[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: 26CFR1.819-2]

[Page 689-694]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.819-2  Foreign life insurance companies.

    (a) Carrying on United States insurance business. Section 819(a) 
provides that a foreign life insurance company carrying on a life 
insurance business within the United States, if with respect to its 
United States business it would qualify as a life insurance company 
under section 801, shall be taxable on its United States business under 
section 802 in the same manner as a domestic life insurance company. 
Thus, the life insurance company taxable income of such a foreign life 
insurance company shall not be determined in the manner provided by part 
I, subchapter N, chapter 1 of the Code (relating to determination of 
sources of income), but shall be determined in the manner provided by 
part I, subchapter L, chapter 1 of the Code (relating to life insurance 
companies). See section 842. Accordingly, in determining its life 
insurance company taxable income from its United States business, such a 
foreign life insurance company shall take into account the appropriate 
items of income irrespective of whether such items of income are from 
sources within or without the United States. A foreign life insurance 
company shall take into account the appropriate items of expenses, 
losses, and other deductions properly allocable to such items of income 
from its United States business. To the extent not inconsistent with the 
provisions of this paragraph, section 818(a), and section 819(b), all 
computations entering into the determination of taxes imposed by part I 
shall be made in a manner consistent with the manner required for 
purposes of the annual statement approved by the National Association of 
Insurance Commissioners.
    (b) Adjustment where surplus held in the United States is less than 
specified minimum--(1) In general. Section 819(b)(1) provides that if 
the minimum figure for the taxable year determined under section 
819(b)(2) and subparagraph (2)(i) of this paragraph exceeds the surplus 
held in the United States as of the end of the taxable year (as defined 
in section 819(b)(2)(B) and subparagraph (2)(ii) of this paragraph) by a

[[Page 690]]

foreign life insurance company carrying on a life insurance business 
within the United States and taxable under section 802, then:
    (i) The amount of the policy and other contract liability 
requirements (determined under section 805 and Sec. 1.805-4 without 
regard to this subparagraph), and
    (ii) The amount of the required interest (determined under section 
809(a)(2) and paragraph (d) of Sec. 1.809-2 without regard to this 
subparagraph),

shall each be reduced by an amount determined by multiplying such excess 
by the current earnings rate (as defined in section 805(b)(2) and 
paragraph (a)(2) of Sec. 1.805-5) of such company. Such current 
earnings rate shall be determined by reference to the assets held by the 
company in the United States.
    (2) Definitions. For purposes of section 819(b)(1) and subparagraph 
(1) of this paragraph:
    (i) The term minimum figure, in the case of a taxable year beginning 
after December 31, 1957, but before January 1, 1959, means the amount 
obtained by multiplying the company's total insurance liabilities on 
United States business by 9 percent. In the case of any taxable year 
beginning after December 31, 1958, such term means the amount obtained 
by multiplying the company's total insurance liabilities on United 
States business by the percentage determined and proclaimed by the 
Secretary as being applicable for such year.
    (ii) The term surplus held in the United States means the excess of 
the assets held in the United States (as of the end of the taxable year) 
over the total insurance liabilities on United States business (as of 
the end of the taxable year).
    (iii) The term total insurance liabilities means the sum of the 
total reserves (as defined in section 801(c) and paragraph (a) of Sec. 
1.801-5) as of the end of the taxable year plus (to the extent not 
included in total reserves) the items referred to in section 810(c) (3), 
(4), and (5) of paragraph (b) (3), (4), and (5) of Sec. 1.810-2 as of 
the end of the taxable year; and
    (iv) The term assets shall have the same meaning as that contained 
in section 805(b)(4) and paragraph (a)(4) of Sec. 1.805-5.
    (3) Illustration of principles. The provisions of section 819(b) and 
this paragraph may be illustrated by the following example:

    Example. For the taxable year 1958, P, a foreign life insurance 
company carrying on a life insurance business within the United States 
and taxable under section 802, has total insurance liabilities on United 
States business (as of the end of the taxable year) of $940,000, assets 
held in the United States of $1,000,000 (as of the end of the taxable 
year), policy and other contract liability requirements in the amount of 
$30,000 required interest in the amount of $20,000, and a current 
earnings rate of 4 percent. In order to determine whether section 819(b) 
applies for the taxable year 1958, P must first compute its minimum 
figure, for if the minimum figure is less than the surplus held in the 
United States (as of the end of the taxable year), no section 819(b) 
adjustments need be made. Since the minimum figure, $84,600 ($940,000, 
the total insurance liabilities on United States business multiplied by 
9 percent, the percentage applicable for 1958), exceeds the surplus held 
in the United States, $60,000 (the excess of the assets held in the 
United States, $1,000,000, over the total insurance liabilities on 
United States business, $940,000), by $24,600, section 819(b) applies 
for the taxable year 1958. Thus, the amount of the policy and other 
contract liability requirements, $30,000, and the amount of the required 
interest, $20,000, shall each be reduced by $984 ($24,600, the amount of 
such excess, multiplied by 4 percent, the current earnings rate).

    (4) Segregated asset accounts. For taxable years beginning after 
December 31, 1967, pursuant to the provisions of section 801(g):
    (i) A foreign corporation carrying on a life insurance business 
which issues contracts based on segregated asset accounts shall 
separately compute in a manner consistent with this subparagraph the 
adjustment (if any) under section 819 to the amount of policy and other 
contract liability requirements and the amount of required interest 
properly attributable to each of such segregated asset accounts. The 
``minimum figure'' used in section 819 in making the adjustment with 
respect to each of the segregated asset accounts shall be computed as 
provided in subdivision (ii) of this subparagraph in

[[Page 691]]

lieu of the manner provided in subparagraphs (1), (2), and (3) of this 
paragraph.
    (ii) The minimum figure applicable to a segregated asset account 
referred to in subdivision (i) of this subparagraph is the amount 
determined by multiplying the total insurance liabilities on U.S. 
business attributable to such a segregated asset account, by 1 percent.
    (iii) The minimum figure as computed under subdivision (ii) of this 
subparagraph shall be compared only with the surplus held in the United 
States attributable to each segregated asset account referred to in 
subdivision (i) of this subparagraph. Such surplus is the excess of 
assets held in the United States properly attributable to such 
segregated asset account over the total insurance liabilities on U.S. 
business properly attributable to such account.
    (iv) If the minimum figure applicable to accounts other than 
segregated asset accounts exceeds the surplus held in the United States 
attributable to such other accounts, for purposes of section 819 and 
this paragraph, the amount of such excess shall not exceed the company's 
overall excess, as defined in this subdivision. No adjustment under 
section 819 or this paragraph shall be made with respect to any account 
if there is no such overall excess. For purposes of this subdivision and 
of subdivision (v) of this subparagraph, the term ``overall excess'' 
means the amount, if any, by which the aggregate minimum figures 
applicable to segregated asset accounts plus the minimum figure 
applicable to accounts other than segregated asset accounts exceeds the 
surplus held in the United States with respect to the company's entire 
U.S. life insurance business, including segregated asset accounts as 
well as other accounts.
    (v) In the case of a company which issues contracts based on one or 
more than one segregated asset account, if the minimum figure applicable 
to a segregated asset account exceeds the surplus held in the United 
States attributable to such account, then for purposes of section 819 
and this paragraph, the amount of such excess shall not exceed the 
account limitation figure, as defined in this subdivision. Therefore, no 
adjustment under section 819 or under this subparagraph shall be made 
with respect to any segregated asset account if the aggregate of the 
account limitation figures is zero, but nothing in this subdivision 
shall preclude an adjustment under section 819 with respect to accounts 
other than segregated asset accounts. For purposes of this subdivision, 
the term ``account limitation figure'' is a segregated assets account's 
proportionate share of the aggregate of the account limitation figures. 
Such aggregate of the account limitation figures is equal to the lesser 
of either the company's overall excess as defined in subdivision (iv) of 
this subparagraph, or the amount, if any, by which the aggregate of the 
minimum figures applicable to segregated asset accounts exceeds the 
surplus held in the United States with respect to all such segregated 
asset accounts. For purposes of this subdivision, a segregated asset 
account's proportionate share of the aggregate of the account limitation 
figures is determined by multiplying the amount of such aggregate of 
account limitation figures by a percentage, the numerator of which is 
the amount by which the minimum figure applicable to such account 
exceeds the surplus held in the United States attributable to such 
account, and the denominator of which is the aggregate of the amounts by 
which the minimum figure applicable to each segregated asset account 
exceeds the surplus held in the United States attributable to such 
account.
    (vi) Subdivisions (i), (ii), (iii), (iv), and (v) of this 
subparagraph may be illustrated by the following examples:

    Example 1. (a) For the taxable year 1968, T, a foreign life 
insurance company carrying on a life insurance business within the 
United States and taxable under section 802, has the following assets 
and total insurance liabilities with respect to such U.S. business:

------------------------------------------------------------------------
                                     Regular      Separate     Separate
                                     account     account A    account B
------------------------------------------------------------------------
Assets...........................   $9,300,000   $1,810,000     $515,000
Total insurance liabilities......    8,000,000    1,800,000      500,000
------------------------------------------------------------------------


It is further assumed that the percentage determined and proclaimed by 
the Secretary under section 819(a)(2)(A) for the taxable year 1968 is 15 
percent.

[[Page 692]]

    (b) In order to determine whether any adjustment under section 819 
must be made, T must compute the minimum figure applicable to its 
Regular Account as well as each of its Separate Accounts. The minimum 
figure for the Regular Account is $1,200,000 (15 percent of $8,000,000). 
The minimum figure applicable to Separate Account A is $18,000 (1 
percent of $1,800,000). The minimum figure applicable to Separate 
Account B is $5,000 (1 percent of $500,000). The aggregate of the 
minimum figures is $1,223,000 ($1,200,000+$18,000+$5,000). The surplus 
held in the United States with respect to the Regular Account is 
$1,300,000 ($9,300,000-$8,000,000), with respect to Separate Account A 
is $10,000 ($1,810,000-$1,800,000) and with respect to Separate Account 
B is $15,000 ($515,000-$500,000). The surplus held in the United States 
with respect to T's entire U.S. life insurance business is $1,325,000 
($1,300,000+$10,000+$15,000).
    (c) Since the aggregate of the minimum figures ($1,223,000) does not 
exceed the surplus held in the United States attributable to T's entire 
U.S. life insurance business ($1,325,000), under subdivision (iv) of 
this subparagraph no adjustment under section 819 shall be made with 
respect to the Regular Account or either of the Separate Accounts.
    Example 2. (a) The facts are the same as in example 1 except that 
the assets held in the United States with respect to the Regular Account 
is $8,300,000 instead of $9,300,000. Thus, the surplus held in the 
United States with respect to the Regular Account is $300,000 
($8,300,000-$8,000,000), and the surplus held in the United States with 
respect to T's entire U.S. life insurance business is $325,000 
($300,000+$10,000 +$15,000).
    (b) Since the aggregate of the minimum figures with respect to the 
Separate Accounts, $23,000 ($18,000+$5,000), does not exceed the surplus 
held in the United States with respect to both of such Separate 
Accounts, $25,000 ($10,000+$15,000), under subdivision (v) of this 
subparagraph, no adjustment under section 819 must be made with respect 
to either of the Separate Accounts.
    (c) The excess of the minimum figure for the Regular Account 
($1,200,000) over the surplus held in the United States with respect to 
the Regular Account ($300,000) is equal to $900,000 ($1,200,000-
$300,000). However, the company's overall excess as defined in 
subdivision (iv) of this subparagraph, is $898,000 ($1,223,000-
$325,000). Under subdivision (iv) of this subparagraph the excess with 
respect to the Regular Account ($900,000) is limited to the amount of 
overall excess ($898,000). Thus, the amount of policy and other contract 
liability requirements with respect to T's Regular Account and the 
amount of required interest with respect to T's Regular Account (both 
computed without regard to section 819) shall each be reduced by an 
amount equal to the product of $898,000 and the current earnings rate 
computed only with respect to T's Regular Account.

    (c) Distributions to shareholders--(1) In general. In the case of a 
foreign life insurance company carrying on a life insurance business 
within the United States and taxable under section 802, section 
819(c)(1) provides alternative methods for determining the amount of 
distributions to shareholders for purposes of section 815 (relating to 
distributions to shareholders) and section 802(b)(3) (relating to life 
insurance company taxable income). Such a foreign life insurance company 
may elect (in the manner provided by subparagraph (4) of this paragraph) 
for each taxable year whichever of the alternative methods provided by 
section 819(c)(1) and this subparagraph it desires, and the method 
elected for any one taxable year shall be effective only with respect to 
the taxable year for which the election is made. Such alternative 
methods are:
    (i) The amount of the distributions to shareholders shall be the 
amount determined by multiplying the total amount of distributions to 
shareholders by the percentage which the minimum figure for the taxable 
year is of the excess of the assets of the company over the total 
insurance liabilities; or
    (ii) The amount of the distributions for shareholders shall be the 
amount determined by multiplying the total amount of distributions for 
shareholders by the percentage which the total insurance liabilities on 
United States business for the taxable year is of the total insurance 
liabilities of the company.
    (2) Definitions. For purposes of section 819(c)(1) and subparagraph 
(1) of this paragraph:
    (i) The term total amount of the distributions to shareholders means 
all distributions (within the meaning of section 815 and Sec. 1.815-2) 
by a foreign life insurance company to all of its shareholders whether 
or not in the United States;
    (ii) The term minimum figure for the taxable year means the amount 
determined under section 819(b)(2)(A) and paragraph (b)(2) of this 
section;

[[Page 693]]

    (iii) The term assets of the company means all of the assets (as 
defined in section 805(b) (4) and paragraph (a) (4) of Sec. 1.805-5) of 
the foreign life insurance company whether or not in the United States 
(as of the end of the taxable year); and
    (iv) The term total insurance liabilities of the company means the 
total insurance liabilities (as defined in section 819(b)(2) and 
paragraph (b)(2) of this section) on all of its business whether or not 
in the United States (as of the end of the taxable year).
    (3) Illustration of principles. The provisions of section 819(c)(1) 
and subparagraphs (1) and (2) of this paragraph may be illustrated by 
the following examples:

    Example 1. For the taxable year 1958, T, a foreign life insurance 
company carrying on a life insurance business within the United States 
and taxable under section 802, has a minimum figure of $40,000, total 
amount of distributions to all shareholders (within the meaning of 
section 815) of $5,000, assets (as of the end of the year) of $500,000, 
total insurance liabilities (as of the end of the year) of $450,000, and 
total insurance liabilities on United States business (as of the end of 
the year) of $180,000. Based upon these facts, if T elects the method 
provided in section 819(c)(1)(A) and subparagraph (1)(i) of this 
paragraph, the amount of T's distributions to shareholders for the 
taxable year 1958 is $4,000, that is, $5,000 (the total amount of 
distributions to shareholders) multiplied by 80 percent (the percentage 
which the minimum figure for the taxable year, $40,000, is of $50,000, 
the excess of the assets of the company ($500,000) over the total 
insurance liabilities ($450,000)).
    Example 2. The facts are the same as in example 1, except that for 
the taxable year 1958, T elects the method provided in section 
819(c)(1)(B) and subparagraph (1)(ii) of this paragraph. Based upon 
these facts, the amount of T's distributions to shareholders for the 
taxable year 1958 is $2,000, that is, $5,000 (the total amount of 
distributions to shareholders) multiplied by 40 percent (the percentage 
which the total insurance liabilities on United States business 
($180,000) is of the total insurance liabilities of the company 
($450,000)).

    (4) Manner and effect of election. (i) The election provided by 
section 819(c)(1) shall be made in a statement attached to the foreign 
life insurance company's income tax return for any taxable year for 
which the company desires the election to apply. The return and 
statement must be filed not later than the date prescribed by law 
(including extensions thereof) for filing the return for such taxable 
year. The statement shall indicate the method elected, the name and 
address of the taxpayer, and shall be signed by the taxpayer (or his 
duly authorized representative).
    (ii) An election made under section 819(c)(1) and this paragraph 
shall be effective only with respect to the taxable year for which the 
election is made. Thus, the company must make a new election for each 
taxable year for which it desires the election to apply. Once such 
election has been made for any taxable year it may not be revoked. 
However, for taxable years beginning prior to April 4, 1961, a company 
may revoke the election provided by section 819(c)(1) without obtaining 
consent from the Commissioner by filing, before July 4, 1961, a 
statement that the company desires to revoke such election. An amended 
return reflecting such revocation and the selection of the other 
percentage must accompany the statement for all taxable years for which 
returns have been filed with respect to such election.
    (5) Application of section 815. Once the amount of distributions to 
shareholders is determined under the provisions of section 819(c)(1) and 
this paragraph, the rules of section 815 (relating to distributions to 
shareholders) shall apply to the shareholders surplus account and the 
policyholders surplus account of a foreign stock life insurance company 
in the same manner as they would apply to a domestic stock life 
insurance company.
    (d) Distributions pursuant to certain mutualizations. Section 
819(c)(2) provides that for purposes of applying section 815(e) and 
paragraph (e) of Sec. 1.815-6 (relating to a special rule for certain 
mutualizations) in the case of a foreign life insurance company subject 
to tax under section 802:
    (1) The paid-in capital and paid-in surplus referred to in section 
815(e)(1)(A) of a foreign life insurance company is the portion of such 
capital and surplus determined by multiplying

[[Page 694]]

such amounts by the percentage selected for the taxable year under 
section 819(c)(1) and paragraph (c)(1) of this section; and
    (2) The excess referred to in section 815(e)(2)(A)(i) (without the 
adjustment provided by section 815(e)(2)(B)), is whichever of the 
following is the greater:
    (i) The minimum figure for 1958 determined under section 
819(b)(2)(A); or
    (ii) The surplus held in the United States (as defined in section 
819(b)(2)(B)) determined as of December 31, 1958.
    (e) No United States insurance business. Foreign life insurance 
companies not carrying on an insurance business within the United States 
shall not be taxable under part I, subchapter L, chapter 1 of the Code, 
but shall be taxable as other foreign corporations. See section 881 and 
the regulations thereunder.

[T.D. 6558, 26 FR 2791, Apr. 4, 1961; 26 FR 3276, Apr. 18, 1961, as 
amended by T.D. 6970, 33 FR 12044, Aug. 24, 1968]

    Editorial Note: For a determination with respect to the percentage 
to be used by foreign life insurance companies in computing income tax 
for the taxable year 1984 and the estimated tax for taxable year 1985, 
see 51 FR 883, Jan. 9, 1986.

Mutual Insurance Companies (Other Than Life and Certain Marine Insurance 
Companies and Other Than Fire or Flood Insurance Companies Which Operate 
           on Basis of Perpetual Policies or Premium Deposits)