[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: 26CFR1.809-4]

[Page 627-628]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.809-4  Gross amount.

    (a) Items taken into account. For purposes of determining gain or 
loss from operations under section 809(b) (1) and (2), respectively, 
section 809(c) specifies three categories of items which shall be taken 
into account. Such items are in addition to the life insurance company's 
share of the investment yield (as determined under section 809(a)(1) and 
paragraph (c) of Sec. 1.809-2), and the amount (if any) by which the 
net long-term capital gain exceeds the net short-term capital loss (such 
capital gains item is included in determining gain or loss from 
operations only for taxable years beginning after December 31, 1961). 
The additional three categories of items taken into account are:
    (1) Premiums. (i) The gross amount of all premiums and other 
consideration on insurance and annuity contracts (including contracts 
supplementary thereto); less return premiums and premiums and other 
consideration arising out of reinsurance ceded. The term gross amount of 
all premiums means the premiums and other consideration provided in the 
insurance or annuity contract. Thus, the amount to be taken into account 
shall be the total of the premiums and other consideration provided in 
the insurance or annuity contract without any deduction for commissions, 
return premiums, reinsurance, dividends to policyholders, dividends left 
on deposit with the company, discounts on premiums paid in advance, 
interest applied in reduction of premiums (whether or not required

[[Page 628]]

to be credited in reduction of premiums under the terms of the 
contract), or any other item of similar nature. Such term includes 
advance premiums, premiums deferred and uncollected and premiums due and 
unpaid, deposits, fees, assessments, and consideration in respect of 
assuming liabilities under contracts not issued by the taxpayer (such as 
a payment or transfer of property in an assumption reinsurance 
transaction as defined in paragraph (a)(7)(ii) of Sec. 1.809-5). The 
term also includes amounts a life insurance company charges itself 
representing premiums with respect to liability for insurance and 
annuity benefits for its employees (including full-time life insurance 
salesmen within the meaning of section 7701(a)(20)).
    (ii) The term return premiums means amounts returned or credited 
which are fixed by contract and do not depend on the experience of the 
company or the discretion of the management. Thus, such term includes 
amounts refunded due to policy cancellations or erroneously computed 
premiums. Furthermore, amounts of premiums or other consideration 
returned to another life insurance company in respect of reinsurance 
ceded shall be included in return premiums. For the treatment of amounts 
which do not meet the requirements of return premiums, see section 811 
(relating to dividends to policyholders).
    (iii) For purposes of section 809(c)(1) and this subparagraph, the 
term reinsurance ceded means an arrangement whereby the taxpayer (the 
reinsured) remains solely liable to the policyholder, whether all or 
only a portion of the risk has been transferred to the reinsurer. Such 
term includes indemnity reinsurance transactions but does not include 
assumption reinsurance transactions. See paragraph (a)(7)(ii) of Sec. 
1.809-5 for the definition of assumption reinsurance.
    (2) Decreases in certain reserves. Each net decrease in reserves 
which is required by section 810 (a) and (d)(1) or 811(b)(2) to be taken 
into account for the taxable year as a net decrease for purposes of 
section 809(c)(2).
    (3) Other amounts. All amounts, not included in computing investment 
yield and not otherwise taken into account under section 809(c) (1) or 
(2), shall be taken into account under section 809(c)(3) to the extent 
that such amounts are includible in gross income under subtitle A of the 
Code. See section 61 (relating to gross income defined) and the 
regulations thereunder.
    (b) Treatment of net long-term capital gains. For taxable years 
beginning before January 1, 1962, any net long-term capital gains (as 
defined in section 1222(7)) 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 determination of 
gain or loss from operations of a life insurance company. On the other 
hand, with respect to taxable years beginning after December 31, 1961, 
the amount (if any) by which the net long-term capital gain exceeds the 
net short-term capital loss (as defined in section 1222(6)) shall be 
taken into account in determining gain or loss from operations under 
section 809. However, for any taxable year beginning after December 31, 
1958, the excess of net short-term capital gain (as defined in section 
1222(5)) over net long-term capital loss (as defined in section 1222(8)) 
is included in computing investment yield (as defined in section 804(c)) 
and, to that extent, is taken into account in determining gain or loss 
from operations under section 809.

[T.D. 6535, 26 FR 527, Jan. 20, 1961, as amended by T.D. 6610, 27 FR 
8718, Aug. 31, 1962, T.D. 6886, 31 FR 8687, June 23, 1966]