26 C.F.R. § 1.809-4

Gross amount

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(a) Items taken into account. For purposes of determining gain or loss from operations under section 809(b) (1) and (2), respectively, section 809(c) specifies three categories of items which shall be taken into account. Such items are in addition to the life insurance company's share of the investment yield (as determined under section 809(a)(1) and paragraph (c) of § 1.809-2), and the amount (if any) by which the net long-term capital gain exceeds the net short-term capital loss (such capital gains item is included in determining gain or loss from operations only for taxable years beginning after December 31, 1961). The additional three categories of items taken into account are:

(1) Premiums. (i) The gross amount of all premiums and other consideration on insurance and annuity contracts (including contracts supplementary thereto); less return premiums and premiums and other consideration arising out of reinsurance ceded. The term gross amount of all premiums means the premiums and other consideration provided in the insurance or annuity contract. Thus, the amount to be taken into account shall be the total of the premiums and other consideration provided in the insurance or annuity contract without any deduction for commissions, return premiums, reinsurance, dividends to policyholders, dividends left on deposit with the company, discounts on premiums paid in advance, interest applied in reduction of premiums (whether or not required to be credited in reduction of premiums under the terms of the contract), or any other item of similar nature. Such term includes advance premiums, premiums deferred and uncollected and premiums due and unpaid, deposits, fees, assessments, and consideration in respect of assuming liabilities under contracts not issued by the taxpayer (such as a payment or transfer of property in an assumption reinsurance transaction as defined in paragraph (a)(7)(ii) of § 1.809-5). The term also includes amounts a life insurance company charges itself representing premiums with respect to liability for insurance and annuity benefits for its employees (including full-time life insurance salesmen within the meaning of section 7701(a)(20)).

(ii) The term return premiums means amounts returned or credited which are fixed by contract and do not depend on the experience of the company or the discretion of the management. Thus, such term includes amounts refunded due to policy cancellations or erroneously computed premiums. Furthermore, amounts of premiums or other consideration returned to another life insurance company in respect of reinsurance ceded shall be included in return premiums. For the treatment of amounts which do not meet the requirements of return premiums, see section 811 (relating to dividends to policyholders).

(iii) For purposes of section 809(c)(1) and this subparagraph, the term reinsurance ceded means an arrangement whereby the taxpayer (the reinsured) remains solely liable to the policyholder, whether all or only a portion of the risk has been transferred to the reinsurer. Such term includes indemnity reinsurance transactions but does not include assumption reinsurance transactions. See paragraph (a)(7)(ii) of § 1.809-5 for the definition of assumption reinsurance.

(2) Decreases in certain reserves. Each net decrease in reserves which is required by section 810 (a) and (d)(1) or 811(b)(2) to be taken into account for the taxable year as a net decrease for purposes of section 809(c)(2).

(3) Other amounts. All amounts, not included in computing investment yield and not otherwise taken into account under section 809(c) (1) or (2), shall be taken into account under section 809(c)(3) to the extent that such amounts are includible in gross income under subtitle A of the Code. See section 61 (relating to gross income defined) and the regulations thereunder.

(b) Treatment of net long-term capital gains. For taxable years beginning before January 1, 1962, any net long-term capital gains (as defined in section 1222(7)) from the sale or exchange of a capital asset (or any gain considered to be from the sale or exchange of a capital asset under applicable law) shall be excluded from the determination of gain or loss from operations of a life insurance company. On the other hand, with respect to taxable years beginning after December 31, 1961, the amount (if any) by which the net long-term capital gain exceeds the net short-term capital loss (as defined in section 1222(6)) shall be taken into account in determining gain or loss from operations under section 809. However, for any taxable year beginning after December 31, 1958, the excess of net short-term capital gain (as defined in section 1222(5)) over net long-term capital loss (as defined in section 1222(8)) is included in computing investment yield (as defined in section 804(c)) and, to that extent, is taken into account in determining gain or loss from operations under section 809.

[T.D. 6535, 26 FR 527, Jan. 20, 1961, as amended by T.D. 6610, 27 FR 8718, Aug. 31, 1962, T.D. 6886, 31 FR 8687, June 23, 1966]

Notes of Decisions

Cited in 12 cases, 1976–1993 · leading case: Colonial Am. Life Ins. v. Comm'r, 491 U.S. 244 (1989).

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Colonial Am. Life Ins. v. Comm'r, 491 U.S. 244 (1989). · cites it 4× “Title 26 CFR § 1.809-4 (a)(1)(ii) (1988) provides: "The term `return premiums' means amounts returned or credited which are fixed by contract and do not depend on the experience of the company or the discretion of the management.”

Beneficial Life Ins. Co. v. Comm'r, 79 T.C. 627 (Tax Ct. 1982). · cites it 4× “Section 809(c)(1) includes in the reinsurance income the consideration received with respect to assuming another's contract liabilities; however, it subtracts from that amount "return premiums, and premiums and other consideration arising out of reinsurance ceded." Section…”

Mauerman v. Comm'r, 65 T.C.M. 1772 (Tax Ct. 1993). · cites it 2× “*45 Also, sections 809(c)(1) and 809(d)(12) , sections 1.809-5(a)(7)(iii) and 1.”

Gerling Int'l Ins. Co. v. Comm'r, 87 T.C. 679 (Tax Ct. 1986). · cites it 2× “809-4(a)(1)(iii) and 1.809-5(a)(7)(ii), Income Tax Regs.”

Modern Am. Life Ins. Co. v. Comm'r, 92 T.C. 1230 (Tax Ct. 1989). · cites it 2× “Thus, so-called excess interest dividends and amounts returned by one life insurance company to another in respect of reinsurance ceded shall not be treated as dividends to policyholders even though such amounts are not fixed in the contract but depend upon the experience of the…”

Colonial Am. Life Ins. Co. v. Comm'r, 51 T.C.M. 1123 (Tax Ct. 1986). · cites it 8× “Furthermore, amounts of premiums or other consideration returned to another life insurance company in respect of reinsurance ceded shall be included in return premiums. * * * Sec. 1.809-4(a)(1)(ii), Income Tax Regs.”

Union Mut. Life Ins. v. United States, 420 F. Supp. 1181 (D. Me. 1976). “809 — 4 provides that, as used in Section 809(c)(1), the “gross amount of premiums” includes, 26 CFR § 1.809-4 (a)(1)(i) (emphasis supplied), [t]he gross amount of all premiums .”

Cologne Life Reinsurance Co. v. Comm'r, 80 T.C. 859 (Tax Ct. 1983). · cites it 2× “We are thus confident that Congress' failure to provide a specific exception in section 809(d)(5) from the general rule that reinsurance is taxed as the issuance of life insurance reflected an informed intent to grant to reinsurers the deduction provided by that section.”

Fisher v. Comm'r, 64 T.C.M. 1670 (Tax Ct. 1992). · cites it 2× “Thus, though its name, charter powers, and subjection to State insurance laws are significant in determining the business which a company is authorized and intends to carry on, it is the character of the business actually done in the taxable year which determines whether a…”

Modern Sec. Life Ins. Co. v. Comm'r, 51 T.C.M. 188 (Tax Ct. 1985). · cites it 4× “, defines "return premiums" as follows: (ii) The term "return premiums" means amounts returned or credited which are fixed by contract and do not depend on the experience of the company or the discretion of the management.”

Krizer v. Comm'r, 62 T.C.M. 1598 (Tax Ct. 1991). · cites it 2× “809-4 ↩ . 5. In the notice of deficiency, respondent determined that the understatement in question was due to items attributable to a tax shelter and that the taxpayers had not demonstrated that they reasonably believed that the tax treatment of the items on their return was…”

Modern Am. Life Ins. v. Comm'r, 830 F.2d 110 (8th Cir. 1987). “26 C.F.R. § 1.809-4 (a)(l)(iii) makes clear that the term "reinsurance ceded" means indemnity reinsurance rather than assumption reinsurance.”

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