For purposes of section 805(a)(4), the term "company's share" means, with respect to any taxable year, the percentage obtained by dividing—
(A) the company's share of the net investment income for the taxable year, by
(B) the net investment income for the taxable year.
For purposes of section 807, the term "policyholders' share" means, with respect to any taxable year, the excess of 100 percent over the percentage determined under paragraph (1).
For purposes of this section, the company's share of net investment income is the excess (if any) of—
(A) the net investment income for the taxable year, over
(B) the sum of—
(i) the policy interest, for the taxable year, plus
(ii) the gross investment income's proportionate share of policyholder dividends for the taxable year.
For purposes of this subsection, the term "policy interest" means—
(A) required interest (at the greater of the prevailing State assumed rate or the applicable Federal interest rate) on reserves under section 807(c) (other than paragraph (2) thereof),
(B) the deductible portion of excess interest,
(C) the deductible portion of any amount (whether or not a policyholder dividend), and not taken into account under subparagraph (A) or (B), credited to—
(i) a policyholder's fund under a pension plan contract for employees (other than retired employees), or
(ii) a deferred annuity contract before the annuity starting date, and
(D) interest on amounts left on deposit with the company.
In any case where neither the prevailing State assumed interest rate nor the applicable Federal interest rate is used, another appropriate rate shall be used for purposes of subparagraph (A).
For purposes of paragraph (1), the gross investment income's proportionate share of policyholder dividends is—
(A) the deduction for policyholders' dividends determined under section 808 for the taxable year, but not including—
(i) the deductible portion of excess interest,
(ii) the deductible portion of policyholder dividends on contracts referred to in clauses (i) and (ii) of paragraph (2)(C), and
(iii) the deductible portion of the premium and mortality charge adjustments with respect to contracts paying excess interest for such year,
multiplied by
(B) the fraction—
(i) the numerator of which is gross investment income for the taxable year (reduced by the policy interest for such year), and
(ii) the denominator of which is life insurance gross income reduced by the excess (if any) of the closing balance for the items described in section 807(c) over the opening balance for such items for the taxable year.
For purposes of subparagraph (B)(ii), life insurance gross income shall be determined by including tax-exempt interest and by applying section 807(a)(2)(B) as if it did not contain clause (i) thereof.
For purposes of this section, the term "net investment income" means—
(1) except as provided in paragraph (2), 90 percent of gross investment income; or
(2) in the case of gross investment income attributable to assets held in segregated asset accounts under variable contracts, 95 percent of gross investment income.
For purposes of this section, the term "gross investment income" means the sum of the following:
The gross amount of income from—
(A) interest (including tax-exempt interest), dividends, rents, and royalties,
(B) the entering into of any lease, mortgage, or other instrument or agreement from which the life insurance company derives interest, rents, or royalties,
(C) the alteration or termination of any instrument or agreement described in subparagraph (B), and
(D) the increase for any taxable year in the policy cash values (within the meaning of section 805(a)(4)(F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies.
The amount (if any) by which the net short-term capital gain exceeds the net long-term capital loss.
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.
For purposes of this section, the term "gross investment income" shall not include any dividend received by the life insurance company which is a 100 percent dividend.
Except as provided in subparagraphs (B) and (C), the term "100 percent dividend" means any dividend if the percentage used for purposes of determining the deduction allowable under section 243, 244, or 245(b) is 100 percent.
The term "100 percent dividend" does not include any distribution by a corporation to the extent such distribution is out of tax-exempt interest or out of dividends which are not 100 percent dividends (determined with the application of this subparagraph).
The term "100 percent dividends" does not include any dividend described in section 805(a)(4)(E) (relating to certain dividends in the case of foreign corporations).
Under regulations, proper adjustments shall be made in the application of this section to prevent an item from being counted more than once.
(Added Pub. L. 98–369, div. A, title II, §211(a), July 18, 1984, 98 Stat. 741; amended Pub. L. 99–514, title XVIII, §1821(i), Oct. 22, 1986, 100 Stat. 2840; Pub. L. 100–203, title X, §10241(b)(2)(B), Dec. 22, 1987, 101 Stat. 1330–420; Pub. L. 100–647, title I, §1018(h)(1), title II, §2004(p)(2), Nov. 10, 1988, 102 Stat. 3583, 3608; Pub. L. 104–188, title I, §1602(b)(2), Aug. 20, 1996, 110 Stat. 1833; Pub. L. 105–34, title X, §1084(b)(3), Aug. 5, 1997, 111 Stat. 955; Pub. L. 108–218, title II, §205(b)(4), Apr. 10, 2004, 118 Stat. 610.)
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