
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC834]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                    Subchapter L--Insurance Companies
 
                   PART II--OTHER INSURANCE COMPANIES
 
Sec. 834. Determination of taxable investment income


(a) General rule

    For purposes of section 831(b), the term ``taxable investment 
income'' means the gross investment income, minus the deductions 
provided in subsection (c).

(b) Gross investment income

    For purposes of subsection (a), the term ``gross investment income'' 
means the sum of the following:
        (1) The gross amount of income during the taxable year from--
            (A) interest, dividends, rents, and royalties,
            (B) the entering into of any lease, mortgage, or other 
        instrument or agreement from which the insurance company derives 
        interest, rents, or royalties,
            (C) the alteration or termination of any instrument or 
        agreement described in subparagraph (B), and
            (D) gains from sales or exchanges of capital assets to the 
        extent provided in subchapter P (sec. 1201 and following, 
        relating to capital gains and losses).

        (2) The gross income during the taxable year from any trade or 
    business (other than an insurance business) carried on by the 
    insurance company, or by a partnership of which the insurance 
    company is a partner. In computing gross income under this 
    paragraph, there shall be excluded any item described in paragraph 
    (1).

(c) Deductions

    In computing taxable investment income, the following deductions 
shall be allowed:

                        (1) Tax-free interest

        The amount of interest which under section 103 is excluded for 
    the taxable year from gross income.

                       (2) Investment expenses

        Investment expenses paid or accrued during the taxable 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 one-fourth of 1 percent of the mean of the book value of 
    the invested assets held at the beginning and end of the taxable 
    year plus one-fourth of the amount by which taxable investment 
    income (computed without any deduction for investment expenses 
    allowed by this paragraph, for tax-free interest allowed by 
    paragraph (1), or for dividends received allowed by paragraph (7)), 
    exceeds 3\3/4\ percent of the book value of the mean of the invested 
    assets held at the beginning and end of the taxable year.

                      (3) Real estate expenses

        Taxes (as provided in section 164), and other expenses, paid or 
    accrued during the taxable year exclusively on or with respect to 
    the real estate owned by the company. No deduction shall be allowed 
    under this paragraph for any amount paid out for new buildings, or 
    for permanent improvements or betterments made to increase the value 
    of any property.

                          (4) Depreciation

        The depreciation deduction allowed by section 167.

                    (5) Interest paid or accrued

        All interest paid or accrued within the taxable year on 
    indebtedness, except on indebtedness incurred or continued to 
    purchase or carry obligations the interest on which is wholly exempt 
    from taxation under this subtitle.

                         (6) Capital losses

        Capital losses to the extent provided in subchapter P (sec. 1201 
    and following) plus losses from capital assets sold or exchanged in 
    order to obtain funds to meet abnormal insurance losses and to 
    provide for the payment of dividends and similar distributions to 
    policyholders. Capital assets shall be considered as sold or 
    exchanged in order to obtain funds to meet abnormal insurance losses 
    and to provide for the payment of dividends and similar 
    distributions to policyholders to the extent that the gross receipts 
    from their sale or exchange are not greater than the excess, if any, 
    for the taxable year of the sum of dividends and similar 
    distributions paid to policyholders, losses paid, and expenses paid 
    over the sum of the items described in subsection (b) (other than 
    paragraph (1)(D) thereof) and net premiums received. In the 
    application of section 1212 for purposes of this section, the net 
    capital loss for the taxable year shall be the amount by which 
    losses for such year from sales or exchanges of capital assets 
    exceeds the sum of the gains from such sales or exchanges and 
    whichever of the following amounts is the lesser:
            (A) the taxable investment income (computed without regard 
        to gains or losses from sales or exchanges of capital assets); 
        or
            (B) losses from the sale or exchange of capital assets sold 
        or exchanged to obtain funds to meet abnormal insurance losses 
        and to provide for the payment of dividends and similar 
        distributions to policyholders.

                       (7) Special deductions

        The special deductions allowed by part VIII (except section 248) 
    of subchapter B (sec. 241 and following, relating to dividends 
    received). In applying section 246(b) (relating to limitation on 
    aggregate amount of deductions for dividends received) for purposes 
    of this paragraph, the reference in such section to ``taxable 
    income'' shall be treated as a reference to ``taxable investment 
    income''.

                  (8) Trade or business deductions

        The deductions allowed by this subtitle (without regard to this 
    part) which are attributable to any trade or business (other than an 
    insurance business) carried on by the insurance company, or by a 
    partnership of which the insurance company is a partner; except that 
    for purposes of this paragraph--
            (A) any item, to the extent attributable to the carrying on 
        of the insurance business, shall not be taken into account, and
            (B) the deduction for net operating losses provided in 
        section 172 shall not be allowed.

                            (9) Depletion

        The deduction allowed by section 611 (relating to depletion).

(d) Other applicable rules

                   (1) Rental value of real estate

        The deduction under subsection (c)(3) or (4) on account of any 
    real estate owned and occupied in whole or in part by a mutual 
    insurance company subject to the tax imposed by section 831 shall be 
    limited to an amount which bears the same ratio to such deduction 
    (computed without regard to this paragraph) as the rental value of 
    the space not so occupied bears to the rental value of the entire 
    property.

         (2) Amortization of premium and accrual of discount

        The gross amount of income during the taxable year from interest 
    and the deduction provided in subsection (c)(1) shall each be 
    decreased to reflect the appropriate amortization of premium and 
    increased to reflect the appropriate accrual of discount 
    attributable to the taxable year on bonds, notes, debentures, or 
    other evidences of indebtedness held by a mutual insurance company 
    subject to the tax imposed by section 831. 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 
        prescribed by the Secretary.

    No accrual of discount shall be required under this paragraph on any 
    bond (as defined in section 171(d)) except in the case of discount 
    which is original issue discount (as defined in section 1273).

                        (3) Double deductions

        Nothing in this part shall permit the same item to be deducted 
    more than once.

(e) Definitions

    For purposes of this part--

                          (1) Net premiums

        The term ``net premiums'' means gross premiums (including 
    deposits and assessments) written or received on insurance contracts 
    during the taxable year less return premiums and premiums paid or 
    incurred for reinsurance. Amounts returned where the amount is not 
    fixed in the insurance contract but depends on the experience of the 
    company or the discretion of the management shall not be included in 
    return premiums but shall be treated as dividends to policyholders 
    under paragraph (2).

                   (2) Dividends to policyholders

        The term ``dividends to policyholders'' means dividends and 
    similar distributions paid or declared to policyholders. For 
    purposes of the preceding sentence, the term ``paid or declared'' 
    shall be construed according to the method regularly employed in 
    keeping the books of the insurance company.

(Aug. 16, 1954, ch. 736, 68A Stat. 261, Sec. 822; Mar. 13, 1956, ch. 83, 
Sec. 3(a)(3)-(8), 70 Stat. 47, 48; Pub. L. 87-834, Sec. 8(b), Oct. 16, 
1962, 76 Stat. 991; Pub. L. 88-272, title II, Sec. 228(b)(2), Feb. 26, 
1964, 78 Stat. 99; Pub. L. 89-809, title I, Sec. 104(i)(5), Nov. 13, 
1966, 80 Stat. 1562; Pub. L. 94-455, title XIX, Secs. 1901(a)(105), 
(b)(1)(P)-(S), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1792, 1834; 
renumbered Sec. 834 and amended Pub. L. 99-514, title X, 
Sec. 1024(a)(3), (c)(7), (8), Oct. 22, 1986, 100 Stat. 2405, 2407.)


                               Amendments

    1986--Pub. L. 99-514, Sec. 1024(a)(3), renumbered section 822 of 
this title as this section.
    Subsec. (a). Pub. L. 99-514, Sec. 1024(c)(7), amended subsec. (a) 
generally. Prior to amendment, subsec. (a), definitions, read as 
follows: ``For purposes of this part--
        ``(1) The term `taxable investment income' means the gross 
    investment income, minus the deductions provided in subsection (c).
        ``(2) The term `investment loss' means the amount by which the 
    deductions provided in subsection (c) exceed the gross investment 
    income.''
    Subsec. (d). Pub. L. 99-514, Sec. 1024(c)(8), substituted ``section 
831'' for ``section 821'' in pars. (1) and (2), and inserted ``except in 
the case of discount which is original issue discount (as defined in 
section 1273)'' at end of last sentence in par.
    1976--Subsec. (c)(2). Pub. L. 94-455, Sec. 1901(b)(1)(P), struck out 
``partially tax-exempt interest and'' before ``dividends received 
allowed by''.
    Subsec. (c)(5). Pub. L. 94-455, Sec. 1901(a)(105)(A), struck out 
``(other than obligations of the United States issued after September 
24, 1917, and originally subscribed for by the taxpayer)'' after 
``purchase or carry obligations''.
    Subsec. (c)(6)(A). Pub. L. 94-455, Sec. 1901(b)(1)(Q), struck out 
``or to the deduction provided in section 242 for partially tax-exempt 
interest'' after ``exchanges of capital assets''.
    Subsec. (c)(7). Pub. L. 94-455, Sec. 1901(b)(1)(R), struck out 
``partially tax-exempt interest and to'' after ``and following, relating 
to''.
    Subsec. (d)(2). Pub. L. 94-455, Secs. 1901(a)(105)(B), (b)(1)(S), 
1906(b)(13)(A), struck out in subpar. (B) ``or his delegate'' after 
``Secretary'' and substituted in provisions preceding subpar. (A) ``and 
the deduction provided in subsection (c)(1)'' for ``, the deduction 
provided in subsection (c)(1), and the deduction allowed by section 242 
(relating to partially tax-exempt interest)'' and in provisions 
following subpar. (B) ``No accrual'' for ``For taxable years beginning 
after December 31, 1962, no accrual''.
    1966--Subsecs. (e), (f). Pub. L. 89-809 redesignated subsec. (f) as 
(e). Former subsec. (e), dealing with foreign mutual insurance companies 
other than life or marine, was struck out.
    1964--Subsec. (d)(2). Pub. L. 88-272 provided that for taxable years 
beginning after Dec. 31, 1962, no accrual of discount shall be required 
under par. (2) on any bond.
    1962--Pub. L. 87-834, Sec. 8(b)(1), substituted ``Determination of 
taxable investment income'' for ``Determination of mutual insurance 
company taxable income'' in section catchline.
    Subsec. (a). Pub. L. 87-834, Sec. 8(b)(1), defined ``taxable 
investment income'' and ``investment loss'' for purposes of this part, 
and struck out provisions which defined ``mutual insurance company 
taxable income'' for purposes of section 821 of this title, which 
provisions are now contained in section 821(b) of this title.
    Subsec. (c). Pub. L. 87-834, Sec. 8(b)(2), (3), substituted 
``taxable investment income'' for ``mutual insurance company taxable 
income'' in opening provisions and in pars. (2) and (6)(A), and inserted 
sentence in par. (7) providing that in applying section 246(b) (relating 
to limitations on aggregate amount of deductions for dividends received) 
for purposes of par. (7), reference in such section to ``taxable 
income'' shall be treated as a reference to ``taxable investment 
income''.
    Subsec. (e). Pub. L. 87-834, Sec. 8(b)(2), substituted ``taxable 
investment income'' for ``mutual insurance company taxable income''.
    Subsec. (f). Pub. L. 87-834, Sec. 8(b)(4), added subsec. (f). 
Provisions of subsec. (f) were formerly contained in section 823 of this 
title.
    1956--Subsec. (b). Act Mar. 13, 1956, Sec. 3(a)(3), principally 
included royalties, and the income from a trade or business other than 
the insurance business carried on by the insurance company in ``gross 
investment income''.
    Subsec. (c). Act Mar. 13, 1956, Sec. 3(a)(4), (5), (6), clarified 
the deduction for real estate expenses in par. (3), substituted in par. 
(6) ``the sum of the items described in subsection (b) (other than 
paragraph (1)(D) thereof) and net premiums received. In the application 
of section 1212'' for ``the sum of interest, dividends, rents, and net 
premiums received. In the application of section 1211'', and inserted 
pars. (8) and (9).
    Subsec. (d)(1). Act Mar. 13, 1956, Sec. 3(a)(7), substituted 
``subsection (c)(3) or (4)'' for ``subsection (e)(3) or (4)''.
    Subsec. (e). Act Mar. 13, 1956, Sec. 3(a)(8), substituted ``items 
described in subsection (b) (other than paragraph (1)(D) thereof'' for 
``interest, dividends, rents,''.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, see section 1024(e) of Pub. L. 99-514, set out as a 
note under section 831 of this title.


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(105), (b)(1)(P)-(S) of Pub. L. 94-455 
effective for taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.


                    Effective Date of 1966 Amendment

    Amendment by Pub. L. 89-809 applicable with respect to taxable years 
beginning after Dec. 31, 1966, see section 104(n) of Pub. L. 89-809, set 
out as a note under section 11 of this title.


                    Effective Date of 1962 Amendment

    Amendment by Pub. L. 87-834 applicable with respect to taxable years 
beginning after Dec. 31, 1962, see section 8(h) of Pub. L. 87-834, set 
out as a note under section 501 of this title.


                    Effective Date of 1956 Amendment

    Amendment by act Mar. 13, 1956, applicable only to taxable years 
beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set 
out as a note set out under section 316 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 56, 832, 842 of this title.
