An Act relating to the taxation of income of insurance companies
PL 84-429 (H.R.7201), enacted 03/13/1956

36 
PUBLIC LAW 429-MAR. 13, 1966 
[70 ST A T . 
March 13, 1956 
[H. R. 7201] 
and which point is the terminal point of the fourteenth call in the 
deed dated 24 February 1950 from the City Council of Charleston to 
West Virginia Pulp and Paper Company) ; thence north 48 degrees 
28 minutes 30 seconds west 2,999.27 feet, along lands of the West 
Virginia Pulp and Paper Company to a point which is distant 11.42 
feet north 68 degrees 33 minutes east from an iron pipe; thence north 
69 degrees 00 minutes east a distance of 104.71 feet to a point conmion 
to this tract, lands leased by the city of Charleston to the Xorth 
Carolina Terminal Company, and lands of the South Carolina State 
Ports Authority; thence along lands of the South Carolina State Ports 
Authority north 86 degrees 45 minutes 50 seconds east 15.58 feet, north 
88 degrees 32 minutes 20 seconds east 50.00 feet, south 87 degrees 23 
minutes 40 seconds east 50.00 feet, south 82 degrees 42 minutes 40 
seconds east 50.00 feet, south 76 degrees 46 minutes 40 seconds east 
50.00 feet, south 70 degrees 20 minutes 40 seconds east 50.00 feet, south 
64 degi'ees 09 minutes 40 seconds east 50.00 feet, south 30 degi-ees 44 
minutes 40 seconds east 24.55 feet, north 86 degrees 54 minutes 06 
seconds east 374.48 feet, south 48 degrees 27 minutes 10 seconds east 
899.77 feet, south 41 degrees 32 minutes 50 seconds west 25.00 feet, 
south 48 degrees 27 minutes 10 seconds east 1.494.83 feet to a point on 
the eastern edge of the concrete dock; thence along the eastern edge 
of the concrete dock south 41 degrees 31 minutes 30 seconds west 
approximately 483.0 feet to tlie point of beginning and containing 
30.75 acres, more or less. 
Approved March 2, 1956. 
Public Law 429 
CHAPTER 83 
AN ACT 
Iteluting to the taxation of income of insurance companies. 
Be it enacted hy the Senate and Houne of Reprejfentativen of the 
cJn^'a^y^T^M^Ac* United States of America in Conyre-HH a-sHein hied, That this Act be cited 
for 1955. 
as the "Life Insurance Company Tax Act for 1955". 
SEC. 2. REVISION OF FORMULAS FOR TAXING INCOME OF LIFE 
INSURANCE COMPANIES. 
Part I of subchapter L of chapter 1 of the Internal Revenue Code of 
li'uicr^'so"' et 1954 is hereby amended to read as follows: 
seq. 
"PART I—LIFE INSURANCE COMPANIES 
"Subljart A. 1955 formula. 
"Subpart B. 1942 formula. 
"Subpart C. Miscellaneous provisions. 
"Subpart A—1955 Formula 
"See. 801. Definition of life insurance company, 
"Sec. 802. Tax imposed for 1955. 
"Sec. 803. Income and deductions. 
"Sec. 804. Iteserve and other policy liability deduction. 
"Sec. 805. Special interest deduction. 
"SEC. 801. DEFINITION OF LIFE INSURANCE COMPANY. 
"(a) LIFE INSURAXCK COMPANY DEFINED.—For purposes of this 
subtitle, the term 'life insurance company' means an insurance com-
pany which is engaged in the business of issuing life insurance and 
70 S T A T . ] 
PUBLIC LAW 429-MAR. 13, 1966 
37 
annuity contracts (either separately or combined with health and 
accident 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 on noncancellable 
life, health, or accident ])olicies not included in life insurance 
reserves, 
comprise more than 50 percent of its total reserves (as defined in sub-
section (c)). 
"(b) LIFE INSURANCE RESERVES DEFINED.— 
"(1) I N GENERAL.—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 health and acci-
dent insurance contracts (including life insurance or annuity 
contracts combined with noncancellable health and accident 
insurance) involving, at the time with respect to which the 
reserve is computed, life, health, or accident contingencies. 
"(2) 
RESERVES MTTST HE REQUIRED BY LAW.—Except— 
"(A) in the case of policies covering life, health, and acci-
dent 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. 
"(3) ASSESSMENT COMPANIES.—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 associa-
tion with State or Territorial 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 associa-
tion, exclusively for the payment of claims arising under 
certificates of membership or policies issued on the assess-
ment plan and not subject to any other use. 
"(4) AMOUNT OF RESERVE.—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. 
"(c) TOTAL RESERVES DEFINED.—For purposes of subsection (a), 
the term 'total reserves' means— 
"(1) life insurance reserves, 
"(2) unearned premiums and unpaid losses 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 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 
8 
PUBLIC LAW 429-MAR. 13, 1966 
[70 STAT. 
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. 
"(e) BURIAL AND FUNERAL IbiNEFrr INSURANCE COMPANIES.—A 
burial or funeral benefit insurance company engaged directly in the 
manufacture of funeral supplies or the performance of funeral serv-
ices shall not be taxable under this part but shall be taxable under 
section 821 or section 831. 
Post, p. 633. 
"SEC. 802. TAX IMPOSED FOR 1955. 
"(a) TAX IMPOSED.—A tax is hereby imposed for each taxable year 
beginning in 1955 on the income of every life insurance company. 
Except as provided in subsection (c), such tax shall consist of a 
26^icf*iil^* 
normal tax (computed under section 11 (b)) and a surtax (computed 
under section 11 (c)) on the sum of— 
" (1) the life insurance taxable income (as defined in subsection 
(b)), plus 
"(2) the non-life insurance taxable income (as defined in sub-
section (f)). 
"(b) LIFE INSURANCE TAXAHLE INCOME DEFINED.—For purposes 
of this subpart, the term 'life insurance taxable income' means the 
net investment income (as defined in section 803 (c)), minus the 
sum of— 
"(1) the net investment income allocable to non-life insurance 
reserves (determined under section 804 (d)), 
"(2) the reserve and other policy liability deduction (deter-
mined under section 804), and 
"(3) the special interest deduction, if any, allowed by section 
805. 
"(c) 
ALTERNATIVE T A X I N T H E CASE or COMPANIES HAVING N O N -
L I F E INSURANCE RESERVES.— 
"(1) I N GENERAL.—In the case of a life insurance company 
which has non-life insurance reserves, the tax imposed by subsec-
tion (a) of this section for any taxable year beginning in 1955 
shall be the tax computed under such subsection (or under section 
26^icf*i20^L* 
^^^^ (^) if applicable) or the tax computed under paragraph (2) 
of this subsection, w^hichever is the greater. 
"(2) ALTERNATIVE i PERCENT TAX ON NON-LIFE INSURANCE 
BUSINESS.—The tax referred to in paragraph (1) is a tax equal 
to the sum of the following: 
"(A) A partial tax consisting of a normal tax (computed 
||Aj|tftj^ii« 
under section 11 (b)) and a surtax (computed under section 
11 (c)) on the life insurance taxable income. 
"(B) A partial tax consisting of— 
"(i) 1 percent of the amount which bears the same 
ratio to the gross investment income (reduced by the 
deduction for wholly-exempt interest allowed by section 
803 (c) (1)) as the non-life insurance reserves bear to 
the qualified reserves (determined under section 804 (c)), 
plus 
"(ii) 1 percent of the excess of the amount by which 
the net premiums on contracts meeting the requirements 
of section 804 (d) (2) (A) exceed the dividends to 
policyholders on such contracts. For purposes of this 
clause, net premiums, and dividends to policyholders, 
shall be computed in the manner provided in section 823. 
"(d) DEDUCTIONS FOR PARTIALLY TAX-EXEMPT INTEREST.— 
"(1) COMPUTATIONS UNDER SUBSECTION (a).—For purposes of 
computing the normal tax under subsection (a), there shall be 
allowed as a deduction an amount which bears the same ratio 
70 S T A T . ] 
PUBLIC LAW 429-MAR. 13, 1966 
39 
to the amount of the deduction provided by section 242 for par- 
26^ic^*242^* 
tially tax-exempt interest as (A) the sum of the life insurance 
taxable income and the net investment income allocable to non-
life insurance reserves bears to (B) the net investment income. 
"(2) COMPUTATIONS UNDER.sriiSECTioN (c) (2) (A).—In com-
puting the normal tax for purposes of subsection (c) (2) (A), 
there shall be allowed as a deduction an amount which bears the 
same ratio to the amount of the deduction provided by section 
242 for partially tax-exempt interest as (A) the life insurance 
taxable income bears to (B) the net investment income. 
"(e) ALTERNATIVE TAX ON CAPITAL (TAINS.—In the case of a life 
insurance company which has non-life insurance reserves, the term 
'excess' used in section 1201 (a) (relating to alternative tax on capital 
26^lc^*i20^i?* 
gains of corporations) means, for purposes of section 1201 (a), an 
amount which bears the same ratio to the excess described in such 
section as the non-life insurance reserves (determined under section 
804 (d)) bear to the qualified reserves (determined under section 804 
(c)). For purposes of any such computation, a net capital loss for 
any taxable year beginning befoie January 1, 1955, shall not be taken 
into account. 
"(f) NON-LIFE INSURANCE TAXABLE INCOME DEFINED.—For pur-
poses of this subpart, the term 'non-life insurance taxable income" 
means the net investment income allocable to non-life insurance 
reserves (determined under section 804 (d)) — 
"(1) increased by an amount which bears the same ratio to the 
net capital gain as the non-life insurance reserves bear to the 
qualified reserves; and 
"(2) decreased by an amount which bears the same ratio to the 
total of the deductions provided in sections 243, 244, and 245 as 
26'ulcr*243-245. 
the non-life insurance reserves bear to the qualified reserves. 
In computing a net capital gain for purposes of paragraph (1) of this 
subsection, a net capital loss for any taxable year beginning before 
January 1, 1955, shall not be taken into account. 
"SEC. 803. INCOME AND DEDUCTIONS. 
" (a) APPLICATION OF SECTION.—The definitions and rules contained 
in this section shall apply only in the case of life insurance companies. 
"(b) GROSS INVESTMENT INCOME.—For purposes of this part, the 
term 'gross investment income' means the sum of the following: 
" (1) The gross amount of income received or accrued from— 
"(A) interest, dividends, rents, and royalties, 
"(B) the entering into of any lease, mortgage, or other 
instrument or agreement from which the life insurance com-
pany derives interest, rents, or royalties, and 
"(C) the alteration or termination of any instrument or 
agreement described in subparagraph (B). 
"(2) The gross income from any trade or business (other than 
an insurance business) carried on by the life insurance company, 
or by a partnership of which the life insurance company is a 
partner. In computing gross income under this paragraph, there 
shall be excluded any item described in paragraph (1). 
In computing gross investment income under this subsection, there 
shall be excluded any gain from the sale or exchange of a capital asset, 
and any gain considered as gain from the sale or exchange of a capital 
asset. 
" (c) NET INVESTMENT INCOME DEFINED.—The term 'net investment 
income' means the gross investment income less the following 
deductions: 
40 
PUBLIC LAW 429-MAR. 13, 1966 
[70 S T A T . 
"(1) TAX-FREE INTEREST.—The amount of interest received or 
accrued during the taxable year which under section 103 is 
exckided from gross income. 
"(2) 
INVESTMENT EXPENSES.— 
"(A) Investment expenses paid or accrued during the 
taxable year. 
"(B) If any general expenses are in part assigned to or 
included in the investment expenses, the total deduction 
under this paragraph shall not exceed— 
"(i) one-fourth of 1 percent of the mean of the book 
value of the invested assets held at the beginning and 
end of the taxable year, plus 
"(ii) one-fourth of the amount by which the net 
investment income (computed without any deduction 
for investment expenses allowed by this paragraph, or 
for tax-free interest allowed by paragraph (1)) exceeds 
3% percent of the book value of the mean of the invested 
assets held at the beginning and end of the taxable year. 
"(3) REAL ESTATE EXPENSES.—Taxes (as provided in section 
68A sut. 47. 
164) ^ and other expenses, paid or accrued during the taxable year 
exclusively on or with respect to the real estate owned by the 
company. No deduction shall be allowed under this paragraph 
for any amount paid out for new buildings, or for permanent 
improvements or betterments made to increase the value of any 
property. 
"(4) DEPRECIATION.—The depreciation deduction allowed by 
26 uic V
e
^
y
i
* 
section 167. 
68A suit. 207. 
"(5) DEPLETION.—The deduction 
allowed by section 611 
^* 
^^^* 
(relating to depletion). 
"(6) TRADE OR BUSINESS DEDUCTIONS.—The deductions allowed 
by this subtitle (without regard to this part) w^hich are attribut-
able to any trade or business (other than an insurance business) 
carried on by the life insurance company, or by a partnership of 
which the life insurance company is a partner; except that for 
purposes of this paragraph— 
"(A) There shall be excluded losses from— 
, 
" (i) sales or exchanges of capital assets, 
"(ii) sales or exchanges of property used in the trade 
|8A^|t?t'325. 
or business (as defined in section 1231(b)), and 
"(iii) the compulsory or involuntary conversion (as a 
result of destruction, in whole or in part, theft or seizure, 
or an exercise of the power of requisition or condemnation 
or the threat or imminence thereof) of property used 
in the trade or business (as so defined). 
"(B) Any item, to the extent attributable to the carrying 
on of the insurance business, shall not be taken into account. 
"(C) The deduction for net operating losses provided in 
68A Stat. 63. 
scctiou 172, and the special deductions for corporations pro-
68A^itrtl'72. 
vided in part VIII of subchapter B, shall not be allowed, 
seq! "^^ ^'^^ *' 
"(d) RENTAL VALUE OF REAL ESTATE.—The deduction under subsec-
tion (c) (3) and (4) on account of any real estate OAvned and occupied 
in whole or in part by a life insurance company shall be limited to an 
amount which bears the same ratio to such deduction (computed with-
out regard to this subsection) as the rental value of the space not so 
occupied bears to the rental value of the entire property. 
"(e) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.—The 
gross investment income, the deduction for wholly-exempt interest 
allowed by subsection (c) (1), and the deduction allowed by section 
70 S T A T . ] 
PUBLIC LAW 429-MAR. 13, 1966 
41 
242 (relating to partially tax-exempt interest) shall each be decreased 
26'uicf*242^" 
to reflect the appropriate amortization of premium and increased 
to reflect the appropriate accrual of discount attributable to the taxable 
year on bonds, notes, debentures, or other evidences of indebtedness 
held by a life insurance company. 
Such amortization and accrual 
shall be determined— 
" (1) in accordance with the method regularly employed by such 
company, if such method is reasonable, and 
"(2) in all other cases, in accordance Avith regulations prescribed 
by the Secretary or his delegate. 
"SEC. 804. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. 
"(a) GENERAL RTLE.—Except as provided in subsection (b), for 
purposes of this subpart the term 'reserve and other policy liability 
deduction' means the sum of the amounts determined by applying the 
following percentages to the excess of the net investment income over 
the net mvestment income allocable to non-life insurance reserves 
(determined under subsection (d)) : 
"(1) 87.5 percent of so much of such excess as does not exceed 
$1,000,000; and 
"(2) 85 percent of so nnich of such excess as exceeds $1,000,000. 
"(b) 
MAXIMUM DEDUCTION.— 
"(1) I N GENERAL.—The reserve and other j)olicy liability deduc-
tion shall in no case exceed that amount which is equal to the sum 
of the following: 
"(A) the amount equal to 2 times the amount determined 
under paragraph (1) of section 805 (c) (relating to required 
interest on life insurance reserves) ; 
"(B) the amount determined under paragraph (2) of sec-
tion 805 (c) (relating to required interest on reserves for 
deferred dividends) ; 
"(C) the amount of the interest paid (as defined in section 
805 ( d ) ) ; 
"(D) the dividends to policyholders paid or declared (other 
than dividends on contracts meeting the requirements of 
subsection (d) (2) (A)) ; and 
"(E) in the case of a mutual assessment life insurance com-
pany or association, the amount equal to 2 times whichever 
of the following is the lesser: (i) the amount of the net invest-
ment income on life insurance reserves described in subpara-
graph (A) or (B) of section 801 (b) (3), or (ii) 3 percent of 
the life insurance reserves so described, 
reduced by the amount of the adjustment for policy loans pro-
vided in paragraph (2) of this subsection. 
For purposes of sub-
paragraph (D) of the preceding sentence, the term 'paid or 
declared' shall be construed according to the method of accounting 
regularly employed in keeping the books of the insurance company. 
"(2) REDUCTION TOR CERTAIN POLICY LOANS.—The adjustment 
described in paragraph (1) of this subsection shall be an amount 
equal to— 
"(A) the mean of the aggregates, at the beginning and end 
of the taxable year, of the outstanding policy loans with 
respect to contracts for which life insurance reserves are 
maintained, multiplied by 
"(B) the average rate of interest applicable to life insur-
ance reserves. 
For purposes of subparagraph (B) of the preceding sentence, the 
term 'average rate of interest applicable to life insurance reserves' 
42 
PUBLIC LAW 429-MAR. 13, 1966 
[70 STAT. 
means the ratio obtained by dividing the sum obtained under para-
graph (1) of section 805 (c) by the sum obtained under paragraph 
(1) (B) of section 805(c). 
"(3) 
DIVIDENDS RECEIVED DEDUCTION AVHEUE MAXIMUM LIMIT 
APPLIES. 
"(A) If paragraph (1) of this subsection reduces the 
reserve and other policy liability deduction alloAved by this 
section or section 812 for the taxable year, then in computing 
life insurance taxable income under section 802 (b), and in 
computing life insurance company taxable income under 
section 811 (b), there shall be allowed an additional deduction 
in an amount determined under subparagraph (B). 
"(B) The amount of the additional deduction referred to 
in subparagraph (A) shall be the amount which bears the 
same ratio to the total of the deductions provided in sections 
26'^lcf*243-245. 
^^^' ^^^' ^^^ ^^^ ^^ the net investment income reduced by the 
sum of— 
"(1) the net investment income allocable to non-life 
insurance reserves (or, for purposes of section 811 (b), 
the amount of the adjustment for certain reserves pro-
vided in section 813), and 
"(ii) 100/85 of the maximum limitation determined 
under paragraphs (1) and (2) of this subsection, 
bears to the net investment income. 
"(c) QUALIFIED KESERVES DEFINED.-—For purposes of this subpart, 
the term 'qualified reserves' means the sum of the following: 
"(1) The life insurance reserves (as defined in section 801 
(b)), plus 7 percent of that portion of such resei'ves as are com-
puted on a pi'eliminary term basis. 
"(2) The non-life insurance reserves (as defined in subsection 
(d) (2)). 
"(3) The amounts (discounted at the rates of interest assumed 
by the company) necessary to satisfj^ the obligations under insur-
ance and annuity contracts (including contracts supplementary 
thereto), but only if (A) such obligations when satisfied will 
reflect an increment in the nature of interest, and (B) such obli-
gations do not involve (at the time v^^ith respect to which the 
computation is made under this paragraph) life, health, or acci-
dent contingencies. 
" (4) The amounts held at the end of the taxable year as reserves 
for dividends to policyholders, the payment of which dividends 
is deferred for a period which expires not earlier than 5 years 
from the date of the policy contract. 
This paragrai)h does not 
apply to dividends payable during the year following the taxable 
year. 
" (5) Dividend accumulations, and other amounts, held at inter-
est in connection with insurance or annuity contracts (including 
contracts supplementary thereto). 
" (6) Premiums received in advance, and liabilities for premium 
deposit funds. 
In applying this subsection the same item shall be counted only once. 
For purposes of this section (other than paragraph (4) of this sub-
section), 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. 
"(d) 
NET INVESTMENT INCOME ALLOCABLE TO NON-LIFE INSURANCE 
IvESERVES.— 
"(1) 
ALLOCATION RATIO.—For purposes of this subpart, the 
net investment income allocable to non-life insurance reserves is 
70 S T A T . ] 
PUBLIC LAW 429-MAR. 13, 1956 
48 
that amount which bears the same ratio to the net investment 
income as such reserves bear to the ([ualified reserves. 
"(2) NON-LIFE ixsi RANCE RESERVES DEFINED.—For purposes of 
this subpart, the term 'non-life insurance reserves' means the sum 
of the unearned ])remiums and tlie unpaid losses (whether or not 
ascertained) — 
*'(A) on contracts other than life insurance, annuity, and 
noncancellable health and accident insurance contracts (in-
cluding life insurance or annuitj' contracts combined with 
noncancellable health and accident insurance), and 
"(B) which are not included in life insurance reserves (as 
definetl in section 801 (b)). 
For purposes of this paiajijraph, such unearned premiums shall 
not be considered to be less than 2o percent of the net premiums 
written during the taxable year on such other contracts. 
"(3) 
ADJUSTMENTS W^ITII RESPECT TO CERTAIN NON-LIFE INSLTI-
ANCE CONTRACTS.—For purposes of this subpart, if— 
"(A) any computation under this subpart is made by 
reference to a contract meeting the requirements of para-
graph (2) (A) of this subsection, and 
"(B) part of the reserves for such contract are life insur-
ance reserves, 
then, under regulations prescribed by the Secretary or his dele-
gate, proper adjustment shall be made in the amount taken into 
account with respect to such contract for purposes of such 
computation. 
"SEC. 805. SPECIAL INTEREST DEDUCTION. 
"(a) 
SPECIAL INTEREST DEDUCTION.—For purposes of 
the 
tax 
imposed by section 802 (and the tax imposed by section 811), there 
shall be allowed a special interest deduction determined as follows: 
"(1) Divide the amount of the adjusted net investment income 
(as defined in subsection (b)) by the amount of the required 
interest (as defined in subsection (c)). 
"(2) If the quotient obtained in paragraph (1) is 1.05 or more, 
the special interest deduction shall be zero. 
"(3) If the quotient obtained in paragraph (1) is 1.00 or less, 
the special interest deduction shall be an amount equal to 50 
percent of the amount by which— 
"(A) the net investment income (reduced by the net invest-
ment income allocable to non-life insurance reserves), exceeds 
"(B) the reserve and other policy liability deduction for 
the taxable year. 
"(4) If the quotient obtained in paragraph (1) is more than 
1.00 but less than 1.05, the special interest deduction shall be the 
amount obtained by multiplying— 
"(A) the amount by which (i) the net investiifient income 
(reduced by the net investment income allocable to non-life 
insurance reserves) exceeds (ii) the reserve and other policy 
liability deduction for the taxable year, by 
"(B) 10 times the difference between the figure 1.05 and 
the quotient obtained in paragraph (1). 
"(b) ADJUSTED NET INVESTMENT INCOME.—For purposes of sub-
section (a) (1), the term 'adjusted net investment income' means— 
"(1) the net investment income (computed without the deduc-
tion for wdiolly-exempt interest allowed by section 803 (c) (1)), 
minus 
"(2) 50 percent of the net investment income allocable to 
non-life insurance reserves. 
44 
PUBLIC LAW 429-MAR. 13, 1956 
[70 STAT. 
"(c) REQUIRED INTEREST.—For purposes of subsection (a) (l),the 
term 'required interest' means the total of— 
"(1) the sum of the amounts obtained by multiplying— 
"(A) each rate of interest assumed in computing the tax-
payer's life insurance reserves, by 
"(B) the means of the amounts of the taxpayer's life 
insurance reserves computed at such rate at the beginning 
and end of the taxable year, plus 7 percent of the portion 
of such reserves at such rate as are computed on a preliminary 
term basis; 
"(2) the sum of the amounts obtained by multiplying— 
"(A) each rate of interest assumed in computing the tax-
payer's reserves for deferred dividends described in section 
804(c) (4), by 
"(B) the means of the amounts of such reserves computed 
at such rate at the end of the taxable year; and 
"(3) interest i^aid. 
"(d) INTEREST PAID.—For purposes of subsection (c) (3), the term 
'interest paid' means— 
"(1) all interest paid or accrued within the taxable year on 
indebtedness, except on indebtedness incurred or continued to 
purchase or carry obligations (other than obligations of the 
United States issued after September 24, 1917, and originally 
subscribed for by the taxpayer) the interest on which is wholly 
exempt from taxation under this chapter; and 
"(2) all amounts in the nature of interest, whether or not 
guaranteed, paid or accrued within the taxable year on insurance 
or annuity contracts (or contracts arising out of insurance or 
annuity contracts) which do not involve, at the time of payment 
or accrual, life, health, or accident contingencies. 
"Subpart B—1942 Formula 
"Sec. 811. Tax imposed. 
"Sec. 812. Reserve and other policy liability deduction. 
"Sec. 813. Adjustment for certain reserves. 
Post, p. 633. 
"SEC. 811. TAX IMPOSED. 
"(a) TAX IMPOSED.—A tax is hereby imposed, on the life insurance 
company taxable income of every life insurance company, for each tax-
able year beginning after December 31, 1955. Such tax shall consist 
of— 
^f^rf^^V,^** 
"(1) a normal tax on such income computed under section 11 
(b),and 
"(2) a surtax on such income computed under section 11 (c). 
"(b) LIFE INSURANCE (^'OMPANY TAXABLE INCOME DEFINED.—For 
purposes of this subpart, the term 'life insurance company taxable 
income' means the net investment income (as defined in section 
803 (c)) — 
"(1) minus the reserve and other policy liability deduction 
allowed by section 812, 
"(2) minus the special interest deduction, if any, allowed by 
section 805, and 
" (3) plus the amount of the adjustment for certain reserves pro-
vided in section 813. 
For purposes of the normal tax, the life insurance company taxable 
2l^icf^42^ 
income shall be reduced by the deduction provided in section 242 for 
partially tax-exempt interest. 
70 STAT.] 
PUBLIC LAW 429-MAR. 13, 1956 
45 
"(c) KuLE F
O
R COMPUTATION OF SPECIAL INTEREST DEDUCTION.—In 
computing the special interest deduction under section 805 in the case 
of any taxable year with respect to Avhich a tax is imposed under this 
section— 
"(1) in lieu of the reduction of the net investment income pro-
vided in paragraphs (3) (A) and (4) (A) of section 805 (a), the 
net investment income shall be reduced by the amount of the 
adjustment for certain reserves provided in section 813, and 
"(2) in lieu of subtracting the amount provided in paragraph 
(2) of section 805 (b), subtract 50 percent of the amount of the 
adjustment for certain reserves provided in section 813. 
"SEC. 812. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. 
"(a) GENERAL RULE.—For purposes of this subpart, the term 'reserve 
and other policy liability deduction' means an amount computed by 
multiplying the net investment income by a figure, to be determined 
and proclaimed by the Secretary or his delegate for each taxable year 
with respect to Avhich a tax is imposed by section 811. This figure 
shall be based on such data with respect to life insui'ance companies 
for the preceding taxable year as the Secretary or his delegate con-
siders representative and shall be computed in accordance with the 
following formula: The ratio which a numerator comprised of the 
aggregate of the sums of— 
" (1) 2 percent of the reserves for deferred dividends, 
"(2) interest paid, and 
"(3) the product of— 
"(A) the mean of the adjusted reserves at the beginning 
and end of the taxable year, and 
"(B) the reserve earnings rate, 
bears to a denominator comprised of the aggregate of the excess of net 
investment incomes (computed Avithout the deduction for wholly-
exempt interest allowed by section 803 (c) (1)) over the adjustment 
for certain reserves provided in section 813. 
"(b) DEFINITIONS.—For purposes of subsection (a)— 
"(1) RESERVES FOR DEFERRED DIVIDENDS.—The term 'reserves for 
deferred dividends' has the same meaning as when used in section 
804 (c) (4). 
"(2) IN'IT.REST PAID.—The term 'interest paid' has the meaning-
given to such term by section 805 (d). 
"(3) ADJUSTED RESERVES.—The term 'adjusted reserves' means 
the life insurance reserves (as defined in section 801 (b)), plus 7 
percent of that portion of such reserves as are computed on a 
preliminary term basis. 
"(4) RESERVE EARNINGS RATE.—The term 'reserve earnings rate' 
means a rate computed by adding 2.1125 percent (65 percent of 
31/4 percent) to 35 percent of the average rate of interest assumed 
in computing life insurance reserves. Such average rate shall be 
calculated by multiplying each assumed rate of interest by the 
means of the amounts of the adjusted reserves computed at that 
rate at the beginning and end of the taxable year and dividing 
the sum of the products b}' the mean of the total adjusted reserves 
at the beginning and end of the taxable year. 
"(c) MAXIMUM DEDUCTION.—The reserve and other policy liability 
deduction allowed by subsection (a) of this section shall in no case 
exceed an amount equal to the amount w^hich would be determined 
under subsection (b) of section 804 if such subsection applied with 
respect to the taxable year. 
46 
PUBLIC LAW 429-MAR. 13, 1956 
[70 STAT. 
"SEC. 813. ADJUSTMENT FOR CERTAIN RESERVES. 
"In tlie case of a life insurance company writ in (j contracts other 
than life insurance, annuity, and noncancellable health and accident 
insurance contracts (including life insurance or annuity contracts 
combined with noncancellable health and accident insurance), the 
term 'adjustment for certain reserves' means, for purposes of this sub-
part, an amount equal to 314 percent of the unearned premiums and 
unpaid losses on such other contracts which are not included in life 
insurance reserves (as defined in section 801 (b)). For purposes of 
this section, such unearned ])reniiums shall not be considered to be less 
than 25 percent of the net premiums written during the taxable year 
on such other contracts. 
"Subpart C—Miscellaneous Provisions 
"Sec. S16. Foreifin life insuraiu-e coinpaiiies. 
"Sec. 817. Denial of double deductions. 
"Sec. <S18. Certain new insurance companies. 
"SEC. 816. FOREIGN LIFE INSURANCE COMPANIES. 
"(a) CARRYING ON IlNrrKO STATES INSURANCE I^USIXESS.—A foreign 
life insurance company carrying on a life insurance business within 
the United States, if with respect to its Ignited States business it 
would qiuilify as a life insurance company under section 801, shall be 
taxable in the same manner as a domestic life insurance company; ex-
cept that the determinations necessary for purposes of this subtitle 
shall be made on the basis of the income, disbursements, assets, and 
liabilities reported in the annual statement for the taxable year of the 
United States business of such company on the foi'm approved for 
life insurance companies by the National Association of Insurance 
Commissioners. 
"(b) Xo UNITED STATES INSURANCE BUSINESS.—Foreign life in-
surance companies not carrying on an insurance business within the 
United States shall not be taxable under this part but shall be taxable 
as other foreign corporations. 
"SEC. 817. DENIAL OF DOUBLE DEDUCTIONS. 
"Nothing in this part shall permit the same item to be deducted 
more than once. 
"SEC. 818. CERTAIN NEW INSURANCE COMPANIES. 
"(a) GENERAL RULE.—If the taxable year begins not more than 
0 years after the first day on which the taxpayer was authorized to do 
business as an insurance company, then— 
"(1) for i)urposes of subpart A, the life insurance taxable 
income shall not exceed (A) the amount of the net gain from 
operations after dividends to policyholders, reduced by (B) (i) 
the net investment income allocable to non-life insurance re-
serves and (ii) the special reduction for dividends received pro-
vided by subsection (c) ; or 
"(2) for purposes of subpart B, the life insurance company 
taxable income shall not exceed (A) the amount of the net gain 
from operations after dividends to policyholders, reduced by (B) 
the special reduction for dividends received provided by sub-
section (c). 
For purposes of this subsection, the net gain from operations after 
dividends to policyholders shall be computed in the manner required 
for purposes of the annual statement approved by the National Con-
vention of Insurance (Commissioners, except that no reduction shall 
be made for any Federal income tax. 
70 S T A T . ] 
PUBLIC LAW 429-MAR. 13, 1956 
47 
"(b) LiMiTATiox.—This section shall not reduce tTie tax for any 
taxable year below the amount which (but for this section) would be 
imposed by section 802 or section 811, as the case may be, computed 
without the applicable limitation on the reserve and other policy 
liability deduction contained in sectioii 804 (b) or section 812 (c). 
"(c) SFKCIAL Ri'i.E F
O
R DIVIDENDS RECPHVED.—The reduction re-
ferred to in paragra])h (1) (B) (ii) and in paragraph (2) (B) of 
subsection (a) shall be an amount computed under section 804 (b) 
(3), except that, for ])urposes of such computation, the maximum 
limitation referred to in section 804 (b) (3) (B) (ii) shall be— 
"(1) in the case of a taxable year Avith res])ect to which tax is 
imposed by section 802, the amount by which (A) the net invest-
ment income (reduced by the net investment income allocable to 
non-life insurance reserves), exceeds (B) the life insurance tax-
able income (computed without regard to the reduction provided 
by this subsection) ; or 
"(2) in the case of a taxable year with respect to which tax is 
imposed by section 811, the amount by which (A) the sum of the 
net investment income and tlie amount of the adjustment for 
certain reserves provided in section 813, exceeds (B) the life 
insurance company taxable income (computed without regard to 
the reduction provided by this subsection)." 
SEC. 3. ADJUSTMENTS TO INVESTMENT INCOME OF INSURANCE COM-
PANIES OTHER THAN LIFE. 
(a) MFTUAL IxsruAxcE COMPANIES (OTHER THAN LIFE).—The fol-
lowing provisions of ])art I I of subchapter L of chapter 1 of the Inter-
nal Revenue Code of 1054 are hereby amended as follows: 
of'^il*^*oo^,^2% 
(1) raragraph (2) oi sectnm 821 (a) is amended b}^ striking 
out "interest, dividends, rents," and inserting in lieu thereof "the 
items described in section 822 (b) (other than paragraph (1) (D) 
thereof)". 
(2) Section 821 (c) is amended by striking out "interest, divi-
dends, rents," and inserting in lieu thereof "the items described 
in section 822 (b) (other than paragraph (1) (D) thereof)". 
(3) Section 822 (b) is amended to read as follows: 
"(b) GROSS INVESTMENT INCOME.—For purposes of subsection (a), 
the term 'gross investment income' means the sum of the following: 
"(1) The gross amount of income during the taxable year 
from— 
" (A) interest, dividends, rents, and royalties, 
"(B) the entering into of any lease, mortgage, or other 
instrument or agreement from which the insurance company 
derives interest, rents, or royalties, 
"(C) the alteration or termination of any instrument or 
agreement described in subparagraph (B), and 
"(D) gains from sales or exchanges of capital assets to the 
extent provided in subchapter P (sec. 1201 and following. 
^f'^rls^r**,^^?' 
relating to capital gains and losses). 
seq. 
"(2) The gross income during the taxable year from any trade 
or business (other than an insurance business) carried on by the 
insurance company, or by a partnership of which the insurance 
company is a partner. In computing gross income under this 
paragraph, there shall be excluded any item described in para-
graph (1)." 
(4) Paragraph (3) of section 822 (c) is amended to read as 
follows: 
26 u s e 821-823. 
26 u s e 1201 et 
48 
PUBLIC LAW 429-MAR. 13, 1966 
[70 STAT. 
"(3) REAL ESTATE EXPENSES.—Taxes (as provided in section 
le^icT^iM'^* 
^^^^' ^^^ other expenses, paid or accrued during tlie taxable year 
exclusively on or with respect to the real estate owned by the com-
pany. 
Xo deduction shall be allowed under this paragraph for 
any amount paid out for new buildings, or for permanent improve-
ments or betterments made to increase the value of any pro])erty.'' 
(5) Paragraph (6) of section 822 (c) is amended by striking 
out "the sum of interest, dividends, rents, and net premiums re-
ceived. In the application of section 1211" and inserting in lieu 
thereof '"the sum of the items described in subsection (b) (other 
than paragraph (1) (D) thereof) and net premiums received. In 
68Aj|tflt._3^2^i. 
the application of section 1212". 
(6) Section 822 (c) is amended by adding at the end thereof 
the following new paragraphs: 
"(8) TRADE OR BUSINESS DEDUCTIONS.—The deductions allowed 
by this subtitle (without regard to this part) which are attribut-
able to any trade or business (other than an insurance business) 
carried on hj the insurance company, or by a partnership of which 
the insurance company is a partner; except that for i)urposes of 
this paragraph— 
"(A) any item, to the extent attributable to the carrying 
on of the insurance business, shall not be taken into accoiuit, 
and 
"(B) the deduction for net operating losses provided in 
al'uicf*!?^^' 
section 172 shall not be allowed. 
68A Stat. 207. 
"(9) DEPLETION.—The deductiou allowed by sectiou 611 (relat-
26 use 611. 
ing to depletion)." 
(7) Section 822 (d) (1) is amended by striking out "subsection 
(e) (3) or (4)" and inserting in lieu thereof "subsection (c) (3) 
or (4)". 
(8) Section 822 (e) is amended by striking out "interest, 
dividends, rents," and inserting in lieu thereof "items described 
in subsection (b) (other than paragraph (1) (D) thereof)". 
(b) STOCK COMPANIES (OTHER THAN LIFE).—The following pro-
visions of section 832 are hereby amended as follows: 
(1) Paragi'aph (4) of subsection (b) is amended by striking 
out "section 806" and inserting "section 801 (b)". 
(2) Paragraph (5) of subsection (c) is amended by striking 
out "interest, dividends, rents, and net premiums received. In 
the application of section 1211" and inserting in lieu thereof "the 
items described in section 822 (b) (other than paragraph (1) 
(D) thereof) and net premiums received. In the application of 
68A Stat. 321. 
SCCtioU 1212". 
(3) Paragraph (8) of subsection (c) is amended by inserting 
after "section 167" the following: "and the deduction allowed by 
section 611 (relating to depletion)". 
SEC. 4. ANNUAL ACCOUNTING PERIOD OF INSURANCE COMPANIES 
TO BE THE CALENDAR YEAR. 
(a) Part IV of subchapter L of chapter 1 of the Internal Revenue 
11 ulc*841^,^842. (>ode of 1954 (relating to provisions of general application with respect 
to insurance companies) is hereby amended by adding at the end 
thereof the following new section: 
"SEC. 843. ANNUAL ACCOUNTING PERIOD. 
"For purposes of this subtitle, the annual accounting period for 
each insurance company subject to a tax imposed by this subchapter 
shall be the calendar year." 
70 STAT.] 
PUBLIC LAW 429-MAR. 13, 1966 
49 
(b) The table of sections for such part IV is liereby amended by 
adding at the end tliereof the following: 
"Sec. S48. Animal uccoiuitiii;.' period." 
SEC. 5. TECHNICAL AMENDMENTS. 
The following provisions of the Internal Revenue Code of 1954 
are hereby amended as follows: 
(1) Section 310 (b) (1) (relating to definition of dividends) 
esAstat.gs. 
i i j 
1 
_i*n 
26 u s e 316« 
IS amended to read as follows: 
*'(1) (^EKT.viN iNSi K.vNCE coMi'.ANY DIVIDENDS.—The definition 
in subsection (a) shall not apply to the term 'dividend' as used 
in subchaptei" L in an}- case where the reference is to dividends 
of insurance companies paid to jwlicyholders as such." 
(2) Section 501 (c) (15) (relating to certain exempt mutual 
26'^|c^^o\!^* 
insurance companies) is amended by striking out ''interest, 
dividends, rents," and inserting in lieu thereof "the items 
described in section 822 (b) (other than paragraph (1) (D) 
thereof)". 
(3) Section 594 (a) (2) is amended by striking out "the tax- 
^|'^ic*^924f 
* 
able income (as defined m section 803)" and inserting in lieu 
thereof "the income". 
(4) The first sentence of section 841 (relating to credit for for-
eign taxes) is amended by inserting "811," after "802,", 
Para-
graph (1) of the second sentence of such section is amended to 
read as follows: 
"(1) in the case of the tax imposed b^^ section 802 or 811, the 
net mvestment income (as defined in section 803 (c)),". 
(5) Section 842 (relating to computation of gross income) is 
amended by striking out "802 or 831" and inserting in lieu thereof 
"802, 811, or 831". 
(6) Section 891 (relating to doubling of rates of tax in case of 
discrimination by a foreign country) is amended bv inserting 
"811," after "802,". 
(7) Section 1201 (a) (relating to alternative tax on capita 
gains) is amended by inserting "802 (a)," after "511,". 
(8) Section 1504 (b) (2) (relating to exceptions from con- 
^|^i*c°V53o4?* 
solidated return provisions) is amended by striking out "802 or 
821" and inserting in lieu thereof "802, 811, or 821". 
(9) Paragraph (2) of section 4371 (relating to tax on policies 
^®'^|c"** ^^^' 
issued by foreign insurers) is amended by striking out "807" and 
inserting in lieu tliereof "816". 
SEC. 6. EFFECTIVE DATE. 
The amendments made by this Act shall apply only to taxable years 
beginning after December 31, 1954. 
SEC. 7. SAVINGS PROVISIONS. 
In the case of any taxpayer subject to tax under section 802 or 807 
of the Internal Revenue (>)de of 1954 (as such sections were in effect 
before the enactment of this Act), no addition to the tax shall be made 
under section 6655 of such Code (relating to failure by cor])oration 
oe^icf 6
* ss^' 
to pay estimated tax) with respect to estimated tax for a taxable year 
beginning in 1955. In the case of any taxpayer subject to tax under 
section 821 of such Code (imposing a tax on certain mutual insurance 
companies), any addition to the tax under section 6655 of such (^ode 
with resj)ect to estimated tax for a taxable year beginning in 1955 
shall in no case be larger than such addition would have been if this 
Act had not been enacted. 
Approved March 13, 1956. 
69225 O - 57 - 8 (Vol. 70) 
1 
68A Stat. 320. 
26 u s e 1201.