[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: 26CFR1.822-12]

[Page 716]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.822-12  Dividends to policyholders.

    (a) Dividends to policyholders are used in determining the 
``underwriting loss'' for purposes of the special transitional 
underwriting loss deduction provided by section 821(f), and the 
limitation on capital losses under section 822(c)(6); in computing 
statutory underwriting income or loss under section 823, and the 
subtractions from the protection against loss account under section 
824(d). The term ``dividends to policyholders'' is defined in section 
822(f)(2) as dividends and similar distributions paid or declared to 
policyholders. It includes amounts returned to policyholders where the 
amount is not fixed in the insurance contract but depends upon the 
experience of the company or the discretion of the management. Such 
amounts are not to be treated as return premiums under section 
822(f)(1). Savings credited to the individual accounts of the 
subscribers of a reciprocal underwriter or interinsurer under section 
823(b)(2) are not dividends paid or declared within the meaning of this 
paragraph. However, distributions in respect of such credits shall be 
considered as dividends paid. See section 823(b)(2) and paragraph (c)(2) 
of Sec. 1.823-6. The term ``paid or declared'' is to be construed 
according to the method of accounting regularly employed in keeping the 
books of the insurance company, and such method shall be consistently 
followed with respect to all deductions (including dividends and similar 
distributions to policyholders) and all items of income.
    (b) If the method of accounting so employed is the cash receipts and 
disbursements method, the deduction is limited to the dividends and 
similar distributions actually paid to policyholders in the taxable 
year. If, on the other hand, the method of accounting so employed is the 
accrual method, the deduction, or a reasonably accurate estimate 
thereof, for dividends and similar distributions declared to 
policyholders for any taxable year will, in general, be computed by 
adding the amount of dividends and similar distributions declared but 
unpaid at the end of the taxable year to dividends and similar 
distributions paid during the taxable year and deducting dividends and 
similar distributions declared but unpaid at the beginning of the 
taxable year. If an insurance company using the accrual method does not 
compute the deduction for dividends and similar distributions declared 
to policyholders in the manner stated, it must submit with its return a 
full and complete explanation of the manner in which the deduction is 
computed. For the rule as to when dividends are considered paid, see the 
regulations under section 561.

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