Policyholder Dividends Deduction

§ 805. General deductions(a) General ruleFor purposes of this part, there shall be allowed the following deductions:(1) Death benefits, etc.All claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and annuity contracts. (2) Increases in certain reservesThe net increase in reserves which is required by section 807(b) to be taken into account under this paragraph. (3) Policyholder dividendsThe deduction for policyholder dividends (determined under section 808(c)). (4) Dividends received by company(A) In generalThe deductions provided by sections 243 and 245 (as modified by subparagraph (B))—(i) for 100 percent dividends received, and (ii) for the life insurance company’s share of the dividends (other than 100 percent dividends) received. (B) Application of section 246(b)In applying section 246(b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of subparagraph (A), the limit on the aggregate amount of the deductions allowed by sections 243(a)(1) and 245 shall be the percentage determined under section 246(b)(3) of the life insurance company taxable income (and such limitation shall be applied as provided in section 246(b)(3)), computed without regard to—(i) the deduction allowed under section 172, (ii) the deductions allowed by sections 243(a)(1) and 245, and (iii) any capital loss carryback to the taxable year under section 1212(a)(1), but such limit shall not apply for any taxable year for which there is a loss from operations. (C) 100 percent dividendFor purposes of subparagraph (A)—(i) In generalExcept as provided in clause (ii), the term “100 percent dividend” means any dividend if the percentage used for purposes of determining the deduction allowable under section 243 or 245(b) is 100 percent. (ii) Treatment of dividends from noninsurance companiesThe term “100 percent dividend” does not include any distribution by a corporation which is not an insurance company to the extent such distribution is out of tax-exempt interest, or out of the increase for the taxable year in policy cash values (within the meaning of subparagraph (F)) of life insurance policies and annuity and endowment contracts to which section 264(f) applies, or out of dividends which are not 100 percent dividends (determined with the application of this clause as if it applies to distributions by all corporations including insurance companies). (D) Special rules for certain dividends from insurance companies(i) In generalIn the case of any 100 percent dividend paid to any life insurance company out of the earnings and profits for any taxable year beginning after December 31, 1983, of another life insurance company if—(I) the paying company’s share determined under section 812 for such taxable year, exceeds (II) the receiving company’s share determined under section 812 for its taxable year in which the dividend is received or accrued,