Internal Revenue Code:Sec. 809. Reduction in certain deductions of mutual life insurance companies - REPEALED
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter L - Insurance Companies
PART I - LIFE INSURANCE COMPANIES
Subpart C - Life Insurance Deductions
Statute
Sec. 809. Reduction in certain deductions of mutual life insurance
companies [REPEALED]
(a) General rule
(1) Policyholder dividends
In the case of any mutual life insurance company, the amount of
the deduction allowed under section 808 shall be reduced (but not
below zero) by the differential earnings amount.
(2) Reduction in reserve deduction in certain cases
In the case of any mutual life insurance company, if the
differential earnings amount exceeds the amount allowable as a
deduction under section 808 for the taxable year (determined
without regard to this section), such excess shall be taken into
account under subsections (a) and (b) of section 807.
(3) Differential earnings amount
For purposes of this section, the term ''differential earnings
amount'' means, with respect to any taxable year, an amount equal
to the product of -
(A) the life insurance company's average equity base for the
taxable year, multiplied by
(B) the differential earnings rate for such taxable year.
(b) Average equity base
For purposes of this section -
(1) In general
The term ''average equity base'' means, with respect to any
taxable year, the average of -
(A) the equity base determined as of the close of the taxable
year, and
(B) the equity base determined as of the close of the
preceding taxable year.
(2) Equity base
The term ''equity base'' means an amount determined in the
manner prescribed by regulations equal to -
(A) the surplus and capital,
(B) adjusted as provided in paragraphs (3), (4), (5), and (6)
of this subsection.
No item shall be taken into account more than once in determining
equity base.
(3) Increase for nonadmitted financial assets
(A) In general
The amount of the surplus and capital shall be increased by
the amount of the nonadmitted financial assets.
(B) Nonadmitted financial assets
For purposes of subparagraph (A), the term ''nonadmitted
financial asset'' means any nonadmitted asset of the company
which is -
(i) a bond,
(ii) stock,
(iii) real estate,
(iv) a mortgage loan on real estate, or
(v) any other invested asset.
(4) Increase where statutory reserves exceed tax reserves
(A) In general
If -
(i) the aggregate amount of statutory reserves, exceeds
(ii) the aggregate amount of tax reserves,
the amount of the surplus and capital shall be increased by the
amount of such excess.
(B) Definitions
For purposes of this paragraph -
(i) Statutory reserves
The term ''statutory reserves'' means the aggregate amount
set forth in the annual statement with respect to items
described in section 807(c). Such term shall not include any
reserve attributable to a deferred and uncollected premium if
the establishment of such reserve is not permitted under
section 811(c(.
(ii) Tax reserves
The term ''tax reserves'' means the aggregate of the items
described in section 807(c) as determined for purposes of
section 807.
(5) Increase by amount of certain other reserves
The amount of the surplus and capital shall be increased by the
sum of -
(A) the amount of any mandatory securities valuation reserve,
(B) the amount of any deficiency reserve, and
(C) the amount of any voluntary reserve or similar liability
not described in subparagraph (A) or (B).
(6) Adjustment for next year's policyholder dividends
The amount of the surplus and capital shall be increased by 50
percent of the amount of any provision for policyholder dividends
(or other similar liability) payable in the following taxable
year.
(c) Differential earnings rate
(1) In general
For purposes of this section, the differential earnings rate
for any taxable year is the excess of -
(A) the imputed earnings rate for the taxable year, over
(B) the average mutual earnings rate for the second calendar
year preceding the calendar year in which the taxable year
begins.
(2) Transitional rule
The differential earnings rate -
(A) for any taxable year beginning in 1984, or
(B) for purposes of computing the amount of underpayment
under section 6655 (including the application of section
6655(d)(3)) (FOOTNOTE 1) for any taxable year beginning in
1985,
(FOOTNOTE 1) See References in Text note below.
shall be equal to 7.8 percent.
(3) Coordination with estimated tax payments
For purposes of applying section 6655 with respect to any
installment of estimated tax, the amount of tax shall be
determined by using the lesser of -
(A) the differential earnings rate of the second tax year
preceding the taxable year for which the installment is made,
or
(B) the differential earnings rate for the taxable year for
which the installment is made.
(d) Imputed earnings rate
(1) In general
For purposes of this section, the imputed earnings rate for any
taxable year is -
(A) 16.5 percent in the case of taxable years beginning in
1984, and
(B) in the case of taxable years beginning after 1984, an
amount which bears the same ratio to 16.5 percent as the
current stock earnings rate for the taxable year bears to the
base period stock earnings rate.
(2) Current stock earnings rate
For purposes of this subsection, the term ''current stock
earnings rate'' means, with respect to any taxable year, the
average of the stock earnings rates determined under paragraph
(4) for the 3 calendar years preceding the calendar year in which
the taxable year begins.
(3) Base period stock earnings rate
For purposes of this subsection, the base period stock earnings
rate is the average of the stock earnings rates determined under
paragraph (4) for calendar years 1981, 1982, and 1983.
(4) Stock earnings rate
(A) In general
For purposes of this subsection, the stock earnings rate for
any calendar year is the numerical average of the earnings
rates of the 50 largest stock companies.
(B) Earnings rate
For purposes of subparagraph (A), the earnings rate of any
stock company is the percentage (determined by the Secretary)
which -
(i) the statement gain or loss from operations for the
calendar year of such company, is of
(ii) such company's average equity base for such year.
(C) 50 largest stock companies
For purposes of this paragraph, the term ''50 largest stock
companies'' means a group (as determined by the Secretary) of
stock life insurance companies which consists of the 50 largest
domestic stock life insurance companies which are subject to
tax under this part. The Secretary -
(i) shall, for purposes of determining the base period
stock earnings rate, exclude from the group determined under
the preceding sentence any company which had a negative
equity base at any time during 1981, 1982, or 1983,
(ii) shall exclude from such group for any calendar year
any company which has a negative equity base, and
(iii) may by regulations exclude any other company which
otherwise would have been included in such group if the
inclusion of the excluded company or companies would, by
reason of the small equity base of such company, seriously
distort the stock earnings rate.
The aggregate number of companies excluded by the Secretary
under clause (iii) shall not exceed the excess of 2 over the
number of companies excluded under clause (ii).
(D) Treatment of affiliated groups
For purposes of this paragraph, all stock life insurance
companies which are members of the same affiliated group shall
be treated as one stock life insurance company.
(e) Average mutual earnings rate
For purposes of this section, the average mutual earnings rate
for any calendar year is the percentage (determined by the
Secretary) which -
(1) the aggregate statement gain or loss from operations for
such year of domestic mutual life insurance companies, is of
(2) their aggregate average equity bases for such year.
(f) Recomputation in subsequent year
(1) Inclusion in income where recomputed amount greater
In the case of any mutual life insurance company, if -
(A) the recomputed differential earnings amount for any
taxable year, exceeds
(B) the differential earnings amount determined under this
section for such taxable year,
such excess shall be included in life insurance gross income for
the succeeding taxable year.
(2) Deduction where recomputed amount smaller
In the case of any mutual life insurance company, if -
(A) the differential earnings amount determined under this
section for any taxable year, exceeds
(B) the recomputed differential earnings amount for such
taxable year,
such excess shall be allowed as a life insurance deduction for
the succeeding taxable year.
(3) Recomputed differential earnings amount
For purposes of this subsection, the term ''recomputed
differential earnings amount'' means, with respect to any taxable
year, the amount which would be the differential earnings amount
for such taxable year if the average mutual earnings rate taken
into account under subsection (c)(1)(B) were the average mutual
earnings rate for the calendar year in which the taxable year
begins.
(4) Special rule where company ceases to be mutual life insurance
company
Except as provided in section 381(c)(22), if -
(A) a life insurance company is a mutual life insurance
company for any taxable year, but
(B) such life insurance company is not a mutual life
insurance company for the succeeding taxable year,
any adjustment under paragraph (1) or (2) by reason of the
recomputed differential earnings amount for the first of such
taxable years shall be taken into account for the first of such
taxable years.
(5) Subsection not to apply for purposes of estimated tax
Section 6655 shall be applied to any taxable year without
regard to any adjustments under this subsection for such year.
(g) Definitions and special rules
For purposes of this section -
(1) Statement gain or loss from operations
The term ''statement gain or loss from operations'' means the
net gain or loss from operations required to be set forth in the
annual statement, determined without regard to Federal income
taxes, and -
(A) determined by substituting for the amount shown for
policyholder dividends the amount of deduction for policyholder
dividends determined under section 808 (without regard to
section 808(c)(2)),
(B) determined on the basis of the tax reserves rather than
statutory reserves, and
(C) properly adjusted for realized capital gains and losses
and other relevant items.
(2) Other terms
Except as otherwise provided in this section, the terms used in
this section shall have the same respective meanings as when used
in the annual statement.
(3) Determinations based on amount set forth in annual statement
Except as otherwise provided in this section or in regulations,
all determinations under this section shall be made on the basis
of the amounts required to be set forth on the annual statement.
(4) Annual statement
The term ''annual statement'' means the annual statement for
life insurance companies approved by the National Association of
Insurance Commissioners.
(5) Reduction in equity base for portion of equity allocable to
life insurance business in noncontiguous Western Hemisphere
countries
The equity base of any mutual life insurance company shall be
reduced by an amount equal to the portion of the equity base
attributable to the life insurance business multiplied by a
fraction -
(A) the numerator of which is the portion of the tax reserves
which is allocable to life insurance contracts issued on the
life of residents of countries in the Western Hemisphere which
are not contiguous to the United States, and
(B) the denominator of which is the amount of the tax
reserves allocable to life insurance contracts.
The preceding sentence shall not apply unless the fraction
determined under the preceding sentence exceeds 1/20.
(6) Special rule for certain contracts issued before January 1,
1985
In determining the amount of tax reserves of a subsidiary of a
mutual insurance company for purposes of subsection (b)(4),
section 811(d) shall not apply with respect to any life insurance
contract issued before January 1, 1985, under a plan of life
insurance in existence on July 1, 1983.
(h) Treatment of stock companies owned by mutual life insurance
companies
(1) Treatment as mutual life insurance companies for purposes of
determining stock earnings rates and mutual earnings rates
Solely for purposes of subsections (d) and (e), a stock life
insurance company shall be treated as a mutual life insurance
company if stock possessing -
(A) at least 80 percent of the total combined voting power of
all classes of stock of such stock life insurance company
entitled to vote, or
(B) at least 80 percent of the total value of shares of all
classes of stock of such stock life insurance company,
is owned at any time during the calendar year directly (or
through the application of section 318) by one or more mutual
life insurance companies.
(2) Treatment of affiliated group which includes mutual parent
and stock subsidiary
In the case of an affiliated group of corporations which
includes a common parent which is a mutual life insurance company
and one or more stock life insurance companies, for purposes of
determining the average equity base of such common parent (and
the statement gain or loss from operations) -
(A) stock in such stock life insurance companies held by such
common parent (and dividends on such stock) shall not be taken
into account, and
(B) such common parent and such stock life insurance
companies shall be treated as though they were one mutual life
insurance company.
(3) Adjustment where stock company not member of affiliated group
In the case of any stock life insurance company which is
described in paragraph (1) but is not a member of an affiliated
group described in paragraph (2), under regulations, proper
adjustments shall be made in the average equity bases (and
statement gains or losses from operations) of mutual life
insurance companies owning stock in such company as may be
necessary or appropriate to carry out the purposes of this
section.
(i) Transitional rule for certain high surplus mutual life
insurance companies
(1) In general
For purposes of subsection (a)(3), the average equity base of a
high surplus mutual life insurance company for any taxable year
shall not include the applicable percentage of the excess equity
base of such company for such taxable year.
(2) Definitions
For purposes of this subsection -
(A) Excess equity base
The term ''excess equity base'' means the excess of -
(i) the average equity base of the company for the taxable
year, over
(ii) the amount which would be its average equity base if
its equity percentage equaled the following percentage:
For taxable years
beginning in: The percentage is:
1984 14.5
1985 or 1986 14
1987 or 1988 13.5
In no case shall the excess equity base for any taxable year be
greater than the excess equity base for the company's first
taxable year beginning in 1984.
(B) Applicable percentage
The term ''applicable percentage'' means the percentage
determined in accordance with the following table:
For taxable years The applicable
beginning in: percentage is:
1984 100
1985 80
1986 60
1987 40
1988 20
1989 or thereafter 0.
(C) High surplus mutual life insurance company
The term ''high surplus mutual life insurance company'' means
any mutual life insurance company if, for the taxable year
beginning in 1984, its equity percentage exceeded 14.5 percent.
(D) Equity percentage
The term ''equity percentage'' means, with respect to any
mutual life insurance company, the percentage which -
(i) the average equity base of such company (determined
under this section without regard to this subsection) for a
taxable year bears to
(ii) the average of -
(I) the assets of such company as of the close of the
preceding taxable year, and
(II) the assets of such company as of the close of the
taxable year.
For purposes of the preceding sentence, the assets of a company
shall include all assets taken into account under this section
in determining its equity base (after applying the principles
of subsection (h)).
(j) Differential Earnings Rate Treated as Zero for Certain
Years.--Notwithstanding subsection (c) or (f), the differential earnings
rate shall be treated as zero for purposes of computing both the
differential earnings amount and the recomputed differential earnings
amount for a mutual life insurance company's taxable years beginning in
2001, 2002, or 2003.
Sources
(Added Pub. L. 98-369, div. A, title II, Sec. 211(a), July 18,
1984, 98 Stat. 733; amended Pub. L. 99-514, title XVIII, Sec.
1821(d)-(h), (r), Oct. 22, 1986, 100 Stat. 2839, 2840, 2843; Pub.
L. 100-647, title I, Sec. 1018(u)(47), Nov. 10, 1988, 102 Stat.
3593.)
References in Text
REFERENCES IN TEXT
Section 6655(d) of this title, referred to in subsec. (c)(2)(B),
was amended by Pub. L. 100-203, title X, Sec. 10301(a), Dec. 22,
1987, 101 Stat. 1330-424, and, as so amended, did not contain a
par. (3). Section 6655(d) was subsequently amended by Pub. L.
102-227, title II, Sec. 201(a), Dec. 11, 1991, 105 Stat. 1689,
which added a new par. (3), Pub. L. 102-318, title V, Sec.
512(a)(3), July 3, 1992, 106 Stat. 300, which struck out the par.
(3) added by Pub. L. 102-227 and added another new par. (3), and
Pub. L. 103-66, title XIII, Sec. 13225(a)(2)(A)(i), Aug. 10, 1993,
107 Stat. 486, which struck out the par. (3) added by Pub. L.
102-318.
Miscellaneous
PRIOR PROVISIONS
A prior section 809, added Pub. L. 86-69, Sec. 2(a), June 25,
1959, 73 Stat. 121; amended Pub. L. 87-59, Sec. 2(a), (b), June 27,
1961, 75 Stat. 120; Pub. L. 87-790, Sec. 3(a), Oct. 10, 1962, 76
Stat. 808; Pub. L. 87-858, Sec. 3(b)(3), (c), Oct. 23, 1962, 76
Stat. 1137; Pub. L. 88-272, title II, Sec. 214(b)(4), 228(a), Feb.
26, 1964, 78 Stat. 55, 98; Pub. L. 91-172, title II, Sec.
201(a)(2)(C), title IX, Sec. 907(c)(2)(B), Dec. 30, 1969, 83 Stat.
558, 717; Pub. L. 94-455, title XV, Sec. 1508(a), title XIX, Sec.
1901(a)(98), (b)(1)(J)(iv), (L)-(N), 33(G), 1906(b)(13)(A), Oct. 4,
1976, 90 Stat. 1741, 1781, 1791, 1801, 1834; Pub. L. 97-248, title
II, Sec. 255(b)(2)-(4), 259(a), 264(c)(2), (3), Sept. 3, 1982, 96
Stat. 534, 538, 544; Pub. L. 97-448, title I, Sec. 102(m)(1), Jan.
12, 1983, 96 Stat. 2374, related to general provisions regarding
gain and loss from operations, prior to the general revision of
this part by Pub. L. 98-369, Sec. 211(a).
AMENDMENTS
2004 - Subsec.205(a),Pub.L.108-218, REPEALED this Sec. 809.
2002 - Subsec. 611(a), Pub. L. 107-147, amended Sec. 809 by
adding (j) for tax years beginning after December 31, 2000.
1988 - Subsec. (d)(4)(C). Pub. L. 100-647 substituted ''The
Secretary'' for ''the Secretary''.
1986 - Subsec. (b)(2). Pub. L. 99-514, Sec. 1821(d), inserted at
end ''No item shall be taken into account more than once in
determining equity base.''
Subsec. (c)(3). Pub. L. 99-514, Sec. 1821(g), added par. (3).
Subsec. (d)(4)(C). Pub. L. 99-514, Sec. 1821(e)(1), (2)(A),
substituted ''largest domestic stock life insurance companies'' for
''largest stock life insurance companies'', and substituted the
provisions of cls. (i) to (iii) and closing provisions for ''may by
regulations provide for exclusion from the group determined under
the preceding sentence of any stock life insurance company if (i)
the equity of such company is not great enough for such company to
be 1 of the 50 largest stock life insurance companies if the
determination were made on the basis of equity, and (ii) by reason
of the small equity base of such company, it has an earnings rate
which would seriously distort the stock earnings rate''.
Subsec. (e)(1). Pub. L. 99-514, Sec. 1821(e)(2)(B), substituted
''domestic mutual'' for ''mutual''.
Subsec. (f)(3). Pub. L. 99-514, Sec. 1821(r), substituted
''subsection (c)(1)(B)'' for ''subsection (c)(2)''.
Subsec. (f)(5). Pub. L. 99-514, Sec. 1821(h), added par. (5).
Subsec. (g)(1)(A). Pub. L. 99-514, Sec. 1821(f), substituted
''determined without regard to Federal income taxes, and (A)
determined by substituting for the amount shown for policyholder
dividends the amount of deduction for policyholder dividends
determined under section 808 (without regard to section 808(c)(2)''
for ''(A) determined with regard to policyholder dividends (as
defined in section 808) but without regard to Federal income
taxes''.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, 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 of Pub. 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 Pub. 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 (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. 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 Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
SPECIAL RULE FOR APPLICATION OF HIGH SURPLUS MUTUAL RULES
Section 1821(q) of Pub. L. 99-514 provided that: ''In the case of
any mutual life insurance company -
''(1) which was incorporated on February 23, 1888, and
''(2) which acquired a stock subsidiary during 1982,
the amount of such company's excess equity base for purposes of
section 809(i) of such Code shall, notwithstanding the last
sentence of section 809(i)(2)(D), equal $175,000,000.''
TREATMENT OF REINSURANCE AGREEMENTS REQUIRED BY NATIONAL
ASSOCIATION OF INSURANCE COMMISSIONERS
For applicability of former provisions of subsecs. (c)(1)(F) and
(d)(12) of this section to dividends to policyholders reimbursed to
the taxpayer by a reinsurer in respect of accident and health
policies reinsured under a reinsurance agreement entered into
before June 30, 1955, pursuant to the direction of the National
Association of Insurance Commissioners and approved by the State
insurance commissioner of the taxpayer's State of domicile, see
section 217(g) of Pub. L. 98-369, set out as a note under section
801 of this title.
REDUCTION IN EQUITY BASE FOR MUTUAL SUCCESSOR OF FRATERNAL BENEFIT
SOCIETY
Section 217(j) of subtitle A (Sec. 211-219) of title II of div.
A of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22,
1986, 100 Stat. 2095, provided that: ''In the case of any mutual
life insurance company which -
''(1) is the successor to a fraternal benefit society, and
''(2) which assumed the surplus of such fraternal benefit
society in 1950 or in March of 1961,
for purposes of section 809 of the Internal Revenue Code of 1986
(formerly I.R.C. 1954) (as amended by this subtitle), the equity
base of such mutual life insurance company shall be reduced by the
amount of the surplus so assumed plus earnings thereon, (i) for
taxable years before 1984, at a 7 percent interest rate, and (ii)
for taxable years 1984 and following, at the average mutual
earnings rate for such year.''
CLARIFICATION OF AUTHORITY TO REQUIRE CERTAIN INFORMATION
Section 219 of title II of div. A of Pub. L. 98-369 provided
that: ''Nothing in any provision of law shall be construed to
prevent the Secretary of the Treasury or his delegate from
requiring (from time to time) life insurance companies to provide
such data with respect to taxable years beginning before January 1,
1984, as may be necessary to carry out the provisions of section
809 of such Code (as added by this title).''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 807, 808, 812, 817, 842
of this title.
