[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: 26CFR1.832-5]

[Page 747-748]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.832-5  Deductions.

    (a) The deductions allowable are specified in section 832(c) and by 
reason of the provisions of section 832(c)(10) and (12) include in 
addition certain deductions provided in sections 161, and 241 and 
following. The deductions, however, are subject to the limitation 
provided in section 265, relating to expenses and interest in respect of 
tax-exempt income. The net operating loss deduction is computed under 
section 172 and the regulations thereunder. For the purposes of section 
172, relating to net operating loss deduction, ``gross income'' shall 
mean gross income as defined in section 832(b)(1) and the allowable 
deductions shall be those allowed by section 832(c) with the exceptions 
and limitations set forth in section 172(d). In addition to the 
deduction for capital losses provided in subchapter P (section 1201 and 
following), chapter 1 of the Code, insurance companies are allowed a 
deduction for losses from capital assets sold or exchanged in order to 
obtain funds to meet abnormal insurance losses and to provide for the 
payment of dividends and similar distributions to policyholders. A 
special rule is provided for the application of the capital loss 
carryover provisions of section 1212. The deduction is the same as that 
allowed mutual insurance companies subject to the tax imposed by section 
821; see section 822(c)(6) and the regulation thereunder. Insurance 
companies, other than mutual fire insurance companies described in 
section 831(a)(3)(A) and the regulations thereunder, are also allowed a 
deduction for dividends and similar distributions paid or declared to 
policyholders in their capacity as such. Similar distributions include 
such payments as the so-called unabsorbed premium deposits returned to 
policyholders by factory mutual insurance companies. The deduction is 
otherwise the same as

[[Page 748]]

that allowed mutual insurance companies subject to the tax imposed by 
section 821; see section 822(f)(2) and the regulations thereunder.
    (b) Among the items which may not be deducted are income and profits 
taxes imposed by the United States, income and profits taxes imposed by 
any foreign country or possession of the United States (in cases where 
the company chooses to claim to any extent a credit for such taxes), 
taxes assessed against local benefits, decrease during the year due to 
adjustments in the book value of capital assets, decrease in liabilities 
during the year on account of reinsurance treaties, dividends paid to 
shareholders in their capacity as such, remittances to the home office 
of a foreign insurance company by the United States branch, and borrowed 
money repaid.
    (c) In computing taxable income of insurance companies, losses 
sustained during the taxable year from the sale or other disposition of 
property are deductible subject to the limitation contained in section 
1211. Insurance companies are entitled to the alternative taxes provided 
in section 1201.

[T.D. 6681, 28 FR 11130, Oct. 17, 1963, as amended by T.D. 6867, 30 FR 
15094, Dec. 7, 1965]