[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.801-6]

[Page 599]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.801-6  Adjustments in reserves for policy loans.

    (a) In general. Section 801(d) provides that for purposes only of 
determining whether or not an insurance company is a life insurance 
company (as defined in section 801(a) and paragraph (b) of Sec. 1.801-
3), the life insurance reserves (as defined in section 801(b) and Sec. 
1.801-4), and the total reserves (as defined in section 801(c) and 
paragraph (a) of Sec. 1.801-5), shall each be reduced by an amount 
equal to the mean of the aggregates, at the beginning and end of the 
taxable year, of the policy loans outstanding with respect to contracts 
for which life insurance reserves are maintained. Such reduction shall 
be made after any adjustments required under section 806(a) and Sec. 
1.806-3 have been made.
    (b) Policy loans defined. The term policy loans includes loans made 
by the insurance company, by whatever name called, for which the reserve 
on a contract is the collateral.
    (c) Illustration of principles. The provisions of section 801(d) and 
this section may be illustrated by the following example:

    Example. The books of T, an insurance company, selling only life 
insurance and cancellable accident and health insurance, reflect (after 
adjustment under section 806 (a)) the following facts for the taxable 
year 1958:

------------------------------------------------------------------------
                                                                 Mean of
                                                Jan. 1  Dec. 31    year
------------------------------------------------------------------------
1. Life insurance reserves...................   $1,000   $2,000   $1,500
2. Policy loans..............................       50      850      450
                                              ----------
3. Life insurance reserves less policy loans.  .......  .......    1,050
4. Unearned premiums, and unpaid losses            900    1,600    1,250
 (whether or not ascertained), on cancellable
 accident and health insurance...............
                                              ----------
5. Total reserves adjusted for policy loans    .......  .......    2,300
 (item 3 plus item 4)........................
------------------------------------------------------------------------


As the rules provided by section 801 (a) and (d) require that the figure 
in item 3 ($1,050) be more than 50 percent of the mean of the year 
figure in item 5 ($2,300) for an insurance company to qualify as a life 
insurance company, T would not qualify as a life insurance company for 
the taxable year 1958.

[T.D. 6513, 25 FR 12657, Dec. 10, 1960]