An Act to amend the Internal Revenue Code of 1954 with respect to the conditions under which the special constructive sale price rule is to apply for purposes of certain manufactures excise taxes and relating to the taxation of life insurance companies, and for other purposes
PL 87-858 (H.R.8952), enacted 10/23/1962

1134 
PUBLIC LAW 87-858-OCT. 23, 1962 
[76 STAT. 
October 23, 1962 
[H. R. 8952] 
Public Law 87-858 
AN ACT 
To amend the provisions of the Internal Revenue Code of 1954 relating to the 
conditions under which the special constructive sale price rule is to apply for 
purposes of certain manufacturers excise taxes and relating to the taxation 
of life insurance companies, and for other purposes. 
Manufacture r s 
excise taxes. 
72 Stat. 1279, 
26 use 4216. 
26 use 4061, 
4191, 4211. 
Contribution s. 
68A Stat. 58. 
26 use 170. 
68A Stat. 166. 
26 use 503. 
Life Insurance 
companies. 
73 Stat. 112. 
26 u s e 801. 
Be it enacted hy the Senate and House of Representatives 
of the 
United States of America, in Congress assembled^ 
SECTION 1. CONSTRUCTIVE SALE PRICE. 
(a) APPLICATION OF SPECIAL RULE.—Section 4216(b) (2) (C) of the 
Internal Revenue Code of 1954 (relating to special rule for deter-
mining constructive sale price) is amended by inserting before "the 
normal method" the following: "in the case of articles upon which 
tax is imposed under section 4061(a) (relating to automobiles, trucks, 
etc.), 4191 (relating to business machines), or 4211 (relating to 
matches),". 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall apply with respect to articles sold by the manufacturer, pro-
ducer, or importer on or after October 1, 1962. 
SEC. 2. CONTRIBUTIONS TO FOUNDATIONS FOR CERTAIN STATE COL-
LEGES AND UNIVERSITIES. 
(a) LIMITATION ON CONTRIBUTIONS ALLOWABLE AS DEDUCTION.—Sec-
tion 170(b) (1) (A) of the Internal Revenue Code of 1954 (relating to 
limitation on amount of deduction for charitable contributions by indi-
viduals) is amended by striking out "or" at the end of clause (ii), by 
inserting "or" at the end of clause (iii), and by inserting after clause 
(iii) the following new clause: 
"(iv) an organization referred to in section 503(b) (3) 
organized and operated exclusively to receive, hold, 
invest, and administer property and to make expendi-
tures to or for the benefit of a college or university which 
is an organization referred to in clause (ii) of this sub-
paragraph and which is an agency or instrumentality of a 
State or political subdivision thereof, or which is owned 
or operated by a State or political subdivision thereof or 
by an agency or instrumentality of one or more States 
or political subdivisions,". 
(b) TECHNICAL AMENDMENT.—Section 170(b) (1) (B) of such Code 
is amended by striking out "any charitable contributions to the organi-
zations described in clauses (i), (ii), and (iii)" and inserting in lieu 
thereof "any charitable contributions described in subparagraph (A)". 
(c) EFFECTIVE DATE.—The amendments made by subsections (a) and 
(b) shall apply to taxable years beginning after December 31,1960. 
SEC. 3. LIFE INSURANCE COMPANIES. 
(a) 
VAMABLE ANNUITIES AND OTHER 
SEGREGATED 
ASSET AC-
COUNTS.—Section 801(g) of the Internal Revenue Code of 1954 (relat-
ing to variable annuities) is amended to read as follows: 
"(g) 
CONTRACTS W I T H 
RESERVES BASED ON SEGREGATED ASSET 
ACCOUNTS.— 
"(1) 
DEFINITIONS.— 
"(A) 
ANNUITY 
CONTRACTS INCLLTDE VARIABLE ANNUITY 
CONTRACTS.—For purposes of this part, an 'annuity contract' 
includes a contract which provides for the payment of a var-
iable annuity computed on the basis of recognized mortality 
tables and the investment experience of the company issuing 
the contract. 
76 STAT.] 
PUBLIC L
A
W 87-858-OCT. 23, 1962 
1135 
"(B) 
CONTRACTS WITH RESERVES BASED ON A SEGREGATED 
ASSET ACCOUNT.—For purposes of this part, a 'contract with 
reserves based on a segregated asset account' is a contract— 
" (i) which provides for the allocation of all or part of 
the amounts received under the contract to an account 
which, pursuant to State law or regulation, is segregated 
from the general asset accounts of the company, 
"(ii) which provides for the payment of annuities, 
and 
" (iii) under which the amounts paid in, or the amount 
^ 
- 
paid as annuities, reflect the investment return and the 
market value of the segregated asset account. 
If a contract ceases to reflect current investment return and 
current market value, such contract shall not be considered as 
meeting the requirements of clause (iii) after such cessation. 
"(2) LIFE INSURANCE RESERVES.—For purposes of subsection 
(b) (1) (A) of this section, the reflection oi the investment return 
and the market value of the segregated asset account shall be 
considered an assumed rate of interest. 
"(3) SEPARATE ACCOUNTING.—For purposes of this part, a life 
insurance company which issues contracts with reserves based on 
segregated asset accounts shall separately account for the various 
income, exclusion, deduction, asset, reserve, and other liability 
items properly attributable to such segregated asset accounts. 
For such items as are not accounted for directly, separate account-
ing shall be made— 
"(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. 
"(4) 
INVESTMENT YIELD.— 
"(A) I N GENERAL.—For purposes of this part, the policy 
and other contract liability requirements, and the life insur-
ance company's share of investment yield, shall be separately 
computed— 
"(i) with respect to the items separately accounted for 
^ 
in accordance with paragraph (3), and 
"(ii) excluding the items taken into account under 
•
f
f
' isv 
clause (i). 
"(B) CAPITAL GAINS AND LOSSES.—If, without regard to 
* '{ 
subparagraph (A), the net short-term capital gain exceeds 
the net long-term capital loss, such excess shall be allocated 
between clauses (i) and (ii) of subparagraph (A) in propor-
tion to the respective contributions to such excess of the items 
taken into account under each such clause. 
"(5) 
POLICY AND OTHER CONTRACT LIABILITY REQUIREMENTS.— 
For purposes of this part— 
"(A) with respect to life insurance reserves based on seg-
regated asset accounts, the adjusted reserves rate and the cur-
rent earnings rate for purposes of section 805 (b), and the rate 
73 stat. iis. 
of interest assumed by the taxpayer for purposes of sections 
^^ "^^ ^°^' 
'•':- ' 
805(c) and 809(a)(2), shall be a rate equal to the current 
26 use 809. 
earnings rate determined under section 805(b)(2) 
with 
respect to the items separately accounted for in accordance 
with paragraph (3) reduced by the percentage obtained by 
dividing— 
" (i) any amount retained with respect to such reserves 
by the life insurance company from gross investment 
income (as defined in section 804(b)) on segregated 
26 use 804. 
1136 
PUBLIC L
A
W 87-858-OCT. 23, 1962 
[76 STAT. 
assets, to the extent such retained amount exceeds the 
73 Stat. 117. 
deductions allowable under section 804(c) which are 
26 use 804. 
attributable to such reserves, by 
" (ii) the means of such reserves; and 
"(B) with respect to reserves based on segregated asset 
accounts other than life insurance reserves, an amount 
equal to the product of— 
"(i) the rate of interest assumed as defined in sub-
paragraph (A), and 
" (ii) the means of such reserves, 
shall be included as interest paid within the meaning of 
73 Stat. 120. 
section 805(e) (1). 
26 use 805. 
ii^g^ INCREASES AND DECREASES IN RESERVES.—For purposes of 
73 Stat. 125. 
subscctions (a) and (b) of section 810, the sum of the items 
26 use 810. 
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 the amounts added from time to time (for the taxable 
year) to the reserves separately accounted for in accordance 
with paragraph (3) 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). 
The deduction allowable for items described in paragraphs (1) 
73 Stat. 122. 
aud (7) of sectiou 809(d) with respect to segregated asset 
26 use 809. 
accounts shall be reduced to the extent that the amount of such 
items is increased for the taxable year by appreciation (or 
increased to the extent that the amount of such items is decreased 
for the taxable year by depreciation) not reflected in adjustments 
under the preceding sentence. 
"(7) 
BASIS OF ASSETS HELD FOR QUALIFIED PENSION PLAN CON-
TRACTS.—In the case of contracts described in subparagraph (A), 
( B ) , (C),or (D) of section 805(d) (1), the basis of each asset in a 
segregated asset account shall (in addition to all other adjust-
ments to basis) be— 
"(A) increased by the amount of any appreciation in 
value, and 
"(B) decreased by the amount of any depreciation in value, 
to the extent that such appreciation and depreciation are from 
time to time reflected in the increases and decreases in reserves 
or other items in paragraph (6) with respect to such contracts. 
"(8) ADDITIONAL SEPARATE COMPUTATIONS.—Under regulations 
prescribed by the Secretary or his delegate, such additional sepa-
rate computations shall be made, w^ith respect to the items 
separately accounted for in accordance with paragraph (3), as 
may be necessary to carry out the purposes of this subsection 
and this part." 
(b) 
TAX IN CASE OF CAPITAL GAINS.— 
73 Stat. 115. 
(1) ALTERNATIVE TAX.—Paragraph (2) of section 802(a) of 
26 use 802. 
^^^Yi Code (relating to tax in case of capital gains) is amended to 
read as follows: 
"(2) 
ALTERNATIVE TAX IN CASE OF CAPITAL GAINS.—If for 
any 
taxable year beginning after December 31,1961, the net long-term 
capital gain of any life insurance company exceeds the net short-
term capital loss, then, in lieu of the tax imposed by paragraph 
(1), there is hereby imposed a tax (if such tax is less than the 
76 STAT.] 
PUBLIC LAW 87-858-OCT. 23, 1962 
1137 
tax imposed by such paragraph) wliich shall consist of the sum 
of— 
"(A) a partial tax, computed as provided by paragraph 
(1), on the life insurance company taxable income determined 
by reducing the taxable investment income, and the gain from 
operations, by the amount of such excess, and 
"(B) an amount equal to 25 percent of such excess.'' 
(2) TAXABLE INVESTMENT INCOME.—Paragraph (2) of section 
804(a) of such Code (relating to definition of taxable investment 
73 stat. 115. 
income) is amended by striking out "equal to the sum" and insert- 
26 use 804. 
ing in lieu thereof "equal to the amount (if any) by which the 
net long-term capital gain exceeds the net short-term capital loss 
plus the sum". 
(3) GAIN AND L
O
S
S F
R
O
M OPERATIONS.—Paragraphs (1) and (2) 
of section 809(b) of such Code (relating to definitions of gain and 
73 stat. 121. 
loss from operations) are each amended by striking out "and" 
^e use 809. 
at the end of subparagraph (A), by redesignating subparagraph 
(B) as subparagraph (C), and by inserting after subparagraph 
(A) the following new subparagraph: 
"(B) the amount (if any) by which the net long-term cap-
ital gain exceeds the net short-term capital loss; and". 
(4) CONFORMING AMENDMENTS.—Sections 815(c)(3)(B) and 
26 use sis. 
6501 (c)(6) of such Code are each amended by striking out 
26 use esoi. 
"802(a) (1)" and inserting in lieu thereof "802(a)". 
(c) LIMITATION ON CERTAIN DEDUCTIONS.—Section 809(f) (2) of 
26 use 809. 
such Code (relating to the application of limitation on certain deduc-
tions) is amended to read as follows : 
"(2) APPLICATION OF LIMITATION.—The limitation provided by 
paragraph (1) shall apply first to the amount of the deductioii 
under subsection (d)(3), then to the amount of the deduction 
under subsection (d) (6), and finally to the amount of the deduc-
tion under subsection (d) (5)." 
(d) NEW COMPANIES QUALIFYING FOR 8-YEAR Loss CARRYOVER.— 
(1) I N GENERAL.—Section 812(e) (2) (B) of such Code (relat- 
26 use 812. 
ing to nonqualified corporation) is amended by adding imme-
diately after the words "with any other corporation" in the first 
sentence, the following: "(except a corporation taxable under 
part I I or part I I I of this subchapter)". 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply w^ith respect to all taxable years beginning after De-
cember 31, 1954, except that in the case of a nonqualified corpora-
tion, as defined in section 812(e) (2) (B) of the Internal Revenue 
Code of 1954 as in effect prior to the amendment made by para-
graph (1), a loss from operations for a taxable year beginning in 
1955 shall not be an operations loss carryover to the year 1961, and 
there shall be no reduction in the portion of such loss from oper-
ations which may be carried to 1962 or 1963 by reason of an offset 
with respect to the year 1961. 
(e) CERTAIN DISTRIBUTIONS OF STOCK OF SUBSIDIARIES.—Section 
815(a) of such Code (relating to distributions to shareholders) is 
26 use sis. 
amended by adding at the end thereof the following: "Further, for 
purposes of this section, the term 'distribution' does not include any 
distribution before January 1, 1964, of the stock of a controlled cor-
poration to which section 355 applies, if such controlled corporation 
26 use 35s. 
]s an insurance company subject to the tax imposed by section 831 and 
26 use 331. 
78135 0-63—75 
1138 
PUBLIC LAW 87-859-OCT. 23, 1962 
[76 STAT. 
68A Stat. 120. 
26 u s e 368. 
control lias been acquired prior to January 1, 1963, in a transaction 
qualifying as a reorganization under section 868(a) (1) (B).-' 
(f) EFFECTIVE DATE.—Except as provided in subsection (d) (2), the 
amendments made by this section shall apply with respect to taxable 
years beginning after December 31,1961. 
Approved October 23, 1962, 
October 23, 1962 
[H. R. 5260] 
Coconut and 
palm oil. 
Tax suspension, 
extension. 
74 Stat. 73. 
26 u s e 4511 
note. 
Public Law 87-859 
AN ACT 
To continue for an additional three-year period the existing suspensions of 
the tax on the first domestic processing of coconut oil, palm oil, palm-kernel oil, 
and fatty acids, salts, combinations, or mixtures thereof. 
Be it enacted hy the Senate and House of Kepresentatives 
of the 
United States of Ameri<ia in Congress assembled, That— 
(1) Section 3 of Public Law 85-235, as amended (71 Stat. 516), 
approved August 30, 1957 (relating to the temporary suspension 
of the tax on the first domestic processing of coconut oil) ; and 
(2) Public Law 86-37, as amended (73 Stat. 64), approved 
May 29, 1959 (relating to the temporary suspension of the tax 
on the first domestic processing of palm oil, palm-kernel oil, etc.), 
are each amended by striking out "June 30,1963" and inserting in lieu 
thereof "June 30,1966". 
Approved October 23, 1962. 
October 23, 1962 
[H. R. 7932] 
Public Law 87-860 
AN ACT 
To amend the Act of July 2, 1948. so as to rei)eal portions thereof relating to 
residual rights in certain land on Santa Rosa Island, Florida. 
Santa Rosa 
Island, Okaloosa 
County, Fla. 
Residual rights, 
release. 
Be it enacted by the Senate and House of Representatives 
of the 
United States of America in Congress assembled, That (a) the first 
sentence in the first section of the Act entitled "An Act to authorize 
the Secretary of the Army to sell and convey to Okaloosa County, 
State of Florida, all the right, title, and interest of the United States, 
including any restriction on use thereof, in and to a portion of Santa 
Rosa Island, Florida, and for other purposes", approved July 2, 1948 
63 Stat. 921. 
(62 Stat. 1229), is hereby amended by striking the words "for 
recreational purposes". Subparagraphs a, e, and g of the first section. 
Repeals. 
and all of sections 2 and 3 of the Act are hereby repealed. 
(b) The Secretary of the Army shall issue such written instruments 
as may be necessary to bring the conveyance made to Okaloosa County, 
Florida, on May 22, 1950, under authority of the Act of July 2, 1948, 
into conformity with the amendment made by subsection (a) of this 
section. 
Effective date. 
SEC. 2. Tlic first scctiou of this Act shall take effect on the date the 
county of Okaloosa, Florida, shall pay to the Secretary of the Army 
the current fair market value (as determined by the Secretary), of 
the property interest authorized to be conveyed to such county 
under the first section of this Act. 
Approved October 23, 1962.