Title 26, Internal Revenue CodeRelease 119-110
§848 Capitalization of Certain Policy Acquisition Expenses
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter L — Insurance Companies › PART III — PROVISIONS OF GENERAL APPLICATION › § 848
Summary
Insurance companies must treat certain costs to get new insurance policies as assets and spread those costs out over time instead of taking them all at once. Most of these costs are written off evenly over 180 months (15 years). But up to $5,000,000 of such costs in a year can be written off faster—over 60 months (5 years). If the costs for the year go over $10,000,000, that faster $5,000,000 amount is cut down dollar for dollar. Companies in a controlled group are treated as one company for these rules, and the faster amount is split by rules the Treasury sets. Costs tied to reinsurance premiums don’t get the faster 60‑month rule. Ceding commissions on reinsurance after September 30, 1990, do not have to be capitalized. Definitions: "specified policy acquisition expenses" means part of a company’s general business and pension-related deductions, limited by percentages of net premiums (2.09% for annuities, 2.45% for group life, 9.2% for other contracts). "Net premiums" means gross premiums minus return premiums and reinsurance costs. "Specified insurance contract" means life, annuity, or noncancellable accident and health contracts, with some listed exceptions. If net premiums are negative for a category, that negative amount reduces capitalization for other categories, lowers prior unamortized balances, and may be allowed as a deduction. The Secretary can make separate categories or adjust percentages if needed, but must avoid reducing government revenue.
Full Legal Text
Title 26, §848
Internal Revenue Code, Source: USLM XML via OLRC
(a)General rule
In the case of an insurance company—
(1)specified policy acquisition expenses for any taxable year shall be capitalized, and
(2)such expenses shall be allowed as a deduction ratably over the 180-month period beginning with the first month in the second half of such taxable year.
(b)5-year amortization for first $5,000,000 of specified policy acquisition expenses
(1)In general
Paragraph (2) of subsection (a) shall be applied with respect to so much of the specified policy acquisition expenses of an insurance company for any taxable year as does not exceed $5,000,000 by substituting “60-month” for “180-month”.
(2)Phase-out
If the specified policy acquisition expenses of an insurance company exceed $10,000,000 for any taxable year, the $5,000,000 amount under paragraph (1) shall be reduced (but not below zero) by the amount of such excess.
(3)Special rule for members of controlled group
In the case of any controlled group—
(A)all insurance companies which are members of such group shall be treated as 1 company for purposes of this subsection, and
(B)the amount to which paragraph (1) applies shall be allocated among such companies in such manner as the Secretary may prescribe.
For purposes of the preceding sentence, the term “controlled group” means any controlled group of corporations as defined in section 1563(a); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply, and subsection (b)(2)(C) of section 1563 shall not apply to the extent it excludes a foreign corporation to which section 842 applies.
(4)Exception for acquisition expenses attributable to certain reinsurance contracts
Paragraph (1) shall not apply to any specified policy acquisition expenses for any taxable year which are attributable to premiums or other consideration under any reinsurance contract.
(c)Specified policy acquisition expenses
For purposes of this section
(1) In general
(2)General deductions
The term “general deductions” means the deductions provided in part VI of subchapter B (sec. 161 and following, relating to itemized deductions) and in part I of subchapter D (sec. 401 and following, relating to pension, profit sharing, stock bonus plans, etc.).
(d)Net premiums
For purposes of this section
(1) In general
(2)Amounts determined on accrual basis
In the case of an insurance company subject to tax under part II of this subchapter, all computations entering into determinations of net premiums for any taxable year shall be made in the manner required under section 811(a) for life insurance companies.
(3)Treatment of certain policyholder dividends and similar amounts
Net premiums shall be determined without regard to section 808(e) and without regard to other similar amounts treated as paid to, and returned by, the policyholder.
(4)Special rules for reinsurance
(A)Premiums and other consideration incurred for reinsurance shall be taken into account under paragraph (1)(B) only to the extent such premiums and other consideration are includible in the gross income of an insurance company taxable under this subchapter or are subject to tax under this chapter by reason of subpart F of part III of subchapter N.
(B)The Secretary shall prescribe such regulations as may be necessary to ensure that premiums and other consideration with respect to reinsurance are treated consistently by the ceding company and the reinsurer.
(e)Classification of contracts
For purposes of this section
(1) Specified insurance contract
(2)Group life insurance contract
The term “group life insurance contract” means any life insurance contract—
(A)which covers a group of individuals defined by reference to employment relationship, membership in an organization, or similar factor,
(B)the premiums for which are determined on a group basis, and
(C)the proceeds of which are payable to (or for the benefit of) persons other than the employer of the insured, an organization to which the insured belongs, or other similar person.
(3)Treatment of annuity contracts combined with noncancellable accident and health insurance
Any annuity contract combined with noncancellable accident and health insurance shall be treated as a noncancellable accident and health insurance contract and not as an annuity contract.
(4)Treatment of guaranteed renewable contracts
The rules of section 816(e) shall apply for purposes of this section.
(5)Treatment of reinsurance contract
A contract which reinsures another contract shall be treated in the same manner as the reinsured contract.
(6)Treatment of certain qualified long-term care insurance contract arrangements
An annuity or life insurance contract which includes a qualified long-term care insurance contract as a part of or a rider on such annuity or life insurance contract shall be treated as a specified insurance contract not described in subparagraph (A) or (B) of subsection (c)(1).
(f)Special rule where negative net premiums
(1)In general
If for any taxable year there is a negative capitalization amount with respect to any category of specified insurance contracts set forth in subsection (c)(1)—
(A)the amount otherwise required to be capitalized under this section for such taxable year with respect to any other category of specified insurance contracts shall be reduced (but not below zero) by such negative capitalization amount, and
(B)such negative capitalization amount (to the extent not taken into account under subparagraph (A))—
(i)shall reduce (but not below zero) the unamortized balance (as of the beginning of such taxable year) of the amounts previously capitalized under subsection (a) (beginning with the amount capitalized for the most recent taxable year), and
(ii)to the extent taken into account as such a reduction, shall be allowed as a deduction for such taxable year.
(2)Negative capitalization amount
For purposes of paragraph (1), the term “negative capitalization amount” means, with respect to any category of specified insurance contracts, the percentage (applicable under subsection (c)(1) to such category) of the amount (if any) by which—
(A)the amount determined under subparagraph (B) of subsection (d)(1) with respect to such category, exceeds
(B)the amount determined under subparagraph (A) of subsection (d)(1) with respect to such category.
(g)Treatment of certain ceding commissions
Nothing in any provision of law (other than this section or section 197) shall require the capitalization of any ceding commission incurred on or after September 30, 1990, under any contract which reinsures a specified insurance contract.
(h)Secretarial authority to adjust capitalization amounts
(1)In general
Except as provided in paragraph (2), the Secretary may provide that a type of insurance contract will be treated as a separate category for purposes of this section (and prescribe a percentage applicable to such category) if the Secretary determines that the deferral of acquisition expenses for such type of contract which would otherwise result under this section is substantially greater than the deferral of acquisition expenses which would have resulted if actual acquisition expenses (including indirect expenses) and the actual useful life for such type of contract had been used.
(2)Adjustment to other contracts
If the Secretary exercises his authority with respect to any type of contract under paragraph (1), the Secretary shall adjust the percentage which would otherwise have applied under subsection (c)(1) to the category which includes such type of contract so that the exercise of such authority does not result in a decrease in the amount of revenue received under this chapter by reason of this section for any fiscal year.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2017—Subsec. (a)(2). Pub. L. 115–97, § 13519(a)(1), substituted “180-month” for “120-month”. Subsec. (b)(1). Pub. L. 115–97, § 13519(b), substituted “180-month” for “120-month”. Subsec. (c)(1)(A). Pub. L. 115–97, § 13519(a)(2), substituted “2.09 percent” for “1.75 percent”. Subsec. (c)(1)(B). Pub. L. 115–97, § 13519(a)(3), which directed substitution of “2.45 percent” for “2.05 percent” in par. (2), was executed to par. (1)(B) to reflect the probable intent of Congress. Subsec. (c)(1)(C). Pub. L. 115–97, § 13519(a)(4), which directed substitution of “9.2 percent” for “7.7 percent” in par. (3), was executed to par. (1)(C) to reflect the probable intent of Congress. Subsec. (c) does not contain a par. (3). Subsec. (e)(1)(B)(iii). Pub. L. 115–97, § 13517(b)(4), substituted “807(e)(3)” for “807(e)(4)”. Subsec. (i). Pub. L. 115–97, § 12001(b)(8)(C), struck out subsec. (i). Text read as follows: “For purposes of determining adjusted current earnings under section 56(g), acquisition expenses with respect to contracts described in clause (iii) of subsection (e)(1)(B) shall be capitalized and amortized in accordance with the treatment generally required under generally accepted accounting principles as if this subsection applied to such contracts for all taxable years.” 2014—Subsec. (j). Pub. L. 113–295 struck out subsec. (j). Text read as follows: “In the case of any taxable year which includes
September 30, 1990, the amount taken into account as the net premiums (or negative capitalization amount) with respect to any category of specified insurance contracts shall be the amount which bears the same ratio to the amount which (but for this subsection) would be so taken into account as the number of days in such taxable year on or after
September 30, 1990, bears to the total number of days in such taxable year.” 2006—Subsec. (e)(6). Pub. L. 109–280 added par. (6). 2003—Subsec. (e)(1)(B)(v). Pub. L. 108–173 added cl. (v). 2000—Subsec. (e)(1)(B)(iv). Pub. L. 106–554, § 1(a)(7) [title II, § 202(b)(10)], substituted “an Archer MSA” for “a Archer MSA”. Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5)], substituted “Archer MSA” for “medical savings account”. 1996—Subsec. (e)(1)(B)(iv). Pub. L. 104–191 added cl. (iv). 1993—Subsec. (g). Pub. L. 103–66 substituted “this section or section 197” for “this section”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 AmendmentAmendment by section 12001(b)(8)(C) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 12001(c) of Pub. L. 115–97, set out as a note under section 11 of this title. Amendment by section 13517(b)(4) of 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. Pub. L. 115–97, title I, § 13519(c), Dec. 22, 2017, 131 Stat. 2148, provided that: “(1) In general.—The
Amendments
made by this section [amending this section] shall apply to net premiums for taxable years beginning after
December 31, 2017. “(2) Transition rule.—Specified policy acquisition expenses first required to be capitalized in a taxable year beginning before
January 1, 2018, will continue to be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year.”
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2006 AmendmentAmendment by Pub. L. 109–280 applicable to contracts issued after Dec. 31, 1996, but only with respect to taxable years beginning after Dec. 31, 2009, and to specified policy acquisition expenses determined for taxable years beginning after Dec. 31, 2009, see section 844(g)(1), (4) of Pub. L. 109–280, set out as a note under section 72 of this title.
Effective Date
of 2003 AmendmentAmendment by Pub. L. 108–173 applicable to taxable years beginning after Dec. 31, 2003, see section 1201(k) of Pub. L. 108–173, set out as a note under section 62 of this title.
Effective Date
of 1996 AmendmentAmendment by Pub. L. 104–191 applicable to taxable years beginning after Dec. 31, 1996, see section 301(j) of Pub. L. 104–191, set out as a note under section 62 of this title.
Effective Date
of 1993 AmendmentAmendment by Pub. L. 103–66 applicable, except as otherwise provided, with respect to property acquired after Aug. 10, 1993, see section 13261(g) of Pub. L. 103–66, set out as an
Effective Date
note under section 197 of this title.
Effective Date
Pub. L. 101–508, title XI, § 11301(d)(1), Nov. 5, 1990, 104 Stat. 1388–449, provided that: “The
Amendments
made by subsections (a) and (c) [enacting this section] shall apply to taxable years ending on or after September 30, 1990. Any capitalization required by reason of such
Amendments
shall not be treated as a change in method of accounting for purposes of the Internal Revenue Code of 1986.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 848
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110