26 U.S.C. § 816 — Life insurance company defined

Page 1913 TITLE 26—INTERNAL REVENUE CODE § 816 105–34, title XI, § 1131(c)(1), Aug. 5, 1997, 111 Stat. 980; Pub. L. 115–97, title I, § 14301(c)(5), Dec. 22, 2017, 131 Stat. 2222.) Editorial Notes AMENDMENTS 2017—Subsec. (f)(1). Pub. L. 115–97 redesignated sub- par. (A) as par. (1), struck out subpar. (A) heading ‘‘In general’’, and struck out subpar. (B). Prior to amend- ment, text of subpar. (B) read as follows: ‘‘For purposes of sections 78 and 902, where any amount is added to the life insurance company taxable income of the domestic life insurance company by reason of subsection (e)(2), the contiguous country life insurance branch shall be treated as a foreign corporation. Any amount so added shall be treated as a dividend paid by a foreign corpora- tion, and the taxes paid to any foreign country or pos- session of the United States with respect to such amount shall be deemed to have been paid by such branch.’’ 1997—Subsec. (h). Pub. L. 105–34 struck out ‘‘or 1491’’ after ‘‘section 367’’. Statutory Notes and Related Subsidiaries NEW SECTION 814 TREATED AS CONTINUATION OF SECTION 819A Pub. L. 98–369, div. A, title II, § 217(a), July 18, 1984, 98 Stat. 762, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘For purposes of section 814 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to contiguous country branches of domestic life insurance companies)— ‘‘(1) any election under section 819A of such Code (as in effect on the day before the date of the enact- ment of this Act [July 18, 1984]) shall be treated as an election under such section 814, and ‘‘(2) any reference to a provision of such section 814 shall be treated as including a reference to the cor- responding provision of such section 819A.’’ EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 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. [§ 815. Repealed. Pub. L. 115–97, title I, § 13514(a), Dec. 22, 2017, 131 Stat. 2143] Section, added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 747; amended Pub. L. 99–514, title X, § 1011(b)(10), title XVIII, § 1821(k)(1), (2), Oct. 22, 1986, 100 Stat. 2389, 2841; Pub. L. 100–647, title I, § 1010(j)(1), Nov. 10, 1988, 102 Stat. 3456; Pub. L. 108–357, title VII, § 705(a), Oct. 22, 2004, 118 Stat. 1549; Pub. L. 113–295, div. A, title II, § 221(a)(41)(G), Dec. 19, 2014, 128 Stat. 4044, re- lated to distributions to shareholders from pre-1984 pol- icyholders surplus account. A prior section 815, added Pub. L. 86–69, § 2(a), June 25, 1959, 73 Stat. 129; amended Pub. L. 87–790, § 3(b), Oct. 10, 1962, 76 Stat. 808; Pub. L. 87–858, § 3(b)(4), (e), Oct. 23, 1962, 76 Stat. 1137; Pub. L. 88–571, §§ 2, 3(a), 4(a), Sept. 2, 1964, 78 Stat. 857, 859; Pub. L. 90–225, § 4(a), (b), Dec. 27, 1967, 81 Stat. 733, 734; Pub. L. 91–172, title IX, § 907(b), Dec. 30, 1969, 83 Stat. 715; Pub. L. 94–331, § 1(a), June 30, 1976, 90 Stat. 781; Pub. L. 94–455, title XIX, §§ 1901(b)(1)(O), (24), (33)(H), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1791, 1798, 1801, 1834, contained provisions similar to this section, prior to the general revision of this part by Pub. L. 98–369, § 211(a). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal applicable to taxable years beginning after Dec. 31, 2017, see section 13514(c) of Pub. L. 115–97, set out as an Effective Date of 2017 Amendment note under section 801 of this title. SUBPART E—DEFINITIONS AND SPECIAL RULES Sec. 816. Life insurance company defined. 817. Treatment of variable contracts. 817A. Special rules for modified guaranteed con- tracts. 818. Other definitions and special rules. Editorial Notes AMENDMENTS 1996—Pub. L. 104–188, title I, § 1612(b), Aug. 20, 1996, 110 Stat. 1847, added item 817A. § 816. Life insurance company defined (a) Life insurance company defined For purposes of this subtitle, the term ‘‘life in- surance company’’ means an insurance company which is engaged in the business of issuing life insurance and annuity contracts (either sepa- rately or combined with accident and health in- surance), 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 poli- cies not included in life insurance reserves, comprise more than 50 percent of its total re- serves (as defined in subsection (c)). For pur- poses of the preceding sentence, the term ‘‘in- surance company’’ means any company more than half of the business of which during the taxable year is the issuing of insurance or annu- ity contracts or the reinsuring of risks under- written by insurance companies. (b) Life insurance reserves defined (1) In general For purposes of this part, the term ‘‘life in- surance reserves’’ means amounts— (A) which are computed or estimated on the basis of recognized mortality or mor- bidity tables and assumed rates of interest, and (B) which are set aside to mature or liq- uidate, either by payment or reinsurance, fu- ture unaccrued claims arising from life in- surance, annuity, and noncancellable acci- dent and health insurance contracts (includ- ing life insurance or annuity contracts com- bined with noncancellable accident and health insurance) involving, at the time with respect to which the reserve is com- puted, life, accident, or health contin- gencies. (2) Reserves must be required by law Except— (A) in the case of policies covering life, ac- cident, and health insurance combined in one policy issued on the weekly premium Page 1914 TITLE 26—INTERNAL REVENUE CODE § 816 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. (3) Assessment companies In the case of an assessment life insurance company or association, the term ‘‘life insur- ance reserves’’ includes— (A) sums actually deposited by such com- pany or association with State officers pur- suant to law as guaranty or reserve funds, and (B) any funds maintained, under the char- ter or articles of incorporation or associa- tion (or bylaws approved by a State insur- ance commissioner) of such company or as- sociation, exclusively for the payment of claims arising under certificates of member- ship or policies issued on the assessment plan and not subject to any other use. (4) Amount of reserves For purposes of this subsection, subsection (a), and subsection (c), the amount of any re- serve (or portion thereof) for any taxable year shall be the mean of such reserve (or portion thereof) at the beginning and end of the tax- able year. (c) Total reserves defined 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. (d) Adjustments in reserves for policy loans For purposes only of determining under sub- section (a) whether or not an insurance company is a life insurance company, the life insurance reserves, and the total reserves, shall each be re- duced by an amount equal to the mean of the ag- gregates, at the beginning and end of the tax- able year, of the policy loans outstanding with respect to contracts for which life insurance re- serves are maintained. (e) Guaranteed renewable contracts For purposes of this part, guaranteed renew- able life, accident, and health insurance shall be treated in the same manner as noncancellable life, accident, and health insurance. (f) Amounts not involving life, accident, or health contingencies For purposes only of determining under sub- section (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 guar- antees with respect to life, accident, or health contingencies shall not be included in reserves described in paragraph (1) or (3) of subsection (c). (g) Burial and funeral benefit insurance compa- nies 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. (h) Treatment of deficiency reserves For purposes of this section and section 842(b)(2)(B)(i), the terms ‘‘life insurance re- serves’’ and ‘‘total reserves’’ shall not include deficiency reserves. (Added Pub. L. 98–369, div. A, title II, § 211(a), July 18, 1984, 98 Stat. 748; amended Pub. L. 99–514, title XVIII, § 1821(l), Oct. 22, 1986, 100 Stat. 2841; Pub. L. 100–203, title X, § 10242(c)(2), Dec. 22, 1987, 101 Stat. 1330–423; Pub. L. 100–647, title I, § 1010(f)(6), title II, § 2004(q)(1), Nov. 10, 1988, 102 Stat. 3454, 3608.) Editorial Notes PRIOR PROVISIONS A prior section 816, act Aug. 16, 1954, ch. 736, § 816, as added Mar. 13, 1956, ch. 83, § 2, 70 Stat. 46, related to tax- ation of foreign life insurance companies, prior to the general revision of this part by Pub. L. 86–69, § 2(a). AMENDMENTS 1988—Subsec. (g). Pub. L. 100–647, § 1010(f)(6), sub- stituted ‘‘section 831’’ for ‘‘section 821 or section 831’’. Subsec. (h). Pub. L. 100–647, § 2004(q)(1), substituted ‘‘section 842(b)(2)(B)(i)’’ for ‘‘section 842(c)(1)(A)’’. 1987—Subsec. (h). Pub. L. 100–203 substituted ‘‘section 842(c)(1)(A)’’ for ‘‘section 813(a)(4)(B)’’. 1986—Subsec. (h). Pub. L. 99–514 added subsec. (h). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1010(f)(6) of Pub. L. 100–647 ef- fective, 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 sec- tion 1 of this title. Amendment by section 2004(q)(1) of Pub. L. 100–647 ef- fective, except as otherwise provided, as if included in the provisions of the Revenue Act of 1987, Pub. L. 100–203, title X, to which such amendment relates, see section 2004(u) of Pub. L. 100–647, set out as a note under section 56 of this title. EFFECTIVE DATE OF 1987 AMENDMENT Pub. L. 100–203, title X, § 10242(d), Dec. 22, 1987, 101 Stat. 1330–423, provided that: ‘‘The amendments made by this section [amending this section and sections 842, 864, and 4371 of this title and repealing section 813 of this title] shall apply to taxable years beginning after December 31, 1987.’’ EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 effective, except as oth- erwise 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 [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. Page 1915 TITLE 26—INTERNAL REVENUE CODE § 817 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 ELECTION TO TREAT INDIVIDUAL NONCANCELLABLE ACCIDENT AND HEALTH CONTRACTS AS CANCELLABLE Pub. L. 98–369, div. A, title II, § 217(i), July 18, 1984, 98 Stat. 764, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 100–647, title I, § 1010(h)(1), Nov. 10, 1988, 102 Stat. 3455, provided that: ‘‘(1) IN GENERAL.—A mutual life insurance company may elect to treat all individual noncancellable (or guaranteed renewable) accident and health insurance contracts as though they were cancellable for purposes of section 816 of subchapter L of chapter 1 of the Inter- nal Revenue Code of 1986 [formerly I.R.C. 1954]. ‘‘(2) EFFECT OF ELECTION ON SUBSIDIARIES OF ELECTING PARENT.—For purposes of determining the amount of the small life insurance company deduction of any con- trolled group which includes a mutual company which made an election under paragraph (1), the taxable in- come of such electing company shall be taken into ac- count under [former] section 806(b)(2) of the Internal Revenue Code of 1986 (relating to phaseout of small life insurance company deduction). ‘‘(3) ELECTION.—An election under paragraph (1) shall apply to the company’s first taxable year beginning after December 31, 1983, and all taxable years there- after. ‘‘(4) TIME AND MANNER.—An election under paragraph (1) shall be made— ‘‘(A) on the return of the taxpayer for its first tax- able year beginning after December 31, 1983, and ‘‘(B) in such manner as the Secretary of the Treas- ury or his delegate may prescribe.’’ [Pub. L. 100–647, title I, § 1010(h)(2), (3), Nov. 10, 1988, 102 Stat. 3455, provided that: [‘‘(2) EFFECTIVE DATE.—The amendment made by this subsection [amending section 217(i) of Pub. L. 98–369, set out above] shall apply to taxable years beginning after December 31, 1986, and before January 1, 1992. [‘‘(3) REVENUE LOSS LIMITED.—The decrease in the amount of Federal revenue by reason of the amendment made by this subsection shall not exceed $300,000 per taxable year.’’] § 817. Treatment of variable contracts (a) Increases and decreases in reserves For purposes of subsections (a) and (b) of sec- tion 807, the sum of the items described in sec- tion 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 re- serves 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 re- spect to variable contracts shall be reduced to the extent that the amount of such items is in- creased for the taxable year by appreciation (or increased to the extent that the amount of such items is decreased for the taxable year by depre- ciation) not reflected in adjustments under the preceding sentence. (b) Adjustment to basis of assets held in seg- regated asset account 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 apprecia- tion in value, and (2) decreased by the amount of any deprecia- tion 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 con- tracts. (c) Separate accounting For purposes of this part, a life insurance com- pany which issues variable contracts shall sepa- rately account for the various income, exclu- sion, deduction, asset, reserve, and other liabil- ity 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 reg- ulations prescribed by the Secretary. (d) Variable contract defined 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 con- tract to an account which, pursuant to State law or regulation, is segregated from the gen- eral 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 re- tired 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, re- flect 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 pe- riod 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 con- tract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the mar- ket value of the segregated asset account. If a contract ceases to reflect current invest- ment return and current market value, such contract shall not be considered as meeting the requirements of paragraph (3) after such ces- sation. Paragraph (3) shall be applied without regard to whether there is a guarantee, and obli-