Policyholder Dividends Deduction

§ 808. Policyholder dividends deduction(a) Policyholder dividend definedFor purposes of this part, the term “policyholder dividend” means any dividend or similar distribution to policyholders in their capacity as such. (b) Certain amounts includedFor purposes of this part, the term “policyholder dividend” includes—(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, (2) excess interest, (3) premium adjustments, and (4) experience-rated refunds. (c) Amount of deductionThe deduction for policyholder dividends for any taxable year shall be an amount equal to the policyholder dividends paid or accrued during the taxable year. (d) DefinitionsFor purposes of this section—(1) Excess interestThe term “excess interest” means any amount in the nature of interest—(A) paid or credited to a policyholder in his capacity as such, and (B) in excess of interest determined at the prevailing State assumed rate for such contract. (2) Premium adjustmentThe 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. (3) Experience-rated refundThe term “experience-rated refund” means any refund or credit based on the experience of the contract or group involved. (e) Treatment of policyholder dividendsFor purposes of this part, any policyholder dividend which—(1) increases the cash surrender value of the contract or other benefits payable under the contract, or (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. (f) Coordination of 1984 fresh-start adjustment with acceleration of policyholder dividends deduction through change in business practice(1) In generalThe 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). (2) Year of changeFor 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.