An Act relating to the taxation of the income of life insurance companies
PL 86-69 (H.R.4245), enacted 06/25/1959

112 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 S T A T . 
Public Law 86-69 
June 25, 1959 
^^ 
^ ^ ' ^ 
[H. R. 4245] 
Relating to the taxation of the income of life insurance companies. 
Be it enacted hy the Seriate and Rouse of Representatives 
of the 
United States of America in Congress assembled^ 
SECTION 1. SHORT TITLE. 
C(Lyany^?n'?o^I 
Tliis Act may be cited as the "Life Insurance Company Income 
'^^^^^%\°^ \tl^\r. Tax Act of 1959". 
68A Stat. 255; 70 
^*26 u l t 801-820. SEC. 2. REVISION OF PART I OF SUBCHAPTER L. 
(a) Part I of subchapter L of chapter 1 of the Internal Revenue 
Code of 1954 (relating to life insurance companies) is amended to 
read as follows: 
"PART I—LIFE INSURANCE COMPANIES 
"Subpart A. Definition; tax imposed. 
"Subpart B. Investment income. 
"Subpart C. Gain and loss from operations. 
"Subpart D. Distributions to shareholders. 
"Subpart E. Miscellaneous provisions. 
"Subpart A—Definition; Tax Imposed 
"Sec. 801. Definition of life insurance company. 
"SeCi 802. Tax imposed. 
"SEC. 801. DEFINITION OF LIFE INSURANCE COMPANY. 
"(a) LIFE INSURANCE 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 
annuity contracts (either separately or combined with health and 
accident insurance), or noncancellaJble contracts of health and acci-
dent 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, health, or accident policies 
not included in life insurance reserves, 
comprise more than 50 percent of its total reserves (as defined in 
subsection (c)). 
"(b) 
LITE 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 
accident 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 MUST BE 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, 
73 S T A T . ] 
PUBLIC LAW 86-69-JUNE 25, 1959 
113 
"(B) in the case of policies issued by an organization which 
meets the requirements of section 501 (c) (9) other than the 
requirement of subparagraph (B) thereof, and 
"(C) 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 assessment 
plan and not subject to any other use. 
For purposes of this part, the rate of interest assumed in calcu-
lating the reserves described in subparagraphs (A) and (B) shall 
be 3 percent. 
"(4) DEFICIENCY RESERVES EXCLUDED.—The term 'life insurance 
reserves' does not include deficiency reserves. For purposes of 
this subsection and subsection (c), the deficiency reserve for any 
contract is that portion of the reserve for such contract equal to 
the amount (if any) by which— 
" (A) the present value of the future net premiums required 
for such contract, exceeds 
"(B) the present value of the future actual premiums and 
consideration charged for such contract. 
'"(5) AMOUNT or RESERVES.—For purposes of this subsection, 
subsection (a), and subsection (c), the amount of any reserve (or 
portion thereof) for any taxable year shall ba 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. 
The term 'total reserves' does not include deficiency reserves (within 
the meaning of subsection (b) (4)). 
"(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 
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) GUARANTEED RENEWABLE CONTRACTS.—For purposes of this 
part, guaranteed renewable life, health, and accident insurance shall 
be treated in the same manner as noncancellable life, health, and 
accident insurance. 
"(f) 
BURIAL AND FUNERAL BENEFIT INSURANCE COMPANIES.—^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 
821 or section 831. 
26 use fiOl. 
114 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 STAT. 
"(g) VARIABLE ANNUITIES.— 
"(IJ I N GENERAL.—FoT puTDOses of this part, an annuity Con-
tract includes a contract which provides for the payment of a 
variable annuity computed on the basis of recognized mortality 
tables and the investment experience of the company issuing the 
contract. 
"(2) ADJUSTED RESERVES RATE ; ASSUMED RATE.—For purposes of 
this part— 
"(A) the adjusted reserves rate for any taxable year with 
respect to annuity contracts described in paragraph (1), and 
''(B) the rate of interest assumed by the taxpayer for any 
taxable year in calculating the reserve on any such contract, 
shall be a rate equal to the current earnings rate determined under 
paragraph (3). 
"(3) CURRENT EARNINGS RATE.—For purposes of this part, the 
current earnings rate for any taxable j^ear with respect to annuity 
contracts described in j)aragraph (1) is the current earnings rate 
determined under section 805(b)(2) with respect to such con-
tracts, reduced by the percentage obtained by dividing— 
"(A) the amount of the actuarial margin charge on all an-
nuity contracts described in paragraph (1) issued by the tax-
paver, by 
"(B) the mean of the reserves for such contracts. 
"(4) INCREASES AND DECREASES IN RESERVES.—For purposes of 
subsections (a) and (b) of section 810, the sum of the items 
described in section 810(c) taken into account as of the close of 
the taxable year shall, under regulations prescribed by the Secre-
tary or his delegate, be adjusted— 
" (A) by subtracting therefrom an amount equal to the sum 
of tne amounts added from time to time (for the taxable 
year) to the reserves for annuity contracts described in para-
graph (1) by reason of appreciation in value of assets 
(whether or not the assets have been disposed of), and 
"(B) 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). 
"(5) COMPANIES ISSUING VARIABLE ANNUITIES AND OTHER CON-
TRACTS.—In the case of a life insurance company which issues both 
annuity contracts described in paragraph (1) and other contracts, 
under regulations prescribed by the Secretary or his delegate— 
" (A) the policy and other contract liability requirements 
shall be considered to be the sum of— 
"(i) the policy and other contract liabilitjr require-
ments computed by reference to the items which relate 
to annuity contracts described in paragraph (1), and 
"(ii) the policy and other contract liability require-
ments computed by excluding the items taken into 
account under clause (i); and 
"(B) such additional separate computations, with respect 
to such annuity contracts and such other contracts, shall be 
made as may be necessary to carry out the purposes of this 
subsection and this part. 
"(6) TERMINATION.—Paragraphs (1), (2), (3), (4), and (5) 
shall not apply with respect to any taxable year beginning after 
December 31,1962. 
26 use 11. 
73 S T A T . ] 
PUBLIC LAW 8 6 - 6 9 - J U N E 25, 1959 
115 
*'SEC. 802. TAX IMPOSED. 
"(a) 
TAX IMPOSED.— 
"(1) I N GENERAL.—A tax is hereby imposed for each taxable 
year beginning after December 31, 1957, on the life insurance 
company taxable income of every life insurance company. 
Such 
tax shall consist of— 
"(A) a normal tax on such income computed at the rate 
provided by section 11 (b), and 
"(B) a surtax, on so much of such income as exceeds 
$25,000, computed at the rate provided by section 11(c). 
"(2) TAX IN CASE or CAPITAL GAINS.—If for any taxable year 
beginning after December 31,1958, the net long-term capital gain 
of any life insurance company exceeds the net short-term capital 
loss, there is hereby imposed a tax equal to 25 percent of such 
excess. 
"(3) SPECIAL RULE FOR 1959 AND 19GO.—If any amount is sub-
tracted from the policyholders surplus account under section 815 
(c) (3) for a taxable year beginning in 1959 or 1960 on account 
of a distribution in 1959 or 1960 (not including any distribution 
treated under section 815(d) (2) (B) as made in 1959 or 1960), the 
tax imposed for such taxable year on the life insurance company 
taxable income shall be the amount determined under paragraph 
(1) reduced by the following percentage of the amount by which 
the tax imposed by paragraph (1) is (without regard to this para-
graph) increased, on account of the amount so subtracted, by 
reason of section 802(b) (3) — 
"(A) in the case of a taxable year beginning in 1959, 
66% percent: and 
"(B) in the case of a taxable year beginning in 1960, 
SSYs percent. 
The preceding sentence shall not apply with respect to any pay-
ment treated as a distribution under section 815 (d)(3). 
"(b) 
LIFE INSURANCE COMPANY TAXABLE INCOME DEFINED.—For 
purposes of this part, the term 'life insurance company taxable in-
come' means the sum of— 
"(1) the taxable investment income (as defined in section 804) 
or, if smaller, the gain from operations (as defined in section 
809>), 
" (2) if the gain from operations exceeds the taxable investment 
income, an amount equal to 50 percent of such excess, plus 
"(3) the amount subtracted from the policyholders surplus 
account for the taxable year, as determined under section 815. 
"Subpart B—Investment Income 
"Sec. 804. Taxable investment income. 
"Sec. 805. Policy and other contract liability requirements. 
"Sec. 806. Certain changes in reserves and assets. 
"SEC. 804. TAXABLE INVESTMENT INCOME. 
"(a') I N GENERAL.— 
"(1) EXCLUSION 
OF POLICYHOLDERS' 
SHARE 
or 
INVESTMENT 
YIELD.—The policyholders' share of each and every item of invest-
ment yield (including tax-exempt interest, partially tax-exempt 
interest, and dividends received) of any life insurance company 
shall not be included in taxable investment income. For purposes 
of the preceding sentence, the policyholders' share of any item 
shall be that percentage obtained by dividing the policy and other 
contract liability requirements by the investment yield; except 
that if the policy and other contract liability requirements exceed 
116 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 STAT. 
the investment yield, then the policyholders' share of any item 
shall be 100 percent. 
"(2) TAXABLE INVESTMENT INCOME DEFINED.—For purposes of 
this part, the taxable investment income for any taxable year 
shall be an amount (not less than zero) equal to the sum oi the 
life insurance company's share of each and every item of invest-
ment yield (including tax-exempt interest, partially tax-exempt 
interest, and dividends received), reduced by— 
"(A) the sum of— 
"(i) the life insurance company's share of interest 
26 use 103,242. 
whicli Under section 103 is excluded from gross income, 
"(ii) the deduction for partially tax-exempt interest 
provided by section 242 (as modified by paragraph 
(3)) computed with respect to the life insurance com-
pany's share of such interest, and 
" (iii) the deductions for dividends received provided 
26 use 243-245. 
I^y sectious 243, 244, and 245 (as modified by paragraph 
(5)) computed with respect to the life insurance com-
pany's share of the dividends received; and 
"(B) the small business deduction provided by paragraph 
For purposes of the preceding sentence, the life insurance com-
pany's share of any item shall be that percentage which, when 
added to the percentage obtained under the second sentence of 
paragraph (1), equals 100 percent. 
"(3) PARTIALLY TAX-EXEMPT INTEREST.—For purposes of this 
26 use 242. 
part, the deduction allowed by section 242 shall be an amount 
which bears the same ratio to the amount determined under such 
section without regard to this paragraph as (A) the normal tax 
26 use 11. 
j,j^^g fQY ^j-^g taxable year prescribed by section 11, bears to (B) 
the sum of the normal tax rate and the surtax rate for the taxable 
year prescribed by section 11. 
"(4) SMALL BUSINESS DEDUCTION.—For purposes of this part, 
the small business deduction is an amount equal to 10 percent of 
the investment yield for the taxable year. The deduction under 
this paragraph shall not exceed $25,000. 
"(5) APPLICATION or SECTION 246(b).—In applying section 
26 use 246. 
246(b) (relating to limitation on aggregate amount of deduc-
tions for dividends received) for purposes of this subsection, the 
limit on the aggregate amount of the deductions allowed by sec-
26 use 243-245. 
^JQ^S 243(a), 244, and 245 shall be 85 percent of the taxable 
investment income computed without regard to the deductions 
allowed by such sections. 
"(6) EXCEPTION.—If it is established in any case that the ap-
plication of the definition of taxable investment income contained 
m paragraph (2) results in the imposition of tax on— 
26 use 103. 
"(A) any interest which under section 103 is excluded 
from gross income, 
26 use 242. 
"(B) any amount of interest which under section 242 (as 
modified by paragraph (3)) is allowable as a deduction, or 
"(C) any amount of dividends received which under sec-
26 use 243-245. 
tious 243, 244, and 245 (as modified by paragraph (5)) is 
allowable as a deduction, 
adjustment shall be made to the extent necessary to prevent sacli 
imposition. 
"(b) GROSS INVESTMENT INCOME.—For purposes of this part, the 
term 'gross investment income' means the sum of the following: 
"(1) INTEREST, ETC.—The gross amount of income from— 
"(A) interest, dividends, rents, and royalties, 
73 ST AT.] 
PUBLIC LAW 86-69-JUNE 25, 1959 
117 
"(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) SHORT-TERM CAPITAL GAIN.—In the case of a taxable year 
beginning after December 31,1958, the amount (if any) by which 
the net short-term capital gain exceeds the net long-term capital 
loss. 
"(3) TRADE OR BUSINESS INCOME.—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). 
Except as provided in paragraph (2), 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) INVESTMENT YIELD DEFINED.—For purposes of this part, the 
term 'investment yield' means the gross investment income less the 
following deductions— 
"(1) INVESTMENT EXPENSES.—Investment expenses for the tax-
able year. If any general expenses are in part assigned to or 
included in the investment expenses, the total deduction under 
this paragraph shall not exceed the sum of— 
"(A) one-fourth of one percent of the mean of the assets 
(as defined in section 805(b) (4)) held at the beginning and 
end of the taxable year, 
"(B) the amount of the mortgage service fees for the 
taxable year, plus 
"(C) whichever of the following is the greater: 
"(i) one-fourth of the amount by which the invest-
ment yield (computed without any deduction for in-
vestment expenses allowed by this paragraph) exceeds 
3% percent of the mean of the assets (as defined in sec-
tion 805(b)(4)) held at the beginning and end of the 
taxable year, reduced by the amount described in sub-
paragraph (B), or 
"(li) one-fourth of one percent of the mean of the 
value of mortgages held at the beginning and end of the 
taxable year for which there are no mortgage service 
fees for the taxable year. 
"(2) REAL ESTATE EXPENSES.—The amount of taxes (as pro-
vided in section 164), and other expenses, for 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. 
"(3) DEPRECIATION.—The deduction allowed by section 167. 
26usci67. 
The deduction under this paragraph and paragraph (2) on 
account of any real estate owned and occupied for insurance pur-
poses 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 without regard to this sentence) as the rental value 
of the space not so occupied bears to the rental value of the entire 
property. 
26 use 164. 
118 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 S T A T . 
26 use 611. 
"(4) DEPLETION.—The deduction allowed by section 611 (relat-
ing to depletion). 
"(5) 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 by the life insurance company, or by a partnership of 
which the life insurance company is a partner; except that in 
computing the deduction under this paragraph— 
"(A) There shall be excluded losses— 
"(i) from (or considered as from) sales or exchanges 
of capital assets, 
"(ii) from sales or exchanges of property used in the 
26 use 1231. 
trade or business (as defined in section 1231(b)), and 
"(iii) from 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 con-
demnation or the threat or imminence thereof) of prop-
erty used in the trade or business (as so defined). 
"(B) Any item, to the extent attributable to the carry-
ing on of the insurance business, shall not be taken into 
account. 
"(C) The deduction for net operating losses provided in 
248? "^*^ 172,241- 
sectiou 172, and the special deductions for corporations pro-
vided in part VIII of subchapter B, shall not be allowed. 
"SEC. 805. POLICY AND OTHER CONTRACT LIABILITY REQUIREMENTS. 
"(a) I N GENERAL.—For purposes of this part, the term, 'policy 
and other contract liability requirements' means, for any taxable year, 
the sum of— 
"(1) the adjusted life insurance reserves, multiplied by the 
adjusted reserves rate, 
"(2) the mean of the pension plan reserves at the beginning 
and end of the taxable year, multiplied by the current earnings 
rate, and 
"(3) the interest paid. 
"(b) ADJUSTED RESERVES RATE AND EARNINGS RATES.— 
"(1) ADJUSTED RESERVES RATE.—For purposes of this part, the 
adjusted reserves rate for any taxable year is the average earn-
ings rate or, if lower, the current earnings rate. 
"(2) CURRENT EARNINGS RATE.—For purposes of this part, the 
current earnings rate for any taxable year is the amount deter-
mined by dividing— 
"(A) the taxpayer's investment yield for such taxable 
year, by 
"(B) the mean of the taxpayer's assets at the beginning 
and end of the taxable year. 
"(3) AVERAGE EARNINGS RATE.— 
"(A) I N GENERAL.—For purposes of this part, the average 
earnings rate for any taxable year is the average of the 
current earnings rates for such taxable year and for each 
of the 4 taxable years immediately preceding such taxable 
year (excluding any of such 4 taxable years for which the 
taxpayer was not an insurance company). 
"(B) SPECIAL RULES.—For purposes of subparagraph 
( A ) -
"(i) the current earnings rate for any taxable year 
beginning before January 1, 1958, shall be determined 
as if this part (as in effect for 1958) and section 381 
26 use 381. 
(c) (22) applied to such taxable year, and 
73 S T A T . ] 
PUBLIC LAW 8 6 - 6 9 - J U N E 25, 1959 
119 
"(ii) the current earnings rate for any taxable year 
of any company which, for such year, is an insurance 
company (but not a life insurance company) shall be 
determined as if this part applied to such company for 
such year. 
"(4) ASSETS.—For purposes of this part, the term 'assets' 
means all assets of the company (including nonadmitted assets), 
other than real and personal property (excluding money) used 
by it in carrying on an insurance trade or business. For purposes 
of this paragraph, the amount attributable to— 
"(A) real property and stock shall be the fair market 
value thereof, and 
"(B) any other asset shall be the adjusted basis (deter-
mined without regard to fair market value on December 31, 
1958) of such asset for purposes of determining gain on sale 
or other disposition. 
"(c) 
ADJUSTED LIFE INSURANCE RESERVES.— 
"(1) ADJUSTED LIFE INSURANCE RESERVES DEFINED.—For pur-
poses of this part, the term 'adjusted life insurance reserves' 
means— 
"(A) the mean of the life insurance reserves (as defined 
in section 801(b)), other than pension plan reserves, at the 
beginning and end of the taxable year, multiplied by 
"(B) that percentage which equals 100 percent— 
"(i) increased by that percentage which is 10 times 
the average rate oi interest assumed by the taxpayer in 
calculating such reserves, and 
"(ii) reduced by that percentage which is 10 times the 
adjusted reserves rate. 
"(2) AVERAGE INTEREST RATE ASSUMED.—For purposes of this 
part, the average rate of interest assumed in calculating reserves 
shall be computed— 
"(A) by multiplying each assumed rate of interest by the 
means of the amounts of such reserves computed at that rate 
at the beginning and end of the taxable year, and 
"(B) by dividing (i) the sum of the products ascertained 
under subparagraph (A), by (ii) the mean of the total of 
such reserves at the beginning and end of the taxable year. 
"(d) 
PENSION PLAN RESERVES.— 
"(1) PENSION PLAN RESERVES DEFINED.—For purposes of this 
part, the term 'pension plan reserves' means that portion of the 
life insurance reserves wliich is allocable to contracts— 
"(A) purchased under contracts entered into with trusts 
which (as of the time the contracts were entered into) were 
deemed to be (i) trusts described in section 401(a) and ex- 
26 usc4oi,5oi. 
empt from tax under section 501(a), or (ii) trusts exempt 
from tax under section 165 of the Internal Revenue Code of 
^^ ^*^*- ^''• 
1939 or the corresponding provisions of prior revenue laws; 
"(B) purchased under contracts entered into under plans 
which (as of the time the contracts were entered into) were 
deemed to be plans meeting the requirements of section 401 
^^ ^^^ '*°^-
(a) (3), (4), (5), and (6), or the requirements of section 
165(a) (3), (4), (5), and (6) of the Internal Revenue Code 
of 1939; 
"(C) provided for employees of the life insurance com-
pany under a plan which, for the taxable year, meets the 
requirements of section 401(a) (3), (4), (5), and (6); or 
"(D) purchased to provide retirement annuities for its 
employees by an organization which (as of the time the con-
53 Stat. 67, 
26 use 40 1. 
120 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 STAT. 
tracts were purchased) was an organization described in 
26 use 501. 
section 501(c) (3) which was exempt from tax under section 
501 (a) or was an organization exempt from tax under section 
" Stat. 33. 
101(6) of the Internal Eevenue Code of 1939 or the corre-
sponding provisions of prior revenue laws. 
"(2) SPECIAL TRANSITIONAL RULE.—For purposes of this part, 
the amount taken into account as pension plan reserves shall be— 
"(A) in the case of a taxable year beginning after Decem-
ber 31,1957, and before January 1,1959, zero; 
"(B) in .the case of a taxable year beginning after Decem-
ber 31,1958, and before January 1, 1960, 33i/^ percent of the 
amount thereof (determined without regard to this para-
graph); 
"(C) in the case of a taxable year beginning after Decem-
ber 31, 1959, and before January 1, 1961, 66% percent of the 
amount thereof (determined without regard to this para-
graph) ; and 
"(D) in the case of a taxable year beginning after Decem-
ber 31,1960,100 percent of the amount thereof. 
"(e) INTEREST PAID.—For purposes of this part, the interest paid 
for any taxable year is the sum of— 
"(1) INTEREST ON INDEBTEDNESS.—All interest for the taxable 
year on indebtedness, except on indebtedness incurred or con-
tinued to purchase or carry obligations the interest on which is 
wholly exempt from taxation under this chapter. 
"(2) 
AMOUNTS IN THE NATURE OF INTEREST.—All amounts in 
the nature of interest, whether or not guaranteed, for the taxable 
year on insurance or annuity contracts (including contracts sup-
plementary thereto) which do not involve, at the time of accrual, 
life, health, or accident contingencies. 
"(3) DISCOUNT ON PREPAID PREMIUMS.—All amounts accrued 
for the taxable year for discounts in the nature of interest, whether 
or not guaranteed, on premiums or other consideration paid in 
advance on insurance or annuity contracts. 
" (4) 
INTEREST ON CERTAIN SPECIAL CONTINGENCY RESERVES.—In-
terest for the taxable year on special contingency reserves estab-
lished pursuant to section 8(d) of the Federal Employees' Group 
68 Stat. 740. 
L^fg lusurauce Act of 1954 (5 U.S.C. § 2097(d)). 
"SEC. 806. CERTAIN CHANGES IN RESERVES AND ASSETS. 
"(a) 
ADJUSTMENTS TO MEANS FOR CERTAIN TRANSFERS OF LIABILI-
TIES.—For purposes of this part, if, during the taxable year, there is 
a change in life insurance reserves attributable to the transfer between 
the taxpayer and another person of liabilities under contracts taken 
into account in computing such reserves, then, under regulations pre-
scribed by the Secretary or his delegate, the means of such reserves, 
and the mean of the assets, shall be appropriately adjusted, on a daily 
basis, to reflect the amounts involved in such transfer. 
This subsection 
shall not apply to reinsurance ceded to the taxpayer or to another 
person. 
"(b) CHANGE OF BASIS IN COMPUTING RESERVES.—If the basis for 
determining the amount of any item referred to in section 810(c) as 
of the close of the taxable year differs from the basis for such deter-
mination as of the beginning of the taxable year, then for purposes of 
this subpart the amount of such item— 
" (1) as of the close of the taxable year shall be computed on 
the old basis, and 
" (2) as of the beginning of the next taxable year shall be com-
puted on the new basis. 
73 S T A T . ] 
PUBLIC LAW 8 6 - 6 9 - J U N E 25, 1959 
121 
"Subpart C—Gain and Loss From Operations 
"Sec. SOI). In general. 
"Sec. SIO. Rules for certain reserves. 
"Sec. 811. Dividends to policyholders. 
"Sec. 812. Operations loss deduction. 
"SEC. 809. IN GENERAL. 
"(a) 
EXCLUSION OF SHARE OF INVESTMENT YIELD SET ASIDE FOR 
POLICYHOLDERS.— 
"(1) AMOUNT.—The share of each and every item of mvest-
iiient yield (inchidinj^ tax-exempt interest, partially tax-exempt 
interest, and dividends received) of any life insurance company 
set aside for policyholders shall not be included in gain or loss 
from operations. For purposes of the preceding sentence, the 
share of any item set aside for policyholders shall be that percent-
age obtained by dividing the required interest by the investment 
yield; except that if the required interest exceeds the invest-
ment yield, then the share of any item set aside for policyholders 
shall be 100 percent. 
"(2) REQUIRED INTEREST.—For purposes of this part, the re-
quired interest for any taxable year is the sum of the products 
obtained by multiplying— 
" (A) each rate of interest required, or assumed by the tax-
payer, in calculating the reserves described in section 810(c), 
by 
"(B) the means of the amount of such reserves computed 
at that rate at the beginning and end of the taxable year. 
"(b) GAIN AND Loss FROM OPERATIONS.— 
"(1) GAIN FROM OPERATIONS DEFINED.—For purposes of this 
part, the term 'gain from operations' means the amount by which 
the sum of the following exceeds the deductions provided by 
subsection (d) : 
" (A) the life insurance company's share of each and every 
item of investment yield (including tax-exempt interest, 
partially tax-exempt interest, and dividends received) ; and 
"(B) the sum of the items referred to in subsection (c). 
"(2) Loss FROM OPERATIONS DEFINED.—For purposes of this 
part, the term 'loss from operations' means the amount by which 
the sum of the deductions provided by subsection (d) exceeds the 
sum of— 
"(A) the life insurance company's share of each and every 
item of investment yield (including tax-exempt interest, par-
tially tax-exempt interest, and dividends received) ; and 
"(B) the sum of the items referred to in subsection (c). 
"(8) LIFE INSURANCE CDMPANY'S SHARE.—For purposes of this 
subpart, the life insurance company's share of any item shall be 
that percentage which, when added to the percentage obtained 
under the second sentence of subsection (a)(1), equals 100 percent. 
"(4) EXCEPTION.—If it is established in any case that the 
application of the definition of gain from operations contained in 
paragraph (1) results in the imposition of tax on— 
"(A) any interest which under section 108 is excluded 
26 use io3. 
from gross income, 
"(B) any amount of interest which under section 242 (as 
^^ "^^ ^'^^• 
modified by section 804(a) (8)) is allowable as a deduction, or 
"(C) any amount of dividends received which under sec-
tions 243,244, and 245 (as modified by subsection (d) (8) (B)) 
26 use 243-245. 
is allowable as a deduction, 
adjustment shall be made to the extent necessary to prevent such 
imposition. 
122 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 STAT. 
"(c) GROSS AMOUNT.—For purposes of subsections (b) (1) and 
(2), the following items shall be taken into account: 
"(1) PREMIUMS.—The gross amount of premiums and other 
consideration (includingadvancepremiums, deposits, fees, assess-
ments, and consideration in respect of assuming liabilities under 
contracts not issued by the taxpayer) on insurance and annuity 
contracts (including contracts supplementary thereto); less re-
turn premiums, and premiums and other consideration arising 
out of reinsurance ceded. 
Except in the case of amounts of 
premiums or other consideration returned to another life insur-
ance company in respect of reinsurance ceded, amounts returned 
where the amount is not fixed in the contract but depends on the 
experience of the company or the discretion of the management 
shall not be included in return premiums. 
"(2) DECREASES IN CERTAIN RESERVES.—Each net decrease in 
reserves which is required by section 810 or 811(b) (2) to be taken 
into account for purposes of this paragraph. 
"(3) OTHER AMOUNTS.—All amounts, not included in comput-
ing investment yield and not includible under paragraph (1) or 
(2), which under this subtitle are includible in gross income. 
Except as included in computing investment yield, 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. 
"(d) DEDUCTIONS.—For purposes of subsections (b) (1) and (2), 
there shall be allowed the following deductions: 
"(1) DEATH BENEFITS, ETC.—All claims and benefits accrued, 
and all losses incurred (whether or not ascertained), during the 
taxable year on insurance and annuity contracts (including con-
tracts supplementary thereto). 
"(2) INCREASES IN CERTAIN RESERVES.—The net increase in 
reserves which is required by section 810 to be taken into account 
for purposes of this paragraph. 
"(3) DIVIDENDS TO POLICYHOLDERS.—The deduction for divi-
dends to policyholders (determined under section 811(b)). 
"(4) OPERATIONS LOSS DEDUCTION.—The operations loss deduc-
tion (determined under section 812). 
"(5) CERTAIN NONPARTiciPATiNG CONTRACTS.—An amount equal 
to 10 percent of the increase for the taxable year in the reserves 
for nonparticipating contracts or (if greater) an amount equal to 
3 percent of the premiums for the taxable year (excluding that 
portion of the premiums which is allocable to annuity features) 
attributable to nonparticipating contracts (other than group con-
tracts) which are issued or renewed for periods of 5 years or more. 
For purposes of this paragraph, the term 'reserves for nonpartici-
pating contracts' means such part of the life insurance reserves 
(excluding that portion of the reserves which is allocable to 
annuity features) as relates to nonparticipating contracts (other 
than group contracts). For purposes of this paragraph and 
paragraph (6), the term 'premiums' means the net amount of 
the premiums and other consideration taken into account under 
subsection (c) (1). 
"(6) GROUP LIFE, ACCIDENT, AND HEALTH INSURANCE.—An 
amount equal to 2 percent of the premiums for the taxable year 
attributable to group life insurance contracts and group accident 
and health insurance contracts. The deduction under this para-
graph for the taxable year and all preceding taxable years shall 
not exceed an amount equal to 50 percent of the premiums for 
the taxable year attributable to such contracts. 
26 use 243-245. 
26 use 246. 
26 use 243-245. 
78 STAT.] 
PUBLIC L
A
W 86-69-JUNE 26, 1969 
128 
"(7) 
ASSUMPTION BY ANOTHER PERSON OP LIABILITIES UNDER 
INSURANCE, ETC., CONTRACTS.—The Consideration (other than con-
sideration arising out of reinsurance ceded) in respect of the 
assumption by another person of liabilities under insurance and 
annuity contracts (including contracts supplementary thereto). 
"(8) 
TAX-EXEMPT INTEREST, DIVIDENDS, ETC.— 
"(A) Lii*E INSURANCE COMPANY'S SHARE.—Each of the fol-
lowing items: 
"(i) the life insurance company's share of interest 
which under section 103 is excluded from gross income, 
^
® ^ ^ ''"• 
"(ii) the deduction for partially tax-exempt interest 
provided by section 242 (as modified by section 804(a) 
26 use 242. 
(3)) computed with respect to the life insurance com-
pany's share of such interest, and 
"(iii]) the deductions for dividends received-provided 
by sections 243, 244, and 245 (as modified by subpara-
graph (B)) computed with respect to the life insurance 
company's share of the dividends received. 
"(B) APPLICATION OF SECTION 246(b).—In applying sec-
tion 246(b) (relating to limitation on aggregate amount of 
deductions for dividends received) for purposes of sub-
S
aragraph (A) (iii), the limit on the aggregate amount of the 
eductions allowed b^ sections 243(a), 244, and 245 shall be 
86 percent of the gain from operations computed without 
regard to— 
"(i) the deductions provided by paragraphs (3), (5), 
and (^6) of this subsection, 
"(ii) the operations loss deduction provided by section 
812, and 
"(iii) the deductions allowed by sections 243(a), 244, 
and 245, 
26 use 243-245. 
but such limit shall not apply for any taxable year for which 
there is a loss from operations. 
"(9) INVESTMENT EXPENSES, ETC.—Investment expenses to the 
extent not allowed as a deduction under section 804(c) (1) in com-
puting investment yield, and the amount (if any) by which the 
sum of the deductions allowable under section 804(c) exceeds the 
gross investment income. 
"(10) SMALL BUSINESS DEDUCTION.—^A small business deduction 
in an amount equal to the amount determined under section 
804(a)(4). 
"(11) CERTAIN MUTUALIZATION DISTRIBUTIONS.—The amount 
of distributions to shareholders made in 1958 and 1959 in acquisi-
tion of stock pursuant to a plan of mutualization adopted before 
Januaiy 1,1968. 
"(12) OTHER DEDUCTIONS.—Subject to the modifications pro-
vided ay subsection (e), all other deductions allowed under this 
subtitle for purposes of computing taxable income to the extent 
not allowed as deductions in computing investment yield. 
Except as provided in paragraph (8), no amount shall be allowed as a 
deduction under this subsection in respect of dividends to policy-
holders. 
"(e) MoDiFioATioNs.—^The modifications referred to in subsection 
) are as follows: 
^(1) INTEREST.—^In applying section 168 (relating to deduction 
for interest), no deduction shall be allowed tor interest in respect 
of items described in section 810(c). 
(d)(12) 
26 use 163. 
32716 O-60—11 
124 
PUBLIC LAW 86-69-JUNE 26, 1959 
[73 STAT. 
26 use 166. 
«^2) BAD DEBTS.—Section 166(c) (relating to reserve for bad 
debts) shall not apply. 
" (3) CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.—^In applying 
26 use 170. 
section 170— 
"(A) the limit on the total deductions under such section 
provided by the first sentence of section 170(b) (2) shall be 
5 percent of the gain from operations computed without 
regard to— 
"(i) the deduction provided by section 170, 
"(ii) thedeductionsprovidedby paragraphs (3), (5), 
(6^, and (8) of subsection (d), and 
"(iii) any operations loss carryback to the taxable 
year under section 812; and 
"(B) under regulations prescribed by the Secretary or his 
26 use 170. 
delegate, a rule similar to the rule contained in section 170 
(b) (3) shall be applied. 
26 use 171. 
a ^4 J AMORTIZABLE BOND PREMIUM.—Section 171 shall not apply. 
"(5) NET OPERATING LOSS DEDUCTION.—The deduction for net 
26 use 172. 
operating losses provided in section 172 shall not be allowed. 
"(6) PARTIALLY TAX-EXEMPT INTEREST.—The deduction 
for 
26 use 242. 
partially tax-exempt interest provided by section 242 shall not be 
allowed. 
"(7) DIVIDENDS RECEIVED.—The deductions for dividends re-
26 use 243-245. 
ceived provided by sections 243, 244, and 245 shall not be allowed. 
"(f) LIMITATION O
N CERTAIN DEDUCTIONS.— 
"(1) I N GENERAL.—The amount of the deductions under para-
graphs (3), (5), and (6) of subsection (d) shall not exceed 
$250,000 plus the amount (if any) by which— 
"(A) the gain from operations for the taxable year, com-
puted without regard to such deductions, exceeds 
"(B) the taxable investment income for the taxable year. 
"(2) APPLICATION OF LIMITATION.—The limitation provided by 
paragraph (1) shall apply first to the amount of the deduction 
under subsection (d)(6), then to the amount of the deduction 
under sui3section (d) (5), and finally to the amount of the deduc-
tion under subsection (d) (3). 
"(g) LIMITATIONS ON DEDUCTION FOR CERTAIN MUTUALIZATION 
DISTRIBUTIONS.— 
" (1) DEDUCTION NOT TO REDUCE TAXABLE INVESTMENT INCOME.— 
The amount of the deduction under subsection (d) (11) shall 
not exceed the amount (if any) by which— 
"(A) the gain from operations for the taxable year, com-
puted without regard to such deduction (but after the appli-
cation of subsection (f)), exceeds 
"(B) the taxable investment income for the taxable year. 
"(2) DEDUCTION NOT TO REDUCE TAX BELOW 1957 LAW.—The 
deduction under subsection (d) (11) for the taxable year shall be 
allowed only to the extent that such deduction (after the appli-
cation of all other deductions provided by subsection (d)) does 
not reduce the amount of the tax imposed by section 802(a) (1) 
for such taxable year below the amount of tax which would have 
been imposed by section 802(a) as in effect for 1957, if this part, 
as in effect for 1957, applied for such taxable year. 
"(3) APPLICATION OF SECTION 815.—That portion of any dis-
tribution with respect to which a deduction is allowed under sub-
section (^d) (11) shall not be treated as a distribution to share-
holders tor purposes of section 815; except that in the case of any 
distribution made in 1959, such portion shall be treated as a dis-
73 S T A T . ] 
PUBLIC LAW 86-e9-JUNE 26, 1969 
126 
tribution with respect to which a reduction is required under 
section 815(e)(2)(B). 
"SEC. 810. RULES FOR CERTAIN RESERVES. 
" (a) ADJUSTMENT FOR DECREASE.—If the sum of the items described 
in subsection (c) as of the beginning of the taxable year exceeds the 
sum of such items as of the close of the taxable year (reduced by the 
amount of investment yield not included in gain or loss from oper-
ations for the taxable year by reason of section 809 (a)(1)), the excess 
shall be taken into account as a net decrease referred to in section 
809(c)(2). 
"(b) ADJUSTMENT FOR INCREASE.—If the sum of the items described 
in subsection (c) as of the close of the taxable year (reduced by the 
amount of investment yield not included in gain or loss from oper-
ations for the taxable year by reason of section 809(a) (1)) exceeds 
the sum of such items as of the beginning of the taxable year, the 
excess shall be taken into account as a net increase referred to in 
section 809(d) (2). 
"(c) ITEMS TAKEN INTO ACCOUNT.—The items referred to in sub-
sections (a) and (b) are as follows: 
" (1) The life insurance reserves (as defined in section 801 (b)). 
"(2) The unearned premiums and unpaid losses included in 
total reserves under section 801(c) (2). 
"(3) The amounts (discounted at the rates of interest assumed 
by the company) necessary to satisfy the obligations under 
insurance or annuity contracts (including contracts supple-
mentary thereto), but only if such obligations do not involve (at 
the time with respect to which the computation is made under 
this paragraph) life, health, or accident contingencies. 
"(4) Dividend accumulations, and other amounts, held at 
interest in connection with insurance or annuity contracts (includ-
ing contracts supplementary thereto). 
" (5) Premiums received m advance, and liabilities for premium 
deposit funds. 
In applying this subsection, the same item shall be counted only once. 
"(d) 
ADJUSTMENT FOR CHANGE IN COMPUTING EESERVES.— 
"(1) I N GENERAL.—If the basis for determining any item re-
ferred to in subsection (c) as of the close of any taxable year dif-
fers from the basis for such determination as of the close of the 
preceding taxable year, then so much of the difference between— 
"(A) the amount of the item at the close of the taxable 
year, computed on the new basis, and 
"(B) 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 for purposes of this subpart as follows: 
"(i) if the amount determined under subparagraph 
(A) exceeds the amount determined under subparagraph 
(1^)5 ^Ao of such excess shall be taken into account, for 
each of the succeeding 10 taxable years, as a net increase 
to which section 809(d)(2) applies; or 
"(ii) if the amount determined under subparagraph 
(B) exceeds the amount determined under subpara-
graph (A), i/io of such excess shall be taken into account 
for each of the 10 succesding taxable years, as a net de-
crease to which section 809(c) (2) applies. 
"(2) 
TERMINATION AS LIFE INSURANCE COMPANY.—Except as 
provided in section 381(c) (22) (relating to carryovers in certain 
corporate readjustments), if for any taxable year the taxpayer is 
not a life insurance company, the balance of any adjustments 
126 
PUBLIC L
A
W 86-69-JUNE 25, 1959 
[73 STAT. 
under this paragraph shall be taken into account for the preceding 
taxable year. 
"(3) EFFECT OF PRELIMINARY TERM ELECTION.—An election 
under section 818(c) shall not be treated as a change in the basis 
for determining an item referred to in subsection (c) to which this 
subsection applies. If an election under section 818(c) applies 
for the taxable year, the amounts of the items referred to in sub-
paragraphs (A) and (B) of paragraph (1) shall be determined 
without regard to such election. If such an election would apply 
in respect of such item for the taxable year but for the new basis, 
the amount of the item referred to in subparagraph (BJ shall be 
determined on the basis which would have been applicable under 
section 818 (c) if the election applied in respect of the item for the 
taxable year. 
"(e) 
CERTAIN DECREASES IN RESERVES or VOLUNTARY EMPLOY-
EES' BENEFICIARY ASSOCIATIONS.— 
"(1) 
DECREASES DUE TO VOLUNTARY LAPSES OF POLICIES ISSUED 
BEFORE JANUARY 1, 1G58.—For purposes of subsections (a) and 
(b), in the case of a life insurance company which meets the 
26 use 501. 
requirements of section 501(c) (9) other than the requirement of 
subparagraph (B) thereof, there shall be taken into account only 
111^ percent of any decrease in the life insurance reserve on any 
policy issued before January 1,1958, which is attributable solely 
to the voluntary lapse of such policy on or after January 1,1958. 
In applying the preceding sentence, the decrease in the reserve for 
any policy shall be determined by reference to the amount of such 
reserve as of the beginning of the taxable year, reduced by any 
amount allowable as a deduction under section 809(d)(1) in 
respect of such policy by reason of such lapse. This paragraph 
shall apply for any taxable year only if the taxpayer has made 
an election under paragraph ,(3) which is effective for such 
taxable year. 
"(2) 
DISALLOWANCE OF CARRYOVERS FROM PRE-ID58 LOSSES FROM 
OPERATIONS.—In the case of a life insurance company to which 
paragraph (1) applies for the taxable year, section 812(b) (1) 
shall not apply with respect to any loss from operations for any 
taxable year oeginning before January 1,1968. 
"(3) ELECTION.—Paragraph (1) shall apply to any taxpayer 
for any taxable year only if the taxpayer elects, not later than 
the time prescribed by law (including extensions thereof) for 
filing the return for such taxable year, to have such paragraph 
appfy. Such election shall be made in such manner as the Secre-
tary or his delegate shall prescribe by regulations. Such election 
shall be effective for the taxable year for which made and for all 
succeeding taxable years, and shall not be revoked except with the 
consent of the Secretary or his delegate. 
"SEC. 811. DIVIDENDS TO POLICYHOLDERS. 
"(a) DIVIDENDS TO POLICYHOLDERS DEFINED.—For purposes of this 
§art, the term 'dividends to policyholders' means dividends and similar 
istributions to policyholders in their capacity as such. Such term 
does not include interest paid (as defined in section 805 (e)). 
"(b) 
AMOUNT OF DEDUCTION.— 
"(1) IN GENERAL.—Except as limited by section 809(f), the 
deduction for dividends to policyholders for any taxable year 
shall be an amount equal to the dividends to policyholders paid 
during the taxable year— 
"(A) increased by the excess of (i) the amounts held at 
the end of the taxable year as reserves for dividends to policy-
holders (as defined in subsection (a)) payable during the 
78 S T A T . ] 
PUBLIC LAW 8 6 - 6 9 - J U N E 26, 1969 
127 
year following the taxable year, over (ii) such amounts held 
at the end of Uie preceding taxable year, or 
"(B) decreased by the excess of (i) such amounts held at 
the end of the preceaing taxable year, over (ii) such amounts 
held at the end of the taxable year. 
For purposes of subparagraphs (A) and (B), there shall be in-
cluded as amounts held at the end of any taxable year amounts 
set aside, before the 16th day of the third month of the year fol-
lowing such taxable year (or, in the case of a mutual savings 
bank subject to the tax imposed by section 594, before the 16th 
^6 use S94. 
day of the fourth month of the year following such taxable year), 
for payment during the year following such taxable year. 
"(2) CERTAIN AMOUNTS TO BE TREATED AS NET DECREASES.—If 
the amount determined under paragraph (1)(B) exceeds the 
dividends to policyholders paid during the taxable year, the 
amount of such excess shall be a net decrease referred to in section 
809(c)(2). 
"SEC. 812. OPERATIONS LOSS DEDUCTION. 
"(a) DEDUCTION ALLOWED.—There shall be allowed as a deduction 
for the taxable year an amount equal to the aggregate of— 
"(1) the operations loss carryovers to such year, plus 
"(2) the operations loss carrybacks to such year. 
For purposes 6t this part, the term 'operations loss deduction' means 
the deduction allowed by this subsection. 
"(b) OPERATIONS Loss CARRYBACKS AND CARRYOVERS,— 
" (1) YEARS TO WHICH LOSS MAY BE CARRIED.— 
"(A) I N GENERAL.—The loss from Operations for any tax-
able year (hereinafter in this section referred to as the 'loss 
year) beginning after December 31,1954, shall be— 
"(i) an operations loss carryback to each of the 3 tax-
able years preceding the loss year, 
"(li) an operations loss carryover to each of the 5 
taxable years following the loss year, and 
"(iii) subject to subsection (e), if the life insurance 
company is a new company for the loss year, an opera-
tions loss carryover to each of the 3 taxable years follow-
ing the 5 taxable years described in clause (ii). 
"(B) SPECIAL TRANSITIONAL RULES FOR CARRYBACKS.—A loss 
from operations for any taxable year beginning before Jan-
uary 1, 1958, shall not be an operations loss carryback to any 
taxable year beginning before January 1,1955. A loss from 
operations for any taxable year beginning after December 31, 
1957, shall not be an operations loss carryback to any taxable 
year beginning before January 1,1958. 
"(C) APPLICATION FOR YEARS PRIOR TO i O 5 8.—For purposes 
of this section, this part (as in effect for 1968) and section 
381(c) (22) shall be treated as applying to all taxable years 
beginning after December 31, 1954, and before January 1, 
1968. 
"(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.—The entire 
amount of the loss from operations for any loss year shall be 
carried to the earliest of the taxable years to which (by reason 
of paragraph (1)) such loss may be carried. The portion of such 
loss which shall pe carried to each of the other taxable years shall 
be the excess (if any) of the aniount of such loss over the sum of 
the offsets (as defined in subsection (d)) for each of the prior tax-
able years to which such loss may be carried. 
Poat, p. 139. 
128 
PUBLIC LAW 86-69-JUNE 26, 1969 
[73 STAT. 
"(c) COMPUTATION OF LOSS FROM OPERATIONS.—In computing the 
loss from operations for purposes of this section— 
"(1) The operations loss deduction shall not be allowed. 
26 use 243-246. 
«(2) The deductious allowed by sections 243 (relating to divi-
dends received by corporations), 244 (relating to dividends re-
ceived on certain preferred stock of public utilities), and 245 
(relating to dividends received from certain foreign corpora-
tions) snail be computed without regard to section 246(b) as 
modified by section 809(d) (8) (B). 
'*(d) OFFSET DEFINED.— 
" (1) I N GENERAL.—For purposes of subsection (b)(2), the term 
'offset? means, with respect to any taxable year, an amount equal 
to that increase in the operations loss deduction for the taxable 
year which reduces the life insurance company taxable income 
(computed Avithout regard to section 802(b)(3)) for such year 
to zero. 
"(2) OPERATIONS L
O
S
S DPZDucTiON.—For purposes of paragraph 
(1), the operations loss deduction for any taxable year shall be 
computed without regard to the loss from operations for the loss 
year or for any taxable year thereafter. 
''(e) RULES RELATING TO NEW COMPANIES.— 
"(1) NEW COMPANY DEFINED.—For purposes of this part, a 
life insurance company is a new company for any taxable year 
only if such taxable year begins not more than 5 years after the 
Post. p. 139. 
fjj-ct day on which it (or any predecessor, if section 381(c) (22) 
applies or would have applied if in effect) was authorized to do 
business as an insurance company. 
"(2) LIMITATIONS ON 8-YEAR CARRYOVER.— 
"(A) I N GENERAL.—For purposes of subsection (b)(1) 
(A)(iii), a life insurance company shall not be treated as 
a new company for any loss year if at any time during such 
year it was a nonqualified corporation. If, at any time dur-
ing any taxable year after the lo:s year, the life insurance 
company is a nonqualified corporation, subsection (b)(1) 
(A) (iii) shall cease to apply with respect to such loss for 
such taxable year and all subsequent taxable years. 
"(B) NONQUALIFIED CORPORATION DEFINED.—For purposes 
of subparagraph (A), the term 'nonqualified corporation' 
means any corporation connected through stock owner hip 
with any other corporation, if either of such corporations 
possesses at least 50 percent of the voting power of all classes 
of stock of the other such corporation. 
For purposes of 
subparagraph (A), a corporation shall be treated as be-
coming a nonqualified corporation at any time at which it 
becomes a party to a reorganization (other than a reorgani-
zation which is not described in any subparagraph of sec-
26 use 368. 
tion 368(a)(1) other than subparagraphs (E) and (F) 
thereof). 
"(f) APPLICATION OF SUBTITLE A AND SUBTITLE F.—Except as pro-
600*1-^852. ^'^^^^' vided in section 800(e), subtitle A and subtitle F shall apply in respect 
of operations loss carrybacks, operations loss carryovers, and the opera-
tions less deduction under this part in the same manner and to the 
same extent as such subtitles apply in respect of net operating loss 
carrybacks, net operating loss carryovers, and the net operating loss 
deduction. 
73 S T A T . ] 
PUBLIC LAW 86-69-JUNE 25, 1959 
129 
''Subpart D—Distributions to Shareholders 
"Sec. 815. Distributions to shareholders. 
"SEC. 815. DISTRIBUTIONS TO SHAREHOLDERS. 
"(a^ GENERAL EULE.—For purposes of this section and section 
802(b) (3), any distribution to shareholders after December 31, 1958, 
shall be treated as made— 
"(1) first out of the shareholders surplus account, to the extent 
thereof, 
"(2) then out of the policyholders surplus account, to the 
extent thereof, and 
"(3) finally out of other accounts. 
For purposes of this section, the term 'distribution' includes any 
distrioution in redemption of stock or in partial or complete liquida-
tion of the corporation, but does not include any distribution made by 
the corporation in its stock or in rights to acquire its stock, and does 
not (except for purposes of paragraph (3) and subsection (e)(2)(B)) 
include any distribution in redemption of stock issued before 1958 
which at all times on and after the date of issuance and on and before 
the date of redemption is limited as to dividends and is callable, at 
the option of the issuer, at a price not in excess of 105 percent of the 
sum of the issue price and the amount of any contribution to surplus 
made by the origmal purchaser at the time of his purchase. 
"(b) 
SHAREHOLDERS SURPLUS ACCOUNT.— 
"(1) I N GENERAL.—Each stock life insurance company shall, 
for purposes of this part, establish and maintain a shareholders 
surplus account. The amount in such account on January 1,1958, 
shall be zero. 
"(2) ADDITIONS TO ACCOUNT.—The amount added to the share-
holders surplus account for any taxable year beginning after 
December 31,1957, shall be the amount by which— 
"(A) the sum of— 
"(i) the life insurance company taxable income (com-
puted without regard to section 802(b) (3)), 
"(ii) in the case of a taxable year beginning after 
December 31, 1958, the amount (if any) by which the 
net long-term capital gain exceeds the net short-term 
capital loss, 
"(iii) the deduction for partially tax-exempt interest 
provided by section 242 (as modified by section 804(a) IQ\^ "^^ 242-245, 
(3) J, the deductions for dividends received provided by 
sections 243, 244, and 245 (as modified by section 809(d) 
(8) (B)), and the amount of interest excluded from gross 
income under section 103, and 
"(iv) the small business deduction provided by section 
809(d) (10), exceeds 
"(B) the taxes imposed for the taxable year by section 
802(a), determined without regard to section 802(b) (3). 
"(3) SUBTRACTIONS rROM ACCOUNT.— 
"(A) I N GENERAL.—There shall be subtracted from the 
shareholders surplus account for any taxable year the amount 
which is treated under this section as distributed out of such 
account. 
"(B) DISTRIBUTIONS IN 1958.—There shall be subtracted 
from the shareholders surplus account (to the extent thereof) 
for any taxable year beginning in 1958 the amount of distri-
butions to shareholders made during 1958. 
"(c) 
POLICYHOLDERS SURPLUS ACCOUNT.— 
180 
PUBLIC LAW 86-89-JUNE 26, 1969 
[78 STAT. 
"(1) I N GENERAL.—Each stock life insurance company shall, 
for purposes of this part, establish and maintain a policyholders 
surplus account. 
The amount in such account on Januaiy 1,1959, 
shall be zero. 
"(2) ADDITIONS TO ACCOUNT.—The amount added to the policy-
holders surplus account for any taxable year beginning after 
December 31,1958, shall be the sum of— 
"(A) an amount equal to 50 percent of the amount by 
which the gain from operations exceeds the taxable invest-
ment income, 
"(B) the deduction for certain nonparticipating contracts 
provided by section 809(d)(5) (as limited by section .809 
(f)),and 
"(C) the deduction for group life and group accident and 
health insurance contracts provided by section 809(d)(6) 
(as limited by section 809(f)). 
"(3) SUBTRACTIONS PROM ACCOUNT.—There shall be subtracted 
from the policyholders surplus account for any taxable year an 
amount equal to the sum of— 
"(A) the amount which (without regard to subparagraph 
(B)) IS treated under this section as distributed out of the 
policyholders surplus account, and 
"(B) the amount (determined without regard to section 
802(a) (3)) by which the tax imposed for the taxable year by 
section 802(a) (1) is increased by reason of section 802(b) (3). 
"(d) SPECIAL KULES.— 
"(1) ELECTION TO TRANSFER AMOUNTS FROM POLICYHOLDERS 
SURPLUS ACCOUNT TO SHAREHOLDERS SURPLUS ACCOUNT.— 
"(A) I N GENERAL.—A taxpayer may elect for any taxable 
year for which it is a life insurance company to subtract 
from its policyholders surplus account any amount in such 
account as of the close of such taxable year. The amount so 
subtracted, less the amount of the tax imposed with respect 
to such amount by reason of section 802(b)(3), shall be 
added to the shareholders surplus account as of the begin-
ning of the succeeding taxable year. 
"(B) MANNER AND EFFECT OF ELECTION.—The election pro-
vided by subparagraph (A) shall be made (in such manner 
and in such form as the Secretary or his delegate may by 
regulations prescribe) after the close of the taxable year and 
not later than the time prescribed by law for filing the return 
(including extensions thereof) for the taxable year. 
Such 
an election, once made, may not be revoked. 
"(2) 
TERMINATION AS LIFE INSURANCE COMPANY.— 
"(A) EFFECT or TERMINATION.—Except as provided in sec-
Pomt, p. 139. 
^JQJ^ 381(C) (22) (relating to carryovers in certain corporate 
readjustments), if— 
"(i) for any taxable year the taxpayer is not an insur-
ance company, or 
" (ii) for any two successive taxable years the taxpayer 
is not a life insurance company, 
then the amount taken into account under section 802(b) (3) 
for the last preceding taxable year for which it was a life in-
surance company shall be increased (after the application of 
subparagraph (B)) by the amount remaining m its policy-
holders surplus account at the close of such last preceding 
taxable year. 
"(B) EFFECT OF CERTAIN DISTRIBUTIONS.—If for any taxable 
year the taxpayer is an insurance company but not a life in-
73 STAT.] 
PUBLIC LAW 86-69-JUNE 26, 1969 
181 
surance company, then any distribution to shareholders dur-
ing such taxable year shall be treated as made on the last day 
of the last preceding taxable year for which the taxpayer was 
a life insurance company. 
"(8) 
TREATMENT or CERTAIN INDEBTEDNESS.—If— 
"(A) the taxpayer makes any payment in discharge of its 
indebtedness, and 
"(B) such indebtedness is attributable to a distribution 
by the taxpayer to its shareholders after February 9, 1969, 
then the amount of such payment shall, for purposes or this sec-
tion and section 802(b) (3), be treated as a distribution in cash 
to shareholders, but only to the extent that the distribution 
referred to in subparagraph (B) was treated as made out of 
accounts other than the shareholders and policyholders surplus 
accounts. 
"(4) 
LIMITATION ON AMOUNT IN POLICYHOLDERS SURPLUS 
ACCOUNT.—There shall be treated as a subtraction from the 
policyholders surplus account for a taxable year for which the 
taxpayer is a life insurance company the amount by which the 
policyliolders surplus account (computed at the end of the taxable 
year without regard to this paragraph) exceeds whichever of the 
following is the greatest— 
"(A) 15 percent of life insurance reserves at the end of the 
taxable year, 
"(B) 25 percent of the amount by which the life insurance 
reserves at the end of the taxable year exceed the life insur-
ance reserves at the end of 1958, or 
"(C) 50 percent of the net amount of the premiums and 
other consideration taken into account for the taxable year 
under section 809(c) (1). 
The amount so treated as subtracted, less the amount of the tax 
imposed with respect to such amount by reason of section 802 
(b) (8)j shall be added to the shareholders surplus account as of 
the beginning of the succeeding taxable year. 
"(e) SPECIAL KULE FOR CERTAIN MUTUALIZATIONS.— 
"(1) IN GENERAL.—For purposes of this section and section 802 
(b) (8),^ an^ distribution to shareholders after December 31,1958. 
in acquisition of stock pursuant to a plan of mutualization shall 
be treated— 
"(A) first, as made out of paid-in capital and paid-in sur-
plus, to the extent thereof, 
"(B) thereafter, as made in two allocable parts— 
"(i) one part of which is made out of the other 
accounts referred to in subsection (a)(3), and 
" (ii) the remainder of which is a distribution to which 
subsection (a) applies. 
"(2) 
SPECIAL RULES.— 
"(A) ALLOCATION RATIO.—The part referred to in para-
graph (1) (B) (i) is the amount wnich bears the same ratio 
to the amount to which paragraph (1) (B) applies as— 
"(i) the excess (determined as of December 81,1968, 
and adjusted to the beginning of the year of the distri-
bution as provided in subparagraph (B)) of the assets 
over the total liabilities, bears to 
"(ii) the sum (determined as of the beginning of the 
year of the distribution") of the excess described in clar.se 
(i), the amount in the snareholders surplus account, plus 
the amount in tlie policyholders surplus account. 
182 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 S T A T . 
"(B) ADJUSTMENT FOR CERTAIN DISTRIBUTIONS.—The excess 
described in subparagraph (A) (i) shall be reduced by the 
aggregate of the prior distributions which have been treated 
under subsection (a) (3) as made out of accounts other than 
the shareholders surplus account and the policyholders sur-
plus account. 
"Subpart E^—Miscellaneous Provisions 
"Sec. 817. Rules relating to. certain gains and losses. 
"Sec. 818. Accounting provisions. 
"Sec. 819. Foreign life insurance companies. 
"Sec. 820. Optional treatment of policies reinsured under modified 
coinsurance contracts. 
"SEC. 817. RULES RELATING TO CERTAIN GAINS AND LOSSES. 
"'(a) TREATMENT OF CAPITAL GAINS AND LOSSES, ETC.—In the case 
of a life insurance company— 
26 use 1231. 
"(1) in applying section 1231(a), the term 'property used in 
the trade or business' shall be treated as including only— 
"(A) property used in carrying on an insurance business, 
of a character which is subject to the allowance for deprecia-
26 use 167. 
tion provided in section 167, held for more than 6 months, 
and real property used in carrying on an insurance business, 
held for more than 6 months, which is not described in section 
1231(b) (1) (A), (B), or (C), and 
"(B) property described in section 1231(b)(2), and 
1221 " ^ ^ ^ 2 ^ *' 
" (2) in applying section 1221 (2), the reference to property used 
in trade or business shall be treated as including only property 
used in carrying on an insurance business. 
" (b) GAIN ON PROPERTY HELD ON DECEMBER 31, 1958, AND CERTAIN 
SUBSTITUTED PROPERTY ACQUIRED AFTER 1958.— 
"(1) PROPERTY HELD ON DECEMBER SI, I958.—In the case of 
property held by the taxpayer on December 31,1958, if— 
"(A) the fair market value of such property on such date 
exceeds the adjusted basis for determining gain as of such 
date, and 
"(B) the taxpayer has been a life insurance company at 
all times on and after December 31,1958, 
the gain on the sale or other disposition of such property shall be 
treated as an amount (not less than zero) equal to the amount 
by which the gain (determined without regard to this subsection) 
exceeds the difference between the fair market value on December 
31, 1958, and the adjusted basis for determining gain as of such 
date. 
"(2) 
CERTAIN PROPERTY ACQUIRED AFTER DECEMBER S I , 1958.— 
In the case of property acquired after December 31, 1958, and 
26 use 1016. 
having a substituted basis (within the meaning of section 1016 
( b ) ) -
"(A) for purposes of paragraph (1), such property shall 
be deemed held continuously by the taxpayer since the begin-
ning of the holding period thereof, determined with reference 
26 use 1223. 
to section 1223, 
"(B) the fair market value and adjusted basis referred to 
in paragraph (1) shall be that of that property for which the 
holding period taken into account includes December 31,1958, 
"(C) paragraph (1) shall apply only if the property or 
properties the holding periods of wnich are taken into account 
were held only by life insurance companies after December 31, 
1958, during the holding periods so taken into account, 
78 S T A T . ] 
PUBLIC LAW 8 6 - 6 9 - J U N E 25, 1959 
133 
"(D) the difference between the fair market vahie and 
adjusted basis referred to in paragraph (1) shall be reduced 
(not less than zero) by the excess of (i) the gain that would 
have been recognized but for this subsection on all prior sales 
or dispositions after Dacember HI, lOr.S, of properties referred 
to in subparagraph (C), over (ii) the gain that was recog-
nized on such sales or other dispositions, and 
"(E) the basis of such property shall be determined as if 
the gain which would have been recognized but for this sub-
section were recognized gain. 
"(3) PROPERTY DEFINED.—For purposes of paragraphs (1) and 
(2), the term 'property' does not include insurance and annuity 
contracts (and contracts supplementary thereto) and property 
described in paragraph (1) of section 1221. 
^^ ^^^ '^221. 
"(c) LIMITATION ON CAPITAL Loss (^\RRYOVERS.—A net capital loss 
for any taxable year beginning before January 1, 1959, shall not bo 
taken into account. 
"(d) GAIN ON TRANSACTIONS OCCURRINO PRIOR TO JANUARY 1, 
1959.—For purposes of this part, 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, resulting from sales or 
other dispositions of property prior to January 1, 1959. Any gain 
after December 31, 1958, resulting from the sale or other disposition 
of property prior to January 1, 1959, which, but for this sentence, 
would be taken into account under section 1231, shall not bs taken into 
^^ ^^^ '^2^^-
account under section 1231 for purposes of this part. 
"(e) CERTAIN REINSURANCE TRANSACTIONS IN 1958.—For purposes 
of this part, the reinsurance in a single transaction, or in a series of 
related transactions, occurring in 1958, by a life insurance company of 
all of its insurance contracts of a particular type, through the assump-
tion by another company or companies of all liabilities under sucli 
contracts, shall be treated as a sale of a capital asset. 
"SEC. 818. ACCOUNTING PROVISIONS. 
"(a) MEIHOD OF ACCOUNTING.—All computations entering into the 
determination of the taxes imposed by this part shall be made— 
" (1) under an accrual method of accounting, or 
"(2) to the extent permitted under regulations prescribed by 
the Secretary or his delegate, under a combination of an accrual 
method of accounting with any other method permitted by this 
chapter (other than the cash receipts and disbursements method). 
Except as provided in the preceding sentence, all such computations 
J)hall ba made in a manner consistent with the manner required for 
purposes of the annual statement approved by the National Associa-
tion of Lisurance Commissioners. 
"(b) AMORTIZATION OF PREMIUM AND ACCRUAL OF DISCOUNT.— 
"(1) I N GENERAL.—The appropriate items of income, deduc-
tions, and adjustments under this part shall be adjusted to reflect 
the appropriate amortization of premium and 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— 
"(A) in accordance with the method regularly employed 
by such company, if such method is reasonable, and 
"(B) in all other cases, in accordance with regulations pre-
scribed by the Secretary or his delegate. 
"(2) 
SPECIAL RULES.— 
"(A) AMORTIZATION OF BOND PREMIUM.—^In the case of any 
bond (as defined in section 171(d)) acquired after Decern- 
26 use in. 
134 
PUBLIC LAW 86-69-JUNE 25, 1969 
[73 STAT. 
ber 31, 1957, the amount of bond premium, and the amortiz-
able bond premium for the taxable year, shall be determined 
26 use 171. 
under section 171(b) as if the election set forth in section 
171(c) had been made. 
"(B) CONVERTIBLE EVIDENCES or INDEBTEDNESS.—In no case 
shall the amount of premium on a convertible evidence of 
indebtedness include any amount attributable to the conver-
sion features of the evidence of indebtedness. 
"(c) 
LIFE INSURANCE RESERVES COMPUTED ON PRELIMINARY TERM 
BASIS.—For purposes of this part (other than section 801), at the 
election of the taxpayer the amount taken into account as life insur-
ance reserves with respect to contracts for which such reserves are 
computed on a preliminary term basis may be determined on either 
of the following bases: 
" (1) EXACT REVALUATION.—As if the reserves for all such con-
tracts had been computed on a net level premium basis (using the 
same mortalitj^ assumptions and interest rates for both the prelim-
inary term basis and the net level premium basis). 
"(2) APPROXIMATE REVALUATION.—The tMuount computed with-
out regard to this subsection— 
"(A) increased by $21 per $1,000 of insurance in force 
(other than term insurance) under such contracts, less 2.1 
percent of reserves under such contracts, and 
"(B) increased by $5 per $1,000 of teim insurance in force 
under such ccntracts which at the time of issuance cover a 
period of more than 15 years, less 0.5 percent of reserves under 
such contracts. 
If the taxpayer makes an election under either paragraph (1) or (2) 
for any taxable year, the basis adopted shall be adhered to in making 
the computations under this part (other than section 891) for the 
taxable year and all subsequent taxable years unless a change in the 
basis of computing such reserves is approved by the Secretary or his 
delegate, except that if, pursuant to an election made for a taxable 
year beginning in 1958, the basis adopted is the basis provided in para-
graph (2), the taxpayer may adopt the basis provided by paragraph 
(1) for its first taxaole year beginning after 1958. 
"(d) SHORT TAXABLE YEARS.—If any return of a corporation made 
under this part is for a period of less than the entire calendar year 
26 use 443. 
(referred to in this subsection as 'short period'), then section 443 shall 
npt apply in respect of such period, but— 
"(1) the taxable investment income and the gain or loss from 
operations shall be determined, under regulations prescribed by 
the Secretary or his delegate, on an annual basis by a ratable daily 
projection of the appropriate figures for the short period, 
"(2) that portion of the life insurance company taxable income 
described in paragraphs (1) and (2) of section 802(b) shall be 
determined on an annual basis by treating the amounts ascer-
tained under paragraph (1) as the taxable investment income 
and the gain or loss from operations for the taxable year, and 
"(3) that portion of the life insurance company taxable in-
come described in paragraphs (1) and (2) of section 802(b) for 
the short period shall bs the amount which bears the same ratio 
to the amount ascertained under paragraph (2) as the number 
of days in the short period bears to the number of days in the 
entire calendar year. 
"(e) TRANSITIONAL RULE FOR CHANGES IN METHOD OF ACCOUNTING.— 
"(1) I N GENERAL.—If the method of accounting required to be 
used in computing the taxpayer's taxes under this part for the 
taxable year 1958 is different from the method used in computing 
its taxes under this part for 1957, then there shall be ascertained 
78 STAT.] 
PUBLIC LAW 86-69-JUNE 26, 1969 
185 
the net amount of those adjustments which are determined (as of 
the close of 1957) to be necessary solely by reason of the change 
to the method required by subsection (a) in order to prevent 
amounts from being duplicated or omitted. The amount of the 
taxpayer's tax for 1957 shall be recomputed (under the law 
applicable to 1957, modified as provided in paragraph (4) 
J taking 
into account an amount equal to i/j o of the net amount oi the ad-
justments determined under the preceding sentence. The amount 
of increase or decrease (as the case may oe) referred to in para-
graph (2) or (3) shall be the amount of the increase or decrease 
ascertained under the preceding sentence, multiplied by 10. 
"(2) TREATMENT or DECREASE.—For purposes of subtitle F, if rgla."®^ eooi-
the recomputation under paragraph (1) results in a decrease, the 
amount thereof shall be a decrease in the tax imposed for 1957; 
except that for purposes of computing the period of limitation 
on the making of refunds or the allowance of credits with respect 
to such overpayment, the amount of such decrease shall be treated 
as an overpayment of tax for 1959. No interest shall be paid, for 
any period before March 16,1960, on any overpayment of the tax 
imposed for 1957 which is attributable to such decrease. 
''(3) 
TREATMENT O
F INCREASE.— 
"(A) IN GENERAL.—For purposes of subtitle F (other than j^st.^^^ 
eooi-
sections 6016 and 6655), if the recomputation under para-
graph (1) results in an increase, the amount thereof shall be 
treated as a tax imposed by this subsection for 1959. Such 
tax shall be payable in 10 equal annual installments, begin-
ning with March 15,1960. 
"(B) SPECIAL RULES.—For purposes of subparagraph 
(A)— 
"(i) No interest shall be paid on any installment 
described in subparagraph (A) for any period before 
the time prescribed in such subparagraph for the pay-
ment of such installment. 
"(ii) Section 6152(c) 
(relating to proration of 
26 usee 152. 
deficiencies to installments) shall apply. 
"(iii) In applying section 6502(a)(1) (relating to 
26 use (5502. 
collection after assessment), the assessment of any install-
ment described in subparagraph (A) shall be treated as 
made at the time prescribed by such subparagraph for 
the payment of such installment. 
"(iv) Except as provided in section 381(c) (22), if 
^o«''P- »39. 
for any taxable year the taxpayer is not a life insurance 
company, the time for payment of any remaining in-
stallments described in subparagraph (A) shall be the 
date (deterniined without regard to any extension of 
time) for filing the return for such taxable year. 
"(4) MODIFICATIONS or 1957 TAX COMPUTATION.—In recom-
puting the taxpayer's tax for 1957 for purposes of paragraph 
' "(A) section 804(b) (as in effect for 1957) shall not apply 
with respect to any amount required to be taken into account 
by such paragraph, and 
"(B) the amount of the deduction allowed by section 805 
(as in effect for 1957) shall not be reduced by reason of any 
amount required to be taken into account bjr such paragraph. 
"(f) DENIAL OF DOUBLE DEDUCTIONS.—Nothing in this part shall 
permit the same item to be deducted more than once under subpart B 
and once under subpart C. 
136 
PUBLIC LAW 86-69-JUNE 26, 1969 
[73 STAT. 
"SEC. 819. FOREIGN LIFE INSURANCE COMPANIES. 
"(a) CARRYING ON UNITED STATES INSURANCE BU^NESS.—^A for-
eign life insurance company carrying on a life insurance business 
within the United States, if with respect to its United States business 
it would qualify as a life insurance company under section 801, shall 
be taxable on the United States business of such company in the same 
manner as a domestic life insurance company. 
"(b) 
ADJUSTMENT WHERE SURPLUS H E U ) IN UNITED STATES Is LESS 
THAN SPECIFIED MINIMUM.— 
"(1) I N GENERAL.—In the case of any company described in 
subsection (a), if the minimum figure determined under para-
graph (2) exceeds the surplus held in the United States, then— 
"(A) the amount of the policy and other contract liability 
requirements (determined under section 805 without regard 
to this subsection), and 
"(B) the amount of the required interest (determined 
under section 809(a) (2) without regard to this subsection), 
shall each be reduced by an amount determined by multiplying 
such excess by the current earnings rate (as defined in section 
805(b)(2)). 
"(2) DEFINITIONS.—For purposes of paragraph (1)— 
"(A) The minimum figure is the amount determined by 
multiplying the taxpayer's total insurance liabilities on 
UnitcKi States business by— 
"(i) in the case of a taxable year beginning before 
January 1,1959, 9 percent, and 
"(ii) in the case of a taxable year beginning after 
December 31, 1958, a percentage for such year to be 
determined and proclaimed by the Secretary or his 
delegate. 
The percentage determined and proclaimed by the Secretary 
or his delegate under clause (ii) shall be based on such data 
with respect to domestic life insurance companies for the 
preceding taxable year as the Secretary or his delegate con-
siders representative. 
Such percentage shall be computed on 
the basis of a ratio the numerator of wnich is the excess of the 
assets over the total insurance liabilities, and the denominator 
of which is the total insurance liabilities. 
"(B) The surplus held in the United States is the excess of 
the assets held in the United States over the total insurance 
liabilities on United States business. 
For purposes of this paragraph and subsection (c), the term 'total 
insurance liabilities' means the sum of the total reserves (as defined 
in section 801(c)) plus (to the extent not included in total 
reserves) the items referred to in paragraphs (3), (4), and (5) of 
section 810(c). 
"(c) 
DISTRIBUTIONS T
O SHAREHOLDERS.— 
"(1) I N GENERAL.—In applying sections 802(b)(3) and 815 
for purposes of subsection (a), the amount of the distributions to 
shareholders shall be determined by multiplying the total amount 
of the distributions to shareholders (within the meaning of sec-
tion 815) of the foreign life insurance company by whichever 
of the following percentages is selected by the taxpayer for the 
taxable year: 
"(A) the percentage which the minimum figure for the 
taxable year (determined under subsection (b)(2)(A)) is 
of the excess of the assets of the company over the total insur-
ance liabilities; or 
73 S T A T . ] 
PUBLIC LAW 86-69-JUNE 25, 1959 
137 
"(B) the percentage which the total insurance liabilities 
on United States business for the taxable year is of the com-
pany's total insurance liabilities. 
"(2) 
DISTRIBUTIONS PURSUANT TO CERTAIN MUTUALIZATIONS.— 
In applying section 815 (e) for purposes of subsection (a)— 
"(A) the paid-in capital and paid-in surplus referred to 
in section 815(e) (1) (A) of a foreign life insurance company 
is the portion of such capital and surplus determined by 
multiplying such capital and surplus by the percentage 
selected for the taxable year under paragraph (1); and 
"(B) the excess referred to in section 815(e) (2) (A) (i) 
(without the adjustment provided by section 815(e) (2) (B)) 
is whichever of the following is the greater: 
"(i) the minimum figure for 1958 determined under 
subsection (b) (2) (A), or 
"(ii) the surplus described in subsection (b)(2)(B) 
(determined as of December 31,1958). 
"(d) No UNITED STATES INSURANCE BUSINESS.—Foreign life insur-
ance 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. 820. OPTIONAL TREATMENT OF POLICIES REINSURED UNDER 
MODIFIED COINSURANCE CONTRACTS. 
"(a) 
I N GENERAL.— 
"(1) 
TREATMENT AS REINSURED UNDER CONVENTIONAL COINSUR-
ANCE CONTRACT.—Under regulations prescribed by the Secretary 
or his delegate, an insurance or annuity policy reinsured under 
a modified coinsurance contract (as defined in subsection (b)) 
shall be treated, for purposes of this part (other than for purposes 
of section 801), as if such policy were reinsured under a conven-
tional coinsurance contract. 
"(2) 
CONSENT OF REINSURED AND REINSURER.—Paragraph (1) 
shall apply to an insurance or annuity policy reinsured under a 
modified coinsurance contract only if the reinsured and reinsurer 
consent, in such manner as the Secretary or his delegate shall 
prescribe by regulations— 
"(A) to the application of paragraph (1) to all insurance 
and annuity policies reinsured under such modified coinsur-
ance contract, and 
"(B) to the application of the rules provided by subsec-
tion (c) and the rules prescribed under such subsection. 
Such consent, once given, may not be rescinded except with the 
approval of the Secretary or his delegate. 
"(b) DEFINITION OF MODIFIED COINSURANCE CONTRACT.—For pur-
poses of this section, the term 'modified coinsurance contract' means 
an indemnity reinsurance contract under the terms of which— 
"(1) a life insurance company (hereinafter referred to as *the 
reinsurer') agrees to indemnify another life insurance company 
(hereinafter referred to as 'the reinsured') against a risk assumed 
by the reinsured under the insurance or annuity policy reinsured, 
"(2) the reinsured retains ownership of the assets in relation 
to the reserve on the policy reinsured, 
"(3) all or part of the gross investment income derived from 
such assets is paid by the reinsured to the reinsurer as a part of 
the consideration for the reinsurance of such policy, and 
"(4) the reinsurer is obligated for expenses incurred, and for 
Federal income taxes imposed, in respect of such gross investment 
income. 
188 
PUBLIC LAW 86-69-JUNE 25, 1969 
[78 STAT. 
"(c) SPECIAL RULES.—Under regulations prescribed by the Secre-
tary or his delegate, in applying subsection (a)(1) with respect to 
any insurance or annuity policy the following rules shall (to the extent 
not improper under the terms of the modified coinsurance contract 
under which such policy is reinsured) be applied in respect of the 
amount of such policy reinsured: 
" (1) PREMIUMS AND GROSS INVESTMENT INCOME.—The premiums 
(to the extent allocable to the participation of the reinsurer 
therein) received for the policy reinsured shall be treated as 
received by the reinsurer and not by the reinsured. The gross 
investment income (to the extent allocable to the participation of 
the reinsurer therein) derived from the assets in relation to the 
reserve on the policy reinsured shall be treated as gross investment 
income of the reinsurer and not of the reinsured. The gross 
investment income so treated shall be considered as derived pro-
portionately from each of the various sources of gross investment 
income of the reinsured. 
"(2) CAPITAL GAINS AND LOSSES.—The gains and losses from 
sales and exchanges of capital assets, and gains and losses con-
sidered as gains and losses from sales and exchanges of capital 
assets, of the reinsured shall (to the extent of the participation 
therein by the reinsurer under the terms of the modified coinsur-
ance contract) be treated as gains and losses from sales and ex-
changes of capital assets of the reinsurer and not of the reinsured. 
" (3) RESERVES AND ASSETS.—The reserve on the policy reinsured 
shall be treated as a part of the reserves of the reinsurer and not 
of the reinsured, and the assets in relation to such reserve shall 
be treated as owned by the reinsurer and not by the reinsured. 
"(4) EXPENSES.—The expenses (to the extent reimbursable 
by the reinsurer) incurred with respect to the policy reinsured 
and with respect to the assets referred to in paragraph (3) shall 
be treated as incurred by the reinsurer and not by the reinsured. 
"(5) DIVIDENDS TO POLICYHOLDERS.—The dividends to policy-
holders paid in respect of the policy reinsured shall be treated as 
paid by the reinsurer and not by the reinsured. For purposes of 
the preceding sentence, the amount of dividends to policyholders 
treated as paid by the reinsurer shall be the amount paid, in re-
spect of the policy reinsured, by the reinsurer to the reinsured 
as reimbursement for dividends to policyholders paid by the re-
insured. This paragraph shall apply also in respect of an insur-
ance or annuity policy reinsured under a conventional coinsur-
ance contract. 
"(6) REIMBURSEMENT FOR IQBT FEDERAL INCOME TAX.—Any 
amount paid in 1958 or any subsequent year by the reinsurer to 
the reinsured as reimbursement for Federal income taxes imposed 
for a taxable year beginning in 1957 or any preceding taxable 
year shall not be taken into account by the reinsured as an item 
under section 809(c) or by the reinsurer as a deduction under 
section 809(d). 
"(7) RULES PRESCRIBED BY THE SECRETARY.—Such other rules 
as may be prescribed by the Secretary or his delegate. 
In applying the rules provided by paragraphs (1), (2), (3), (4), (5), 
and (6) and the rules prescribed under paragraph (7), an item shall 
be taken into account as income only once under subpart B and only 
once under subpart C by both the reinsured and the reinsurer, and 
an item shall be allowed as a deduction only once under subpart B 
and only once under subpart C to both the reinsured and the 
reinsurer." 
78 STAT.] 
PUBLIC LAW 86-69-JUNE 26, 1969 
189 
SEC. 3. TECHNICAL AMENDMENTS AND PROVISIONS. 
(a) CBEDIT AND EXCLUSION FOR DIVIDENDS RECEIVED BY INDIVIDUALS 
FROM LIFE INSURANCE COMPANIES.— 
(1) Section 34(c) of the Internal Revenue Code of 1954 (re- 
26 use 34. 
latmg to denial of credit for dividends received by individuals) 
is amended by striking out paragraph (1) and redesignating para-
graphs (2) and (3) as (1) and (2), respectively. 
(2) Section 116(b^ of such Code (relating to denial of exclu- 
^e use ne. 
sion for certain dividends) is amended by striking out paragraph 
(1) and redesignating paragraphs (2) and (3) as (1) and (2), 
resjpectively. 
(3) The amendments made by this subsection shall apply to 
dividends received after December 31,1958, in taxable years end-
ing after such date. 
(b) CREDIT FOR FOREIGN TAXES.—Section 841 of such Code is 
26 use 841. 
amended by striking out "811," in the first sentence, and by striking 
out paragraph (1) and inserting in lieu thereof the following: 
" (1) m the case of the tax imposed by section 802, the life insur-
ance company taxable income (as defined in section 802(b)), 
and". 
I C I C^ARRYOVERfi —-
(1) Section 381(c) of such Code (relating to items of dis- 
26use38i. 
tributor or transferor corporations taken into account) is amended 
by adding at the end thereof the following new paragraph: 
"(22) SUCCESSOR LIFE INSURANCE COMPANY.—If the acquiring 
corporation is a life insurance company (as defined in section 
801(a)), there shall be taken into account (to the extent proper 
to carry out the purposes of this section and part I of subchap-
ter L, and under such regulations as may be prescribed by the "*"'*' ^' ' ^^' 
Secretary or his delegate) the items required to be taken into 
account for purposes of part I of subchapter L (relating to life 
insurance companies) in respect of the distributor or transferor 
corporation." 
(2) Section 381 of such Code is amended by adding at the end 
26usc38i. 
thereof the following new subsection: 
"(d) 
OPERATIONS 
LOSS 
CARRYBACKS AND CARRYOVERS OF LIFE 
INSURANCE COMPANIES.— 
"For application of this part to operations loss carrybacks and 
carryovers of life insurance companies, see section 812(f)." 
(d) 
ADJUSTMENTS TO BASIS.— 
(1) Section 1016(a) (3) of the Internal Revenue Code of 1954 ^e use loie. 
(relating to adjustments to basis) is amended by striking out 
"and" at the end of subparagraph (A), by adding "and" at the 
end of subparagraph (B), and by inserting after subparagraph 
(B) the following new subparagraph: 
"(C) since February 28,1913, and before January Ij 1958, 
during which such property was held by a person subject to 
tax under part I of subchapter L (or the corresponding pro- "*"'*• "• *'^" 
visions of prior income tax laws), to the extent that para-
f
raph (2) does not apply,". 
Section 1016(a) of such Code is amended by inserting after 
^^ "^^ *°^*-
paragraph (16) the following new paragraph: 
"(17) in the case of any evidence of indebtedness referred to 
in section 818(b) (relating to amortization of premium and 
accrual of discount in the case of life insurance companies), to the 
extent of the adjustments required under section 818(b) (or the 
corresponding provisions of prior income tax laws) for the taxable 
year and all prior taxable years;". 
32716 O-60—12 
14:0 
PUBLIC LAW 86-69-JUNE 25, 1959 
[73 STAT. 
26 use 1232. 
^g^ BONDS AND OTHER EVIDENCES OF INDEBTEDNESS.—Section 
1232 
(a)(2)(C) of such Code (relating to bonds and other evidences of 
indebtedness) is amended to read as follows: 
"(C) 
DOUBLE INCLUSION IN INCOME NOT REQUIRED.—This 
section shall not require the inclusion of any amount previ-
ously includible in gross income." 
(f) CONFORMING CHANGES I N CROSS REFERENCES.— 
1504,891.^ 8 4 2, 
(1) Sections 842 and 1504(b)(2) of such Code are each 
amended by striking out ", 811,". Section 891 of such Code is 
amended by striking out "811,". 
26 use 1201. 
^2) Section 1201 of such Code is amended by striking out 
"802(a)," in subsection (a), and by adding at the end of the sec-
tion the following new subsection: 
"(c) LIFE INSURANCE COMPANIES.— 
"For alternative tax in case of life insurance companies, see sec-
tion 802(a)(2)." 
26 use 4371. 
(o) pj^i-j^grj^pi^ (2) of section 4371 of such (^ode (relating to 
tax on policies issued by foreign insurers) is amended by striking 
out "816" and inserting in lieu thereof "819". 
26 use 6501, 
^g^ LIMITATIONS O
N ASSESSMENT AND COLLECTION.—Section 6501(c) 
of such Code (relating to exceptions to limitations on assessment and 
collection) is amended by adding at the end thereof the following new 
paragraph: 
"(6) TAX RESULTING F
R
O
M CERTAIN DISTRIBUTIONS O
R FROM TER-
MINATION A
S LIFE INSURANCE COMPANY.—111 the case of any tax 
imposed under section 802(a) (1) by reason of section 802(b) (3) 
on account of a termination of the taxpayer as an insurance com-
pany or as a life insurance company to which section 815(d) 
(2) (A) applies, or on account of a distribution by the taxpayer to 
which section 815(d)(2)(B) applies, such tax may bo assessed 
within 3 years after the return was filed (whether or not such 
return was filed on or after the date prescribed) for the taxable 
year for which the taxpayer ceases to ba an insurance company, 
the second taxable year for which the taxpayer is not a life insur-
ance company, or the taxable year in which the distribution is 
actually made, as the case may be." 
(h) ESTIMATED TAX FOR 1958.—In the case of any taxpayer subject 
to tax under section 811 of the Internal Revenue Code of 1954 (as such 
section was in effect before the enactment of this Act), no addition to 
26 use 6655. 
^\^Q ^J^X sliall be made under section 6655 of such Code (relating to 
failure by corporation to pay estimated tax) wdth respect to estimated 
tax for a taxable year beginning in 1958. 
(i) INCOME TAX RETURNS FOR 1958.—Every life insurance company 
subject to the tax imposed by section 802(a) of the Internal Revenue 
Code of 1954 (as amended by section 2 of this Act) shall, after the date 
of the enactment of this Act and on or before September 15,1959 (in 
26 use 6072. 
jjgy Qf ^^ ^j^g time prescribed by section 6072(b) of such Code), make 
a return for its taxable year beginning in 1958 with respect to the 
tax imposed by such section (as amended by section 2 of this Act). 
The return required by this subsection for such taxable year shall con-
stitute the return for such taxable year for all purposes of the Internal 
Revenue C^ode of 1954; and no return for such taxable year, with 
respect to the tax imposed by part I of subchapter L of chapter 1 of 
such (^ode (as in effect prior to the effective date of the amendment 
made by section 2 of this Act), filed on or before the date of the 
enactment of this Act shall be considered for any of such purposes as 
ii return for such taxable year. All payments made on or before the 
date of the enactment of this Act with respect to the tax for such 
73 STAT.] 
PUBLIC L
A
W 86-70-JUNE 26, 1969 
141 
taxable year imposed by part I of subchapter L of chapter 1 of such 
Code (as in effect prior to the effective date of the amendment made 
by section 2 of this Act), to the extent that such payments have not 
been credited or refunded, shall be deemed to be payments made on 
September 15, 1959, on account of the tax for such taxable year im-
posed by section 802(a) of such Code (as amended by section 2 of this 
Act). The provisions of section 6152(a) (1) of such Code shall not 
" use eisa. 
apply with respect to the tax for such taxable year imposed by section 
802(a) of such Code (as amended by section 2 of this Act). 
SEC. 4. EFFECTIVE DATE. 
Except as otherwise provided in this Act, the amendments made by 
this Act shall apply only with respect to taxable years beginning after 
December 31,1957. 
Approved June 25, 1959. 
Public Law 86-70 
AN A C T 
Jung 2«, 1959 
To amend certain laws of the United States in light of the admission of the 
[H. R. 7120] 
State of Alaska into the Union, and for other purposes. 
Be it enacted hy th^e Senate and House of Representatives of the 
United States of America in Congress assembled, That this 3
*
H
i
t may AC^^'*'*' °'""^^"" 
be cited as the "Alaska Omnibus Act". 
48 u s e 
prec. 21. 
FEDERAL JURISDICTION 
SEC. 2. (a) Section 4 of the Act of July 7,1958 (72 Stat. 339), pro-
viding for the admission of the State of Alaska into the Union, is 
amended by striking out the words "all such lands or other property, 
belonging to the United States or which may belong to said natives'', 
and inserting in lieu thereof the words "all such lands or other prop-
erty (including fishing rights), the right or title to which may be 
held by said natives or is held by the TJnited States in trust for said 
natives". 
(b) Section 6(e) of said Act is amended by striking out the word 
li^ijse^^n'ote 
"legislative" and inserting in lieu thereof the word "calendar". 
prec. 21. 
TERMINATION OF APPLICATION OF CERTAIN FEDERAL LAWS 
SEC. 3. Any Territorial law, as that term is defined in section 8(d) 
of the Act of July 7,1958 (72 Stat. 339, 344), providing for the admis- p,^^, jH^c note 
sion of the State of Alaska into the Union— 
(a) which provides for the regulation of commerce within 
Alaska by an agency of the United States, and 
(b) the application of which to the State of Alaska is continued 
solely by reason of such section 8(d), shall cease to apply to the 
State of Alaska on June 30, 1961, or on the effective date of any 
law enacted by the Legislature of the State of Alaska which modi-
fies or changes such Territorial law, whichever occurs first. 
SUGAR ACT 
SEC. 4. Section 101 of the Sugar Act of 1948, as amended (7 U.S.C., 
supp. V, sec. 1101) J is further amended by adding thereto a new 
^i stat. 922. 
subsection, to be designated subsection "(o)" and to read as follows: 
"(o) The term 'continental United States' means the 49 States and 
the District of Columbia."