1. (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).

2. (b) Gross investment income For purposes of subsection (a), the term “gross investment income” means the sum of the following:

   1. (1) The gross amount of income during the taxable year from—

      1. (A) interest, dividends, rents, and royalties,
      2. (B) the entering into of any lease, mortgage, or other instrument or agreement from which the insurance company derives interest, rents, or royalties,
      3. (C) the alteration or termination of any instrument or agreement described in subparagraph (B), and
      4. (D) gains from sales or exchanges of capital assets to the extent provided in subchapter P (relating to capital gains and losses).
   2. (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).

3. (c) Deductions In computing taxable investment income, the following deductions shall be allowed:

   1. (1) Tax-free interest The amount of interest which under section 103 is excluded for the taxable year from gross income.
   2. (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 3¾ percent of the book value of the mean of the invested assets held at the beginning and end of the taxable year.
   3. (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. (4) Depreciation The depreciation deduction allowed by section 167.
   5. (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. (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:

      1. (A) the taxable investment income (computed without regard to gains or losses from sales or exchanges of capital assets); or
      2. (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. (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. (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—

      1. (A) any item, to the extent attributable to the carrying on of the insurance business, shall not be taken into account, and
      2. (B) the deduction for net operating losses provided in section 172 shall not be allowed.
   9. (9) Depletion The deduction allowed by section 611 (relating to depletion).

4. (d) Other applicable rules

   1. (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. (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—

      1. (A) in accordance with the method regularly employed by such company, if such method is reasonable, and
      2. (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. (3) Double deductions Nothing in this part shall permit the same item to be deducted more than once.

5. (e) Definitions For purposes of this part—

   1. (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. (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, § 822; Mar. 13, 1956, ch. 83, § 3(a)(3)–(8), 70 Stat. 47, 48; Pub. L. 87–834, § 8(b), Oct. 16, 1962, 76 Stat. 991; Pub. L. 88–272, title II, § 228(b)(2), Feb. 26, 1964, 78 Stat. 99; Pub. L. 89–809, title I, § 104(i)(5), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 94–455, title XIX, §§ 1901(a)(105), (b)(1)(P)–(S), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1782, 1792, 1834; renumbered § 834 and amended Pub. L. 99–514, title X, § 1024(a)(3), (c)(7), (8), Oct. 22, 1986, 100 Stat. 2405, 2407; Pub. L. 115–97, title I, § 13001(b)(2)(I), Dec. 22, 2017, 131 Stat. 2096.)

Editorial Notes

Amendments

2017—Subsec. (b)(1)(D). Pub. L. 115–97 struck out “sec. 1201 and following,” before “relating to capital gains and losses”.

1986—Pub. L. 99–514, § 1024(a)(3), renumbered section 822 of this title as this section.

Subsec. (a). Pub. L. 99–514, § 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, § 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, § 1901(b)(1)(P), struck out “partially tax-exempt interest and” before “dividends received allowed by”.

Subsec. (c)(5). Pub. L. 94–455, § 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, § 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, § 1901(b)(1)(R), struck out “partially tax-exempt interest and to” after “and following, relating to”.

Subsec. (d)(2). Pub. L. 94–455, §§ 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, § 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, § 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, § 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, § 8(b)(2), substituted “taxable investment income” for “mutual insurance company taxable income”.

Subsec. (f). Pub. L. 87–834, § 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, § 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, § 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, § 3(a)(7), substituted “subsection (c)(3) or (4)” for “subsection (e)(3) or (4)”.

Subsec. (e). Act Mar. 13, 1956, § 3(a)(8), substituted “items described in subsection (b) (other than paragraph (1)(D) thereof” for “interest, dividends, rents,”.

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13001(c)(1) of Pub. L. 115–97, set out as a note under section 11 of this title.

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.