§808 — Title 26 Internal Revenue Code | U.S. Code

Summary

Insurers can deduct policyholder dividends from their taxable income. The deductible amount is the dividends paid or recorded during the tax year. Policyholder dividends include sums that vary with the company’s results or management decisions, extra interest, reductions in required premiums, and refunds based on experience. The rule also covers dividends that raise a contract’s cash surrender value or lower the premium a person must pay. Key terms: policyholder dividend — a payment to someone because they hold the policy; excess interest — interest paid above the “prevailing State assumed” rate; premium adjustment — a cut in the premium the contract would otherwise require; experience-rated refund — a refund based on the contract’s or group’s actual results; prevailing State assumed interest rate — the highest reserve interest rate allowed by law in at least 26 States, set at the start of the calendar year the contract was issued. If a company changes business practices so dividends are deducted earlier, the deduction in the “year of change” is cut back by any accelerated deduction up to the 1984 fresh-start adjustment (amounts held as dividend reserves on December 31, 1983, excluding dividends that accrued before January 1, 1984, and reduced for prior nondeductible amounts). These rules apply by line of business and have exceptions for some post‑1983 policies and certain employee welfare group policies.

Title 26, §808

Internal Revenue Code — Source: USLM XML via OLRC

(a)For purposes of this part, the term “policyholder dividend” means any dividend or similar distribution to policyholders in their capacity as such.

(b)For purposes of this part, the term “policyholder dividend” includes—

(1)any amount paid or credited (including as an increase in benefits) where the amount is not fixed in the contract but depends on the experience of the company or the discretion of the management,

(2)excess interest,

(3)premium adjustments, and

(4)experience-rated refunds.

(c)The deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year.

(d)For purposes of this section—

(1)The term “excess interest” means any amount in the nature of interest—

(A)paid or credited to a policyholder in his capacity as such, and

(B)in excess of interest determined at the prevailing State assumed rate for such contract.

(2)The term “premium adjustment” means any reduction in the premium under an insurance or annuity contract which (but for the reduction) would have been required to be paid under the contract.

(3)The term “experience-rated refund” means any refund or credit based on the experience of the contract or group involved.

(e)For purposes of this part, any policyholder dividend which—

(1)increases the cash surrender value of the contract or other benefits payable under the contract, or

(2)reduces the premium otherwise required to be paid,

(f)(1)The amount determined under paragraph (1) of subsection (c) for the year of change shall (before any reduction under paragraph (2) of subsection (c)) be reduced by so much of the accelerated policyholder dividends deduction for such year as does not exceed the 1984 fresh-start adjustment for policyholder dividends (to the extent such adjustment was not previously taken into account under this subsection).

(2)For purposes of this subsection, the term “year of change” means the taxable year in which the change in business practices which results in the accelerated policyholder dividends deduction takes effect.

(3)For purposes of this subsection, the term “accelerated policyholder dividends deduction” means the amount which (but for this subsection) would be determined for the taxable year under paragraph (1) of subsection (c) but which would have been determined (under such paragraph) for a later taxable year under the business practices of the taxpayer as in effect at the close of the preceding taxable year.

(4)For purposes of this subsection, the term “1984 fresh-start adjustment for policyholder dividends” means the amounts held as of December 31, 1983, by the taxpayer as reserves for dividends to policyholders under section 811(b) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) other than for dividends which accrued before January 1, 1984. Such amounts shall be properly reduced to reflect the amount of previously nondeductible policyholder dividends (as determined under section 809(f) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984).

(5)This subsection shall be applied separately with respect to each line of business of the taxpayer.

(6)This subsection shall not apply to a mere change in the amount of policyholder dividends.

(7)(A)This subsection shall not apply to any policyholder dividend paid or accrued with respect to a policy issued after December 31, 1983.

(B)For purposes of subparagraph (A), any policy issued after December 31, 1983, in exchange for a substantially similar policy issued on or before such date shall be treated as issued before January 1, 1984. A similar rule shall apply in the case of a series of exchanges.

(8)This subsection shall not apply to any policyholder dividend paid or accrued with respect to a group policy issued in connection with a plan to provide welfare benefits to employees (within the meaning of section 419(e)(2)).

(g)For purposes of this subchapter—

(1)The term “prevailing State assumed interest rate” means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account.

(2)The prevailing State assumed interest rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The date of enactment of the Tax Reform Act of 1984, referred to in subsec. (f)(4), is the date of enactment of Pub. L. 98–369, div. A, which was approved July 18, 1984.

Amendments

2017—Subsec. (g). Pub. L. 115–97 added subsec. (g). 2004—Subsec. (c). Pub. L. 108–218 reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “(1) In general.—Except as limited by paragraph (2), the deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year. “(2) Reduction in case of mutual companies.—In the case of a mutual life insurance company, the deduction for policyholder dividends for any taxable year shall be reduced by the amount determined under section 809.” 1986—Subsec. (d)(1)(B). Pub. L. 99–514, § 1821(b), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “determined at a rate in excess of the prevailing State assumed interest rate for such contract.” Subsec. (f). Pub. L. 99–514, § 1821(c), added subsec. (f).

Statutory Notes and Related Subsidiaries

Effective Date

of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title.

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–218 applicable to taxable years beginning after Dec. 31, 2004, see section 205(c) of Pub. L. 108–218, set out as a note under section 807 of this title.

Effective Date

of 1986 AmendmentAmendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date

Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98–369, set out as a note under section 801 of this title. Plan

Amendments

Not Required Until January 1, 1989For provisions directing that if any

Amendments

made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

§808 Policyholder Dividends Deduction

Summary

Title 26, §808

Notes & Related Subsidiaries

Editorial Notes

References in Text

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Effective Date

Amendments

Amendments

Citations & Metadata