---
kind: "range"
citation: "26 C.F.R. §§ 1.822-8–1.822-12"
title: "26"
from: "1.822-8"
to: "1.822-12"
count: 5
url: "https://uscodex.org/cfr/26/1.822-8..1.822-12"
---

# §1.822-8. Determination of taxable investment income.

- (a) **In general—**
  - (1)
    - (i) **Taxable investment income defined.** [Section 822(a)(1)](/cfr/26/822.md?p=a-1) defines the term “taxable investment income” for purposes of part II, subchapter L, chapter 1 of the Code as the gross investment income (as defined in [section 822(b)](/cfr/26/822.md?p=b) and [paragraph (b)](#b) of this section), less the deductions provided in [section 822(c)](/cfr/26/822.md?p=c) and [paragraph (c)](#c) of this section for wholly tax-exempt interest, investment expenses, real estate expenses, depreciation, interest paid or accrued, capital losses, special deductions, trade or business (other than an insurance business) expenses, and depletion. However, such expenses are deductible only to the extent that they relate to investment income and the deduction of such expenses is not disallowed by any other provision of subtitle A of the Code.
    - (ii) For example, investment expenses are not allowable unless they are ordinary and necessary expenses within the meaning of [section 162](/cfr/26/162.md). In addition to the limitations on deductions relating to real estate owned and occupied by a mutual insurance company subject to the tax imposed by [section 821](/cfr/26/821.md) provided in [section 822(d)(1)](/cfr/26/822.md?p=d-1), the adjustment for amortization of premium and accrual of discount provided in [section 822(d)(2)](/cfr/26/822.md?p=d-2), and the limitation on the deduction for investment expenses where general expenses are allocated to investment income provided in [section 822(c)(2)](/cfr/26/822.md?p=c-2), mutual insurance companies subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) are subject to the limitation on deductions relating to wholly tax-exempt income provided in [section 265](/cfr/26/265.md). Such companies are not entitled to the net operating loss deduction provided in [section 172](/cfr/26/172.md). See, however, [section 825](/cfr/26/825.md) for unused loss deduction allowed companies taxable under [section 821(a)](/cfr/26/821.md?p=a). A deduction shall not be permitted with respect to the same item more than once.
  - (2) **Investment loss defined.** The term “investment loss” is defined by [section 822(a)(2)](/cfr/26/822.md?p=a-2) as the amount by which the deductions allowable under [section 822(c)](/cfr/26/822.md?p=c) and [paragraph (c)](#c) of this section exceed the gross investment income (as defined in [section 822(b)](/cfr/26/822.md?p=b) and [paragraph (b)](#b) of this section).
- (b) **Gross investment income defined.** For purposes of part II, subchapter L, chapter 1 of the Code, [section 822(b)](/cfr/26/822.md?p=b) defines the term “gross investment income” of a mutual insurance company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) as the sum of the following:
  - (1) **The gross amount of income during the taxable year from—**
    - (i) Interest (including tax-exempt interest and partially tax-exempt interest), as described in [§ 1.61-7](/cfr/26/1.61-7.md). Interest shall be adjusted for amortization of premium and accrual of discount in accordance with the rules prescribed in [section 822(d)(2)](/cfr/26/822.md?p=d-2) and [§ 1.822-10](/cfr/26/1.822-10.md);
    - (ii) Dividends, as described in [§ 1.61-9](/cfr/26/1.61-9.md);
    - (iii) Rents and royalties, as described in [§ 1.61-8](/cfr/26/1.61-8.md);
    - (iv) The entering into of any lease, mortgage or other instrument or agreement from which the company may derive interest, rents, or royalties;
    - (v) The alteration or termination of any instrument or agreement described in subdivision (iv) of this subparagraph;
    - (vi) Gains from sales or exchanges of capital assets to the extent provided in subchapter P ([section 1201](/cfr/26/1201.md) and following, relating to capital gains and losses) chapter 1 of the Code.
  - (2) The gross income from any trade or business (other than an insurance business) carried on by a mutual insurance company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c), or by a partnership of which the insurance company is a partner.
- (c) **Deductions from gross investment income—**
  - (1) **Wholly tax-exempt interest.** Interest which in the case of other taxpayers is excluded from gross income by [section 103](/cfr/26/103.md) but included in the gross investment income by [section 822(b)](/cfr/26/822.md?p=b) is allowed as a deduction from gross investment income by [section 822(c)(1)](/cfr/26/822.md?p=c-1).
  - (2) **Investment expenses.**
    - (i) The deduction for investment expenses under [section 822(c)(2)](/cfr/26/822.md?p=c-2) includes only those expenses of the taxable year which are fairly chargeable against gross investment income. For example, investment expenses include salaries and expenses paid exclusively for work in looking after investments, and amounts expended for printing, stationery, postage, and stenographic work incident to the collection of interest. An itemized schedule of such expenses shall be attached to the return.
    - (ii) Any assignment of general expenses to the investment department of a mutual insurance company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) subjects the entire deduction for investment expenses to the limitation provided in [section 822(c)(2)](/cfr/26/822.md?p=c-2) and subdivision (iii) of this subparagraph. As used in [section 822(c)(2)](/cfr/26/822.md?p=c-2), the term “general expenses” means any expense paid or incurred for the benefit of more than one department of the company rather than for the benefit of a particular department thereof. For example, if an expense, such as a salary, is attributable to more than one department, including the investment department, such expense may be properly allocated among these departments. If such expense is allocated, the amount properly allocable to the investment department shall be deductible as general expenses assigned to or included in investment expenses and as such shall be subject to the limitation of [section 822(c)(2)](/cfr/26/822.md?p=c-2) and subdivision (iii) of this subparagraph. However, a company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) shall not deduct under [section 822(c)(2)](/cfr/26/822.md?p=c-2) its real estate taxes, depreciation, or other expenses with respect to any portion of the real estate which it owns, irrespective of whether such items are properly allocable to its investment department. For the rules relating to the deductibility of these items, see [section 822(c)](/cfr/26/822.md?p=c) (3) and (4) and subparagraphs [(3)](#c-3) and [(4)](#c-4) of this paragraph. If general expenses are in part assigned to or included in investment expenses, the maximum allowance (as determined under [section 822(c)(2)](/cfr/26/822.md?p=c-2)) shall not be granted unless it is shown to the satisfaction of the district director that such allowance is justified by a reasonable assignment of actual expenses. The accounting procedure employed is not conclusive as to whether any assignment has in fact been made. Investment expenses do not include Federal income and excess profits taxes, if any.
    - (iii) If any general expenses are in part assigned to or included in investment expenses, the total deduction under [section 822(c)(2)](/cfr/26/822.md?p=c-2) shall not exceed the sum of:

      (a) One-fourth of 1 percent of the mean of the book value of the invested assets held at the beginning and end of the taxable year, plus

      (b) One-fourth of the amount by which taxable investment income (computed without any deduction for investment expenses, tax-free interest, partially tax-exempt interest, or dividends received) exceeds 33/4 percent of the book value of the mean of the invested assets held at the beginning and end of the taxable year.

  - (3) **Real estate expenses and taxes.** The deduction for real estate expenses and taxes under [section 822(c)(3)](/cfr/26/822.md?p=c-3) includes taxes (as defined in [section 164](/cfr/26/164.md)) and other expenses for the taxable year exclusively on or with respect to real estate owned by the company. For example, no deduction shall be allowed under [section 822(c)(3)](/cfr/26/822.md?p=c-3) for amounts allowed as a deduction under [section 164(e)](/cfr/26/164.md?p=e) (relating to taxes of shareholders paid by a corporation). No deduction shall be allowed under [section 822(c)(3)](/cfr/26/822.md?p=c-3) for any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property. An itemized schedule of such taxes and expenses shall be attached to the return. See [§ 1.822-9](/cfr/26/1.822-9.md) for limitation of such deduction.
  - (4) **Depreciation.** The deduction allowed by [section 822(c)(4)](/cfr/26/822.md?p=c-4) for depreciation is, except as provided in [section 822(d)(1)](/cfr/26/822.md?p=d-1) and [§ 1.822-9](/cfr/26/1.822-9.md), identical to that allowed other corporations by [section 167](/cfr/26/167.md). Such amount allowed as a deduction from gross investment income in determining taxable investment income is limited to depreciation sustained on the property used, and to the extent used, for the purpose of producing the income specified in [section 822(b)](/cfr/26/822.md?p=b).
  - (5) **Interest paid or accrued.** The deduction allowed by [section 822(c)(5)](/cfr/26/822.md?p=c-5) for interest on indebtedness is the same as that allowed other corporations by [section 163](/cfr/26/163.md). See [§ 1.163-1](/cfr/26/1.163-1.md).
  - (6) **Capital losses.**
    - (i) The deduction for capital losses under [section 822(c)(6)](/cfr/26/822.md?p=c-6) includes not only capital losses to the extent provided in subchapter P, chapter 1 of the Code but in addition thereto losses from capital assets sold or exchanged to provide funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders. Losses in the latter case may be deducted from ordinary income while the deduction for losses under subchapter P is limited to the gains. See [section 1211](/cfr/26/1211.md).
    - (ii) Capital assets are considered as sold or exchanged to provide for the funds or payments specified in [section 822(c)(6)](/cfr/26/822.md?p=c-6), to the extent that the gross receipts from the sale or exchange of such assets are not greater than the excess, if any, for the taxable year of the sum of dividends and similar distributions paid to policyholders, and losses and expenses paid over the sum of the items described in [section 822(b)](/cfr/26/822.md?p=b) (other than paragraph (1)(D) thereof) and net premiums received. If, by reason of a particular sale or exchange of a capital asset, gross receipts are greater than such excess, the gross receipts and the resulting loss should be apportioned and the excess included in capital losses subject to the provisions of subchapter P. Capital losses actually used to reduce net income in any taxable year may not again be used in a succeeding taxable year as an offset against capital gains in that year and for that purpose a special rule is set forth for the application of [section 1212](/cfr/26/1212.md).
    - (iii) The application of [section 822(c)(6)](/cfr/26/822.md?p=c-6) may be illustrated by the following examples:
  - (7) **Special deductions.** [Section 822(c)(7)](/cfr/26/822.md?p=c-7) allows a mutual insurance company the special deductions provided by part VIII ([section 241](/cfr/26/241.md) and following), except [section 248](/cfr/26/248.md), subchapter B, chapter 1 of the Code, relating to partially tax-exempt interest and to dividends received. In applying [section 246(b)](/cfr/26/246.md?p=b) (relating to limitation on aggregate amount of deductions for dividends received) for purposes of this subparagraph, the reference in such section to “taxable income” shall be treated as a reference to “taxable investment income”.
  - (8) **Trade or business deductions.**
    - (i) Under [section 822(c)(8)](/cfr/26/822.md?p=c-8), the deductions allowed by subtitle A of the Code (without regard to this part) which are attributable to any trade or business (other than an insurance business) carried on by the insurance company, or by a partnership of which the company is a partner are, subject to the limitations in subdivision (ii) of this subparagraph, allowable as deductions from gross investment income in computing taxable investment income. Such deductions are allowable, however, only to the extent that they relate to income which is included in the company's gross investment income by reason of [section 822(b)(2)](/cfr/26/822.md?p=b-2). Thus, a deduction shall not be allowed under [section 822(c)(8)](/cfr/26/822.md?p=c-8) with respect to any item described in [section 822(b)(1)](/cfr/26/822.md?p=b-1). The allowable deductions may exceed the gross income from such business.
    - (ii) **In computing the deductions under section 822(c)(8)—** (a) Any item, to the extent attributable to the carrying on of the insurance business, shall not be taken into account. For example, if the company operates a radio station primarily to advertise its own insurance services, a portion of the expenses of the radio station shall not be allowed as a deduction. The portion disallowed shall be an amount which bears the same ratio to the total expenses of the station as the value of advertising furnished to the insurance company bears to the total value of services rendered by the station.

      (b) The deduction for net operating losses provided in [section 172](/cfr/26/172.md) shall not be allowed.

  - (9) **Depletion.** The deduction allowed by [section 822(c)(9)](/cfr/26/822.md?p=c-9) for depletion is the same as that allowed life insurance companies under [section 804(c)(4)](/cfr/26/804.md?p=c-4). See [paragraph (b)(5)](/cfr/26/1.804-4.md?p=b-5) of § 1.804-4.

# §1.822-9. Real estate owned and occupied.


[Section 822(d)(1)](/cfr/26/822.md?p=d-1) provides that the amount allowable as a deduction for taxes, expenses, and depreciation on or with respect to any real estate owned and occupied in whole or in part by a mutual insurance company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) shall be limited to an amount which bears the same ratio to such deduction (computed without regard to this limitation) as the rental value of the space not so occupied bears to the rental value of the entire property. For example, if the rental value of the space not occupied by the company is equal to one-half of the rental value of the entire property, the deduction for taxes, expenses, and depreciation is one-half of the taxes, expenses, and depreciation on account of the entire property. Where a deduction is claimed as provided in this section, the parts of the property occupied and the parts not occupied by the company, together with the respective rental values thereof, must be shown in a statement accompanying the return.


# §1.822-10. Amortization of premium and accrual of discount.

- (a) **In general.** In computing taxable investment income for the taxable year, the gross amount of income from interest, the deduction under [section 822(c)(1)](/cfr/26/822.md?p=c-1) for wholly tax-exempt interest, and the deduction under [section 242](/cfr/26/242.md) for partially tax-exempt interest, are, under the provisions of [section 822(d)(2)](/cfr/26/822.md?p=d-2), each to be decreased by the appropriate amortization of premium and increased by the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a mutual insurance company subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c). However, only the accrual of discount relating to issue discount will increase the deduction for wholly tax-exempt interest. See [section 103](/cfr/26/103.md). Such amortization and accrual is the same as that provided for life insurance companies by [section 818(b)(1)](/cfr/26/818.md?p=b-1), as amended by the Life Insurance Company Income Tax Act of 1959 (73 Stat. 133), and shall be determined in accordance with paragraphs [(a)](/cfr/26/1.818-3.md?p=a) and [(b)](/cfr/26/1.818-3.md?p=b) of § 1.818-3, except as provided by [paragraph (b)](#b) of this section.
- (b) **Modifications.**
  - (1) [Paragraph (b)](/cfr/26/1.818-3.md?p=b) of § 1.818-3 shall apply to mutual casualty insurance companies subject to the tax imposed by section [821 (a)](/cfr/26/821.md?p=a) or [(c)](/cfr/26/821.md?p=c) without regard to the date of acquisition of the particular securities to which the amortization of premium or accrual of discount is attributable.
  - (2) In computing the amount of premium or discount for purposes of [section 822(d)(2)](/cfr/26/822.md?p=d-2) with respect to securities held by a company taxable under [section 821](/cfr/26/821.md), the basis provided by [section 1012](/cfr/26/1012.md) shall be used in lieu of the acquisition value provided by [paragraph (b)](/cfr/26/1.818-3.md?p=b) of § 1.818-3. In the case of a company subject to the tax imposed by [section 821(c)](/cfr/26/821.md?p=c), adjustments to basis to reflect the accrual of discount and the amortization of premium shall be made in the manner provided by paragraphs [(a)](/cfr/26/1.818-3.md?p=a) and [(b)](/cfr/26/1.818-3.md?p=b) of § 1.818-3. However, for purposes of determining statutory underwriting income or loss for the taxable year under [section 823](/cfr/26/823.md), a company subject to the tax imposed by [section 821(a)](/cfr/26/821.md?p=a) is not required to accrue discount or to amortize premium in computing its income under [section 832](/cfr/26/832.md) as if it were subject to the tax imposed by [section 831](/cfr/26/831.md). Thus, the accrual of discount and amortization of premium required in the computation of taxable investment income by a company subject to the tax imposed by [section 821(a)](/cfr/26/821.md?p=a) neither increases nor decreases the mutual insurance company taxable income of such a company and, except to the extent such a company actually accrues discount or amortizes premium for purposes of making the [section 832](/cfr/26/832.md) computation, no adjustment shall be made to the basis of obligations held by it to reflect accrual of discount or amortization of premium.

# §1.822-11. Net premiums.


The term “net premiums”, defined in [section 822(f)(1)](/cfr/26/822.md?p=f-1), includes deposits and assessments, but excludes amounts returned to policyholders which are treated as dividends under [section 822(f)(2)](/cfr/26/822.md?p=f-2). Net premiums are used in sections [822(c)(6)](/cfr/26/822.md?p=c-6) and [832(c)(5)](/cfr/26/832.md?p=c-5) in determining the limitation on certain capital losses and in the application of [section 1212](/cfr/26/1212.md).


# §1.822-12. Dividends to policyholders.

- (a) Dividends to policyholders are used in determining the “underwriting loss” for purposes of the special transitional underwriting loss deduction provided by [section 821(f)](/cfr/26/821.md?p=f), and the limitation on capital losses under [section 822(c)(6)](/cfr/26/822.md?p=c-6); in computing statutory underwriting income or loss under [section 823](/cfr/26/823.md), and the subtractions from the protection against loss account under [section 824(d)](/cfr/26/824.md?p=d). The term “dividends to policyholders” is defined in [section 822(f)(2)](/cfr/26/822.md?p=f-2) as dividends and similar distributions paid or declared to policyholders. It includes amounts returned to policyholders where the amount is not fixed in the insurance contract but depends upon the experience of the company or the discretion of the management. Such amounts are not to be treated as return premiums under [section 822(f)(1)](/cfr/26/822.md?p=f-1). Savings credited to the individual accounts of the subscribers of a reciprocal underwriter or interinsurer under [section 823(b)(2)](/cfr/26/823.md?p=b-2) are not dividends paid or declared within the meaning of this paragraph. However, distributions in respect of such credits shall be considered as dividends paid. See [section 823(b)(2)](/cfr/26/823.md?p=b-2). The term “paid or declared” is to be construed according to the method of accounting regularly employed in keeping the books of the insurance company, and such method shall be consistently followed with respect to all deductions (including dividends and similar distributions to policyholders) and all items of income.
- (b) If the method of accounting so employed is the cash receipts and disbursements method, the deduction is limited to the dividends and similar distributions actually paid to policyholders in the taxable year. If, on the other hand, the method of accounting so employed is the accrual method, the deduction, or a reasonably accurate estimate thereof, for dividends and similar distributions declared to policyholders for any taxable year will, in general, be computed by adding the amount of dividends and similar distributions declared but unpaid at the end of the taxable year to dividends and similar distributions paid during the taxable year and deducting dividends and similar distributions declared but unpaid at the beginning of the taxable year. If an insurance company using the accrual method does not compute the deduction for dividends and similar distributions declared to policyholders in the manner stated, it must submit with its return a full and complete explanation of the manner in which the deduction is computed. For the rule as to when dividends are considered paid, see the regulations under [section 561](/cfr/26/561.md).