[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: 26CFR1.822-10]

[Page 715]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.822-10  Amortization of premium and accrual of discount.

    (a) In general. In computing taxable investment income for the 
taxable year, the gross amount of income from interest, the deduction 
under section 822(c)(1) for wholly tax-exempt interest, and the 
deduction under section 242 for partially tax-exempt interest, are, 
under the provisions of section 822(d)(2), each to be decreased by the 
appropriate amortization of premium and increased by the appropriate 
accrual of discount attributable to the taxable year on bonds, notes, 
debentures, or other evidences of indebtedness held by a mutual 
insurance company subject to the tax imposed by section 821 (a) or (c). 
However, only the accrual of discount relating to issue discount will 
increase the deduction for wholly tax-exempt interest. See section 103. 
Such amortization and accrual is the same as that provided for life 
insurance companies by section 818(b)(1), as amended by the Life 
Insurance Company Income Tax Act of 1959 (73 Stat. 133), and shall be 
determined in accordance with paragraphs (a) and (b) of Sec. 1.818-3, 
except as provided by paragraph (b) of this section.
    (b) Modifications. (1) Paragraph (b) of Sec. 1.818-3 shall apply to 
mutual casualty insurance companies subject to the tax imposed by 
section 821 (a) or (c) without regard to the date of acquisition of the 
particular securities to which the amortization of premium or accrual of 
discount is attributable.
    (2) In computing the amount of premium or discount for purposes of 
section 822(d)(2) with respect to securities held by a company taxable 
under section 821, the basis provided by section 1012 shall be used in 
lieu of the acquisition value provided by paragraph (b) of Sec. 1.818-
3. In the case of a company subject to the tax imposed by section 
821(c), adjustments to basis to reflect the accrual of discount and the 
amortization of premium shall be made in the manner provided by 
paragraphs (a) and (b) of Sec. 1.818-3. However, for purposes of 
determining statutory underwriting income or loss for the taxable year 
under section 823, a company subject to the tax imposed by section 
821(a) is not required to accrue discount or to amortize premium in 
computing its income under section 832 as if it were subject to the tax 
imposed by section 831. Thus, the accrual of discount and amortization 
of premium required in the computation of taxable investment income by a 
company subject to the tax imposed by section 821(a) neither increases 
nor decreases the mutual insurance company taxable income of such a 
company and, except to the extent such a company actually accrues 
discount or amortizes premium for purposes of making the section 832 
computation, no adjustment shall be made to the basis of obligations 
held by it to reflect accrual of discount or amortization of premium.

[T.D. 6681, 28 FR 11115, Oct. 17, 1963]