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Internal Revenue Code, § 808. Policyholder Dividends Deduction

I.R.C. § 808(a) Policyholder Dividend Defined
For purposes of this part, the term “policyholder dividend" means any dividend or similar distribution to policyholders in their capacity as such.
I.R.C. § 808(b) Certain Amounts Included
For purposes of this part, the term “policyholder dividend" includes—
I.R.C. § 808(b)(1)
any amount paid or credited (including as an increase in benefits) where the amount is not fixed in the contract but depends on the experience of the company or the discretion of the management,
I.R.C. § 808(b)(2)
excess interest,
I.R.C. § 808(b)(3)
premium adjustments, and
I.R.C. § 808(b)(4)
experience-rated refunds.
I.R.C. § 808(c) Amount Of Deduction
The deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year.
I.R.C. § 808(d) Definitions
For purposes of this section—
I.R.C. § 808(d)(1) Excess Interest
The term “excess interest” means any amount in the nature of interest—
I.R.C. § 808(d)(1)(A)
paid or credited to a policyholder in his capacity as such, and
I.R.C. § 808(d)(1)(B)
in excess of interest determined at the prevailing State assumed rate for such contract.
I.R.C. § 808(d)(2) Premium Adjustment
The term “premium adjustment” means any reduction in the premium under an insurance or annuity contract which (but for the reduction) would have been required to be paid under the contract.
I.R.C. § 808(d)(3) Experience-Rated Refund
The term “experience-rated refund” means any refund or credit based on the experience of the contract or group involved.
I.R.C. § 808(e) Treatment Of Policyholder Dividends
For purposes of this part, any policyholder dividend which—
I.R.C. § 808(e)(1)
increases the cash surrender value of the contract or other benefits payable under the contract, or
I.R.C. § 808(e)(2)
reduces the premium otherwise required to be paid,
shall be treated as paid to the policyholder and returned by the policyholder to the company as a premium.
I.R.C. § 808(f) Coordination Of 1984 Fresh-Start Adjustment With Acceleration Of Policyholder Dividends Deduction Through Change In Business Practice
I.R.C. § 808(f)(1) In General
The amount determined under paragraph (1) of subsection (c) for the year of change shall (before any reduction under paragraph (2) of subsection (c)) be reduced by so much of the accelerated policyholder dividends deduction for such year as does not exceed the 1984 fresh-start adjustment for policyholder dividends (to the extent such adjustment was not previously taken into account under this subsection).
I.R.C. § 808(f)(2) Year Of Change
For purposes of this subsection, the term “year of change” means the taxable year in which the change in business practices which results in the accelerated policyholder dividends deduction takes effect.
I.R.C. § 808(f)(3) Accelerated Policyholder Dividends Deduction Defined
For purposes of this subsection, the term “accelerated policyholder dividends deduction” means the amount which (but for this subsection) would be determined for the taxable year under paragraph (1) of subsection (c) but which would have been determined (under such paragraph) for a later taxable year under the business practices of the taxpayer as in effect at the close of the preceding taxable year.
I.R.C. § 808(f)(4) 1984 Fresh-Start Adjustment For Policyholder Dividends
For purposes of this subsection, the term “1984 fresh-start adjustment for policyholder dividends” means the amounts held as of December 31, 1983, by the taxpayer as reserves for dividends to policyholders under section 811(b) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) other than for dividends which accrued before January 1, 1984. Such amounts shall be properly reduced to reflect the amount of previously nondeductible policyholder dividends (as determined under section 809(f) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984).
I.R.C. § 808(f)(5) Separate Application With Respect To Lines Of Business
This subsection shall be applied separately with respect to each line of business of the taxpayer.
I.R.C. § 808(f)(6) Subsection Not To Apply To Mere Change In Dividend Amount
This subsection shall not apply to a mere change in the amount of policyholder dividends.
I.R.C. § 808(f)(7) Subsection Not To Apply To Policies Issued After December 31, 1983
I.R.C. § 808(f)(7)(A) In General
This subsection shall not apply to any policyholder dividend paid or accrued with respect to a policy issued after December 31, 1983.
I.R.C. § 808(f)(7)(B) Exchanges Of Substantially Similar Policies
For purposes of subparagraph (A), any policy issued after December 31, 1983, in exchange for a substantially similar policy issued on or before such date shall be treated as issued before January 1, 1984. A similar rule shall apply in the case of a series of exchanges.
I.R.C. § 808(f)(8) Subsection To Apply To Policies Provided Under Employee Benefit Plans
This subsection shall not apply to any policyholder dividend paid or accrued with respect to a group policy issued in connection with a plan to provide welfare benefits to employees (within the meaning of section 419(e)(2)).
I.R.C. § 808(g) Prevailing State Assumed Interest Rate
For purposes of this subchapter—
I.R.C. § 808(g)(1) In General
The term “prevailing State assumed interest rate” means, with respect to any contract, the highest assumed interest rate permitted to be used in computing life insurance reserves for insurance contracts or annuity contracts (as the case may be) under the insurance laws of at least 26 States. For purposes of the preceding sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account.
I.R.C. § 808(g)(2) When Rate Determined
The prevailing State assumed interest rate with respect to any contract shall be determined as of the beginning of the calendar year in which the contract was issued.
(Added Pub. L. 98-369, div. A, title II, 211(a), July 18, 1984, 98 Stat. 732, and amended Pub. L. 99-514, title XVIII, 1821(b), (c), Oct. 22, 1986, 100 Stat. 2838; Pub. L. 108-218, Sec. 205, Apr. 10, 2004, 118 Stat. 596; Pub. L. 115-97, title I, Sec. 13517(b)(1), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017—Subsec. (g). Pub. L. 115-97, Sec. 13517(b)(1), added subsec. (g).
2004--Subsec.(c). Pub. L. 108-218, Sec. 205(b)(3), amended subsec. (c). Before amendment, it read as follows:
“(c) Amount of deduction
“(1) In general
“Except as limited by paragraph (2), the deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year.
“(2) Reduction in case of mutual companies
“In the case of a mutual life insurance company, the deduction for policyholder dividends for any taxable year shall be reduced by the amount determined under section 809.”
1986--Subsec. (d)(1)(B). Pub. L. 99-514, 1821(b), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “determined at a rate in excess of the prevailing State assumed interest rate for such contract.”
Subsec. (f). Pub. L. 99-514, 1821(c), added subsec. (f).
EFFECTIVE DATE OF 2017 AMENDMENT
Amendment by Sec. 13517(b)(1) of Pub. L. 115-97 effective for taxable years beginning after December 31, 2017. Section 13517(c)(2) and (3) of Pub. L. 115-97 provided the following transition rule and transition relief:
“(2) TRANSITION RULE.—For the first taxable year beginning after December 31, 2017, the reserve with respect to any con- tract (as determined under section 807(d) of the Internal Revenue Code of 1986) at the end of the preceding taxable year shall be determined as if the amendments made by this section had applied to such reserve in such preceding taxable year.
“(3) TRANSITION RELIEF.—
“(A) IN GENERAL.—If—
“(i) the reserve determined under section 807(d) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) with respect to any con- tract as of the close of the year preceding the first taxable year beginning after December 31, 2017, differs from
“(ii) the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2), then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) shall be taken into account under the method provided in subparagraph (B).
“(B) METHOD.—The method provided in this subparagraph is as follows:
“(i) If the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) or 832(c)(4) of such Code, as applicable.
“(ii) If the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) or 832(b)(1)(C) of such Code, as applicable.”
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Sec. 205 of Pub. L. 108-218 effective for taxable years beginning after December 31, 2004.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE
Section applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as a note under section 801 of this title.