1.809-3—Gain and loss from operations defined.
(a) Gain from operations.
For purposes of part I, subchapter L, chapter 1 of the Code, section 809(b)(1) defines the term gain from operations as the excess of the sum of (1) the life insurance company's share of each and every item of investment yield (including tax-exempt interest, partially tax-exempt interest, and dividends received), (2) the items of gross amount taken into account under section 809(c) and paragraph (a) of § 1.809-4, and (3) for 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, over the sum of the deductions provided by section 809(d) and § 1.809-5.
(b) Loss from operations.
For purposes of part I, section 809(b)(2) defines the term loss from operations as the excess of the sum of the deductions provided by section 809(d) and § 1.809-5 over the sum of (1) the life insurance company's share of each and every item of investment yield (including tax-exempt interest, partially tax-exempt interest, and dividends received), (2) the items of gross amount taken into account under section 809(c) and paragraph (a) of § 1.809-4, and (3) for 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.
(c) Illustration of principles.
The provisions of section 809(b) (1) through (3) and paragraphs (a) and (b) of this section may be illustrated by the following example:
Code of Federal Regulations
Code of Federal Regulations
737
| Col. 1 | Col. 2 (80% × Col. 1) exclusion of policyholder's share | Col. 3 (20% × Col. 1) company's share | |
|---|---|---|---|
| Interest wholly tax-exempt | $10,000 | $8,000 | $2,000 |
| Interest partially tax-exempt | 78,000 | 62,400 | 15,600 |
| Dividends received | 50,000 | 120,000 | 30,000 |
| Other items of investment yield | 662,000 | 529,600 | 132,400 |
| Investment yield | 900,000 | 720,000 | 180,000 |
| Gross amount (sum of items under sec. 809(c)) | $12,000,000 | |
| Total | 12,180,000 | |
| Less: | ||
| Deductions under sec. 809(d)(8): | ||
| Company's share of interest wholly tax-exempt | $2,000 | |
| 30/52 of company's share of interest partially tax-exempt (30/52 ×$15,600) | 9,000 | |
| 85% of company's share of dividends received (but not to exceed 85% of gain from operations as computed under sec. 809(d)(8)(B)) (85%×$30,000) | 25,500 | |
| All other deductions under sec. 809(d) | 6,963,500 | |
| 7,000,000 | ||
| Gain from operations | 5,180,000 |
(d) Exception.
(1)
In accordance with section 809(b)(4), if it is established in any case to the satisfaction of the Commissioner, or by a determination of The Tax Court of the United States, or of any other court of competent jurisdiction, which has become final, that the application of the definition of gain from operations contained in section 809(b)(1) results in the imposition of tax on:
(ii)
Any amount of interest which under section 242 (as modified by section 804(a)(3)) is allowable as a deduction, or
(iii)
Any amount of dividends received which under sections 243, 244, and 245 (as modified by section 809(d)(8)(B)) is allowable as a deduction,
adjustment shall be made to the extent necessary to prevent such imposition.
(2)
For the date upon which a decision by the Tax Court becomes final, see section 7481. For the date upon which a judgment of any other court becomes final, see paragraph (c) of § 1.1313(a)-1.