[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: 26CFR1.804-3]

[Page 616-617]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.804-3  Gross investment income of a life insurance company.

    (a) Gross investment income defined. For purposes of part I, 
subchapter L, chapter 1 of the Code, section 804(b) defines the term 
gross investment income of a life insurance company as the sum of the 
following:
    (1) The gross amount of income from:
    (i) Interest (including tax-exempt interest and partially tax-exempt 
interest), as described in Sec. 1.61-7. Interest shall be adjusted for 
amortization of premium and accrual of discount in accordance with the 
rules prescribed in section 818(b) and the regulations thereunder.
    (ii) Dividends, as described in Sec. 1.61-9.
    (iii) Rents and royalties, as described in Sec. 1.61-8.
    (iv) The entering into of any lease, mortgage, or other instrument 
or agreement from which the life insurance company may derive interest, 
rents, or royalties.
    (v) The alteration or termination of any instrument or agreement 
described in subdivision (iv) of this subparagraph.

For example, gross investment income includes amounts received as 
commitment fees, as a bonus for the entering into of a lease, or as a 
penalty for the early payment of a mortgage.
    (2) In the case of a taxable year beginning after December 31, 1958, 
the amount (if any) by which the net short-term capital gain (as defined 
in section 1222(5)) exceeds the net long-term capital loss (as defined 
in section 1222(8)), and
    (3) 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.
    (b) No double inclusion of income. In computing the gross income 
from any

[[Page 617]]

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, any item described in section 804(b)(1) and 
paragraph (a)(1) of this section shall not be considered as gross income 
arising from the conduct of such trade or business or partnership, but 
shall be taken into account under section 804(b)(1) and paragraph (a)(1) 
of this section.
    (c) Exclusion of net long-term capital gains. Any net long-term 
capital gains from the sale or exchange of a capital asset (or any gain 
considered to be from the sale or exchange of a capital asset under 
applicable law) shall be excluded from the gross investment income of a 
life insurance company. However, section 804(b)(2) and paragraph (a)(2) 
of this section provide that the amount (if any) by which the net short-
term capital gain exceeds the net long-term capital loss shall be 
included in the gross investment income of a life insurance company.

[T.D. 6513, 25 FR 12661, Dec. 10, 1960]