[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: 26CFR1.803-4]

[Page 614-615]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.803-4  Taxable income and deductions.

    (a) In general. The taxable income of a life insurance company is 
its gross amount of income received or accrued during the taxable year 
from interest, dividends, and rents, less the deductions provided in 
section 803(g) for wholly tax-exempt interest, investment expenses, real 
estate expenses, depreciation, and the special deductions provided in 
part VIII (section 241 and following, except section 248), subchapter B, 
chapter 1 of the Code. In addition to the limitations on deductions 
relating to real estate owned and occupied by a life insurance company 
provided in section 803(h), the limitations on the adjustment for 
amortization of premium and accrual of discount provided in section 
803(i), and the limitation on the deduction for investment expenses 
where general expenses are allocated to investment income provided in 
section 803(g)(2), life insurance companies are subject to the 
limitations on deductions relating to wholly tax-exempt income provided 
in section 265. Life insurance companies are not entitled to the net 
operating loss deduction provided in section 172.
    (b) Wholly tax-exempt interest. Interest which in the case of other 
taxpayers is excluded from gross income by section 103 but included in 
the gross income of a life insurance company by section 803(a)(2) is 
allowed as a deduction from gross income by section 803(g)(1).
    (c) Investment expenses. (1) As used in the Code, the term general 
expenses means any expense paid or incurred for the benefit of more than 
one department of the company rather than for the benefit of a 
particular department thereof. Any assignment of such expense to the 
investment department of the company for which a deduction is claimed 
under section 803(g)(2) subjects the entire deduction for investment 
expenses to the limitation provided in that section. The accounting 
procedure employed is not conclusive as to whether any assignment has in 
fact been made. Investment expenses do not include Federal income and 
excess profits taxes.
    (2) If no general expenses are assigned to or included in investment 
expenses the deduction may consist of investment expenses paid or 
incurred during the taxable year in which case an itemized schedule of 
such expenses must be appended to the return.
    (3) Invested assets for the purpose of section 803(g)(2) and this 
section are those which are owned and used, and to the extent used, for 
the purpose of producing the income specified in section 803(a)(2). They 
do not include real estate owned and occupied, and to the extent owned 
and occupied, by the company. If general expenses are assigned to or 
included in investment expenses,

[[Page 615]]

the maximum allowance will not be granted unless it is shown to the 
satisfaction of the district director that such allowance is justified 
by a reasonable assignment of actual expenses.
    (d) Taxes and expenses with respect to real estate. The deduction 
for taxes and expenses under section 803(g)(3) includes taxes and 
expenses paid or accrued during the taxable year exclusively upon or 
with respect to real estate owned by the company and any sum 
representing taxes imposed upon a shareholder of the company upon his 
interest as shareholder which is paid or accrued by the company without 
reimbursement from the shareholder. No deduction shall be allowed, 
however, for taxes, expenses, and depreciation upon or with respect to 
any real estate owned by the company except to the extent used for the 
purpose of producing investment income. See paragraph (c) of this 
section. As to real estate owned and occupied by the company, see Sec. 
1.803-5.
    (e) Depreciation. The deduction allowed for depreciation is, except 
as provided in section 803(h), identical with that allowed other 
corporations by section 167. The amount allowed by section 167 in the 
case of life insurance companies is limited to depreciation sustained on 
the property used, and to the extent used, for the purpose of producing 
the income specified in section 803(a)(2).