Internal Revenue Code:Sec. 809. Reduction in certain deductions of mutual life insurance companies - REPEALED

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Contents


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        companies [REPEALED]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.
 

Personal tools