Rules for certain reserves
Decrease treated as gross income
If for any taxable year—
the opening balance for the items described in subsection (c), exceeds
the closing balance for such items, reduced by
the amount of the policyholders’ share of tax-exempt interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies,
such excess shall be included in gross income under section 803(a)(2).
Increase treated as deduction
If for any taxable year—
the closing balance for the items described in subsection (c), reduced by
the amount of the policyholders’ share of tax-exempt interest and the amount of the policyholder’s share of the increase for the taxable year in policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, exceeds
the opening balance for such items,
such excess shall be taken into account as a deduction under section 805(a)(2).
Items taken into account
The items referred to in subsections (a) and (b) are as follows:
The life insurance reserves (as defined in section 816(b)).
The unearned premiums and unpaid losses included in total reserves under section 816(c)(2).
The amounts (discounted at the appropriate rate of interest) necessary to satisfy the obligations under insurance and annuity contracts, but only if such obligations do not involve (at the time with respect to which the computation is made under this paragraph) life, accident, or health contingencies.
Dividend accumulations, and other amounts, held at interest in connection with insurance and annuity contracts.
Premiums received in advance, and liabilities for premium deposit funds.
Reasonable special contingency reserves under contracts of group term life insurance or group accident and health insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or for a combination thereof.
For purposes of paragraph (3), the appropriate rate of interest is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract. For purposes of paragraph (2) and section 805(a)(1), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846.
Method of computing reserves for purposes of determining income
Determination of reserve
In general
For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of—
the net surrender value of such contract, or
92.81 percent of the reserve determined under paragraph (2).
Variable contracts
For purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of—
the greater of—
the net surrender value of such contract, or
the portion of the reserve that is separately accounted for under section 817, plus
92.81 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i).
Statutory cap
No double counting
Amount of reserve
Tax reserve method
For purposes of this subsection—
In general
The term “tax reserve method” means—
Life insurance contracts
Annuity contracts
Noncancellable accident and health insurance contracts
Other contracts
In the case of any contract not described in clause (i), (ii), or (iii)—
the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract (as of the date the reserve is determined), or
if no reserve method has been prescribed by the National Association of Insurance Commissioners which covers such contract, a reserve method which is consistent with the reserve method required under clause (i), (ii), or (iii) or under subclause (I) of this clause as of the date the reserve is determined for such contract (whichever is most appropriate).
Definition of CRVM and CARVM
For purposes of this paragraph—
CRVM
CARVM
No additional reserve deduction allowed for deficiency reserves
Statutory reserves
Special rules for computing reserves
Net surrender value
For purposes of this section—
In general
The net surrender value of any contract shall be determined—
with regard to any penalty or charge which would be imposed on surrender, but
without regard to any market value adjustment on surrender.
Special rule for pension plan contracts
Qualified supplemental benefits
Qualified supplemental benefits treated separately
Qualified supplemental benefit
For purposes of this paragraph, the term “qualified supplemental benefit” means any supplemental benefit described in subparagraph (C) if—
there is a separately identified premium or charge for such benefit, and
any net surrender value under the contract attributable to any other benefit is not available to fund such benefit.
Supplemental benefits
For purposes of this paragraph, the supplemental benefits described in this subparagraph are any—
guaranteed insurability,
accidental death or disability benefit,
convertibility,
disability waiver benefit, or
other benefit prescribed by regulations,
which is supplemental to a contract for which there is a reserve described in subsection (c).
Certain contracts issued by foreign branches of domestic life insurance companies
In general
Qualified foreign contract
For purposes of subparagraph (A), the term “qualified foreign contract” means any contract issued by a foreign life insurance branch (which has its principal place of business in a foreign country) of a domestic life insurance company if—
such contract is issued on the life or health of a resident of such country,
such domestic life insurance company was required by such foreign country (as of the time it began operations in such country) to operate in such country through a branch, and
such foreign country is not contiguous to the United States.
Special rules for contracts issued before January 1, 1989, under existing plans of insurance, with term insurance or annuity benefits
For purposes of this part—
In general
Benefits to which this paragraph applies
Existing plan of insurance
Special rules for treatment of certain nonlife reserves
In general
The amount taken into account for purposes of subsections (a) and (b) as—
the opening balance of the items referred to in subparagraph (B), and
the closing balance of such items,
shall be 80 percent of the amount which (without regard to this subparagraph) would have been taken into account as such opening or closing balance, as the case may be.
Description of items
Reporting rules
Adjustment for change in computing reserves
Treatment as change in method of accounting
If the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between—
the amount of the item at the close of the taxable year, computed on the new basis, and
the amount of the item at the close of the taxable year, computed on the old basis,
as is attributable to contracts issued before the taxable year shall be taken into account under section 481 as adjustments attributable to a change in method of accounting initiated by the taxpayer and made with the consent of the Secretary.
Termination as life insurance company
Source
(Added Pub. L. 98–369, div. A, title II, § 211(a),Notes
Codification
Prior Provisions
Amendments
Effective Date of 2017 Amendment
In general.—
The amendments made by this section [amending this section and sections 808, 811, 846, 848, 954, and 7702 of this title] shall apply to taxable years beginning after
Transition rule.—
For the first taxable year beginning after
Transition relief.—
In general.—
If—
the reserve determined under section 807(d) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) with respect to any contract as of the close of the year preceding the first taxable year beginning after
the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2),
then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) shall be taken into account under the method provided in subparagraph (B).
Method.—
The method provided in this subparagraph is as follows:
If the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) or 832(c)(4) of such Code, as applicable.
If the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) or 832(b)(1)(C) of such Code, as applicable.”
Effective Date of 2014 Amendment
Effective Date of 2004 Amendment
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Effective Date of 1990 Amendment
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Effective Date
Plan Amendments Not Required Until January 1, 1989
Treatment of Certain Assessment Life Insurance Companies
Mortality and morbidity tables.—
In the case of a contract issued by an assessment life insurance company, the mortality and morbidity tables used in computing statutory reserves for such contract shall be used for purposes of paragraph (2)(C) of section 807(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as amended by this subtitle [subtitle A (§§ 211–219) of title II of div. A of Pub. L. 98–369]) if such tables were—
in use since 1965, and
developed on the basis of the experience of assessment life insurance companies in the State in which such assessment life insurance company is domiciled.
Treatment of certain mutual assessment life insurance companies.—
In the case of any contract issued by a mutual assessment life insurance company which—
has been in existence since 1965, and
operates under chapter 13 or 14 of the Texas Insurance Code,
for purposes of part I of subchapter L of chapter 1 of the Internal Revenue Code of 1986, the amount of the life insurance reserves for such contract shall be equal to the amount taken into account with respect to such contract in determining statutory reserves.
Statutory reserves.—
For purposes of this subsection, the term ‘statutory reserves’ has the meaning given to such term by [former] section 809(b)(4)(B) of such Code.”
Special Rule for Companies Using Net Level Reserve Method for Noncancellable Accident and Health Insurance Contracts
such company—
was using the net level reserve method to compute at least 99 percent of its statutory reserves on such contracts as of
received more than half its total direct premiums in 1982 from directly-written noncancellable accident and health insurance,
after
for any such contract for which the company does not use the net level reserve method, such company uses the same method for computing tax reserves as such company uses for computing its statutory reserves.”