of the value of the total assets of the account are assets described in section 851(b)(3)(A)(i).
To the extent that any segregated asset account with respect to a variable life insurance contract is invested in securities issued by the United States Treasury, the investments made by such account shall be treated as adequately diversified for purposes of paragraph (1).
For purposes of this subsection, if all of the beneficial interests in a regulated investment company or in a trust are held by 1 or more—
(A) insurance companies (or affiliated companies) in their general account or in segregated asset accounts, or
(B) fund managers (or affiliated companies) in connection with the creation or management of the regulated investment company or trust,
the diversification requirements of paragraph (1) shall be applied by taking into account the assets held by such regulated investment company or trust.
Nothing in this subsection shall be construed as prohibiting the use of independent investment advisors.
In determining whether a segregated asset account is adequately diversified for purposes of paragraph (1), each United States Government agency or instrumentality shall be treated as a separate issuer.
(Added
A prior section 817, added
Another prior section 817, act Aug. 16, 1954, ch. 736, §817, as added Mar. 13, 1956, ch. 83, §2,
2004—Subsec. (c).
1997—Subsec. (h)(2)(A).
Subsec. (h)(2)(B).
1996—Subsec. (d)(2)(C).
Subsec. (d)(3)(C).
1988—Subsec. (h)(6).
1986—Subsec. (d).
Subsec. (h)(1).
Subsec. (h)(3) to (5).
Amendment by
"(A) to contracts issued after December 31, 1986, and
"(B) to contracts issued before January 1, 1987, if such contract was treated as a variable contract on the taxpayer's return."
Amendment by section 1821(m) of
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of
"(1) such contract provides for the payment of an immediate annuity (as defined in section 72(u)(4) of the 1986 Code),
"(2) such contract was outstanding on September 12, 1986, and
"(3) the segregated asset account on which such contract is based was, on September 12, 1986, wholly invested in deposits insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation."
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
In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.
In the case of any life insurance company, for purposes of this subtitle—
(A) Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.
(B) If any segregated asset is held by such company as of the close of any taxable year—
(i) such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and
(ii) any such gain or loss shall be taken into account for such taxable year.
Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph.
For purposes of paragraph (1), the term "segregated asset" means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.
For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.
For purposes of this section, the term "modified guaranteed contract" means a contract not described in section 817—
(1) all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,
(2) which—
(A) provides for the payment of annuities,
(B) is a life insurance contract, or
(C) is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,
(3) for which reserves are valued at market for annual statement purposes, and
(4) which provides for a net surrender value or a policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such portion shall be treated for purposes of this section as a separate contract.
The Secretary may prescribe regulations—
(1) to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
(2) to determine the interest rates applicable under sections 807(c)(3) and 807(d)(2)(B) with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),
(3) to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,
(4) to provide appropriate treatment of transfers of assets to and from the segregated account, and
(5) as may be necessary or appropriate to carry out the purposes of this section.
(Added
2017—Subsec. (e)(2).
Amendment by
"(1)
"(2)
"(A) such changes shall be treated as a change in method of accounting initiated by the taxpayer,
"(B) such changes shall be treated as made with the consent of the Secretary, and
"(C) the adjustments required by reason of section 481 of the Internal Revenue Code of 1986, shall be taken into account as ordinary income by the taxpayer for the taxpayer's first taxable year beginning after December 31, 1995.
"(3)
"(A)
"(i)
"(I) the amount of life insurance reserves as of the close of the prior taxable year, over
"(II) the amount of such reserves as of the beginning of such first taxable year,
to the extent such excess is attributable to subsection (a) of such section 817A. Notwithstanding the preceding sentence, the adjusted basis of each segregated asset shall be determined as if all such losses were recognized.
"(ii)
"(B)
"(i)
"(ii)
"(iii)
"(I) the fair market value of the asset as of the beginning of the first taxable year of the taxpayer beginning after December 31, 1995, over
"(II) the adjusted basis of such asset as of such time."
For purposes of this part, the term "pension plan contract" means any contract—
(1) entered into with trusts which (as of the time the contracts were entered into) were deemed to be trusts described in section 401(a) and exempt from tax under section 501(a) (or trusts exempt from tax under section 165 of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws);
(2) entered into under plans which (as of the time the contracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Internal Revenue Code of 1939;
(3) provided for employees of the life insurance company under a plan which, for the taxable year, meets the requirements of paragraphs (3), (4), (5), (6), (7), (8), (11), (12), (13), (14), (15), (16), (17), (19), (20), (22), (26), and (27) of section 401(a);
(4) purchased to provide retirement annuities for its employees by an organization which (as of the time the contracts were purchased) was an organization described in section 501(c)(3) which was exempt from tax under section 501(a) (or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corresponding provisions of prior revenue laws), or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing;
(5) entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retirement annuities described in section 408(b); or
(6) purchased by—
(A) a governmental plan (within the meaning of section 414(d)) or an eligible deferred compensation plan (within the meaning of section 457(b)), or
(B) the Government of the United States, the government of any State or political subdivision thereof, or by any agency or instrumentality of the foregoing, or any organization (other than a governmental unit) exempt from tax under this subtitle, for use in satisfying an obligation of such government, political subdivision, agency or instrumentality, or organization to provide a benefit under a plan described in subparagraph (A).
In the case of a life insurance company—
(1) in applying section 1231(a), the term "property used in the trade or business" shall be treated as including only—
(A) property used in carrying on an insurance business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 1 year, and real property used in carrying on an insurance business, held for more than 1 year, which is not described in section 1231(b)(1)(A), (B), or (C), and
(B) property described in section 1231(b)(2), and
(2) in applying section 1221(a)(2), the reference to property used in trade or business shall be treated as including only property used in carrying on an insurance business.
In the case of property held by the taxpayer on December 31, 1958, if—
(A) the fair market value of such property on such date exceeds the adjusted basis for determining gain as of such date, and
(B) the taxpayer has been a life insurance company at all times on and after December 31, 1958,
the gain on the sale or other disposition of such property shall be treated as an amount (not less than zero) equal to the amount by which the gain (determined without regard to this subsection) exceeds the difference between the fair market value on December 31, 1958, and the adjusted basis for determining gain as of such date.
In the case of property acquired after December 31, 1958, and having a substituted basis (within the meaning of section 1016(b))—
(A) for purposes of paragraph (1), such property shall be deemed held continuously by the taxpayer since the beginning of the holding period thereof, determined with reference to section 1223,
(B) the fair market value and adjusted basis referred to in paragraph (1) shall be that of that property for which the holding period taken into account includes December 31, 1958,
(C) paragraph (1) shall apply only if the property or properties the holding periods of which are taken into account were held only by life insurance companies after December 31, 1958, during the holding periods so taken into account,
(D) the difference between the fair market value and adjusted basis referred to in paragraph (1) shall be reduced (to not less than zero) by the excess of (i) the gain that would have been recognized but for this subsection on all prior sales or dispositions after December 31, 1958, of properties referred to in subparagraph (C), over (ii) the gain which was recognized on such sales or other dispositions, and
(E) the basis of such property shall be determined as if the gain which would have been recognized but for this subsection were recognized gain.
For purposes of paragraphs (1) and (2), the term "property" does not include insurance and annuity contracts and property described in paragraph (1) of section 1221(a).
For purposes of this part, the term "insurance or annuity contract" includes any contract supplementary thereto.
If an election under section 1504(c)(2) is in effect with respect to an affiliated group for the taxable year, all items of the members of such group which are not life insurance companies shall not be taken into account in determining the amount of the tentative LICTI of members of such group which are life insurance companies.
In the case of a life insurance company filing or required to file a consolidated return under section 1501 with respect to any affiliated group for any taxable year, any determination under this part with respect to any dividend paid by one member of such group to another member of such group shall be made as if such group was not filing a consolidated return.
Under regulations, in applying sections 861, 862, and 863 to a life insurance company, the deduction for policyholder dividends (determined under section 808(c)), reserve adjustments under subsections (a) and (b) of section 807, and death benefits and other amounts described in section 805(a)(1) shall be treated as items which cannot definitely be allocated to an item or class of gross income.
On or before September 15, 1985, any life insurance company may elect to treat items described in paragraph (1) as properly apportioned or allocated among items of gross income to the extent (and in the manner) prescribed in regulations.
Any election under subparagraph (A), once made, may be revoked only with the consent of the Secretary.
For purposes of part I of subchapter N, items described in any paragraph of section 807(c) shall be treated as amounts which are not interest.
For purposes of this part—
Any reference to a life insurance contract shall be treated as including a reference to a qualified accelerated death benefit rider on such contract.
For purposes of this subsection, the term "qualified accelerated death benefit rider" means any rider on a life insurance contract if the only payments under the rider are payments meeting the requirements of section 101(g).
Paragraph (1) shall not apply to any rider which is treated as a long-term care insurance contract under section 7702B.
(Added and amended
Section 165 of the Internal Revenue Code of 1939, referred to in subsec. (a)(1), (2), was classified to section 165 of former Title 26, Internal Revenue Code. Section 101 of the Internal Revenue Code of 1939, referred to in subsec. (a)(4) was classified to section 101 of former Title 26, Internal Revenue Code. Sections 101 and 165 were repealed by
A prior section 818, added
Another prior section 818, act Aug. 16, 1954, ch. 736, §818, as added Mar. 13, 1956, ch. 83, §2,
A prior section 819, added
A prior section 819A, added
A prior section 820, added
A prior section 821, acts Aug. 16, 1954, ch. 736,
A prior section 822 was renumbered
A prior section 823, added
Another prior section 823, act Aug. 16, 1954, ch. 736,
A prior section 824, added
A prior section 825, added
A prior section 826 was renumbered
1999—Subsec. (b)(2).
Subsec. (c)(3).
1996—Subsec. (g).
1988—Subsec. (a)(6).
Subsec. (f)(3).
1986—Subsec. (a)(3).
Subsec. (a)(6)(A).
Subsec. (e).
1984—Subsec. (b)(1)(A).
Amendment by
"(1)
"(2)
"(A) the issuance of a qualified accelerated death benefit rider (as defined in section 818(g) of such Code (as added by this Act)), and
"(B) the addition of any provision required to conform an accelerated death benefit rider to the requirements of such section 818(g),
shall not be treated as a modification or material change of such contract."
Amendment by section 1010(k) of
Amendment by section 1106(d)(3)(C) of
Amendment by section 1112(d)(4) of
Amendment by section 1821(n), (o) of
Amendment by
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1112 of
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