U.S. Code > Title 26 Internal Revenue Code > Subtitle A—Income Taxes (§§ 1—1564) > CHAPTER 1—NORMAL TAXES AND SURTAXES (§§ 1—1400U3) > Subchapter L—Insurance Companies (§§ 801—848) > PART I—LIFE INSURANCE COMPANIES (§§ 801—818) > Subpart C—Life Insurance Deductions (§§ 804—810) > § 806. Small life insurance company deduction

§ 806. Small life insurance company deduction

(a) Small life insurance company deduction
(1) In general
For purposes of section 804, the small life insurance company deduction for any taxable year is 60 percent of so much of the tentative LICTI for such taxable year as does not exceed $3,000,000.
(2) Phaseout between $3,000,000 and $15,000,000
The amount of the small life insurance company deduction determined under paragraph (1) for any taxable year shall be reduced (but not below zero) by 15 percent of so much of the tentative LICTI for such taxable year as exceeds $3,000,000.
(3) Small life insurance company deduction not allowable to company with assets of $500,000,000 or more
(A) In general
The small life insurance company deduction shall not be allowed for any taxable year to any life insurance company which, at the close of such taxable year, has assets equal to or greater than $500,000,000.
(B) Assets
For purposes of this paragraph, the term “assets” means all assets of the company.
(C) Valuation of assets
For purposes of this paragraph, the amount attributable to—
(i) real property and stock shall be the fair market value thereof, and
(ii) any other asset shall be the adjusted basis of such asset for purposes of determining gain on sale or other disposition.
(D) Special rule for interests in partnerships and trusts
For purposes of this paragraph—
(i) an interest in a partnership or trust shall not be treated as an asset of the company, but
(ii) the company shall be treated as actually owning its proportionate share of the assets held by the partnership or trust (as the case may be).
(b) Tentative LICTI
For purposes of this part—
(1) In general
The term “tentative LICTI” means life insurance company taxable income determined without regard to the small life insurance company deduction.
(2) Exclusion of items attributable to noninsurance businesses
The amount of the tentative LICTI for any taxable year shall be determined without regard to all items attributable to noninsurance businesses.
(3) Noninsurance business
(A) In general
The term “noninsurance business” means any activity which is not an insurance business.
(B) Certain activities treated as insurance businesses
For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—
(i) it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
(ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.
(C) Limitation on amount of loss from noninsurance business which may offset income from insurance business
In computing the life insurance company taxable income of any life insurance company, any loss from a noninsurance business shall be limited under the principles of section 1503 (c).
(c) Special rule for controlled groups
(1) Small life insurance company deduction determined on controlled group basis
For purposes of subsection (a)—
(A) all life insurance companies which are members of the same controlled group shall be treated as 1 life insurance company, and
(B) any small life insurance company deduction determined with respect to such group shall be allocated among the life insurance companies which are members of such group in proportion to their respective tentative LICTI’s.
(2) Nonlife insurance members included for asset test
For purposes of subsection (a)(3), all members of the same controlled group (whether or not life insurance companies) shall be treated as 1 company.
(3) Controlled group
For purposes of this subsection, the term “controlled group” means any controlled group of corporations (as defined in section 1563 (a)); except that subsections (a)(4) and (b)(2)(D) of section 1563 shall not apply.
(4) Adjustments to prevent excess detriment or benefit
Under regulations prescribed by the Secretary, proper adjustments shall be made in the application of this subsection to prevent any excess detriment or benefit (whether from year-to-year or otherwise) arising from the application of this subsection.