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CH. 1L II (revised 1962)-Continued

"PART II-MUTUAL INSURANCE COMPANIES (OTHER THAN
LIFE AND CERTAIN MARINE INSURANCE COM-
PANIES AND OTHER THAN FIRE OR FLOOD
INSURANCE COMPANIES WHICH OPERATE ON
BASIS OF PERPETUAL POLICIES OR PREMIUM
DEPOSITS)

"Sec. 821. Tax on mutual insurance companies to which part II applies
"Sec. 822. Determination of taxable investment income.

"Sec. 823. Determination of statutory underwriting income or loss.
"Sec. 824. Adjustments to provide protection against losses.

"Sec. 825. Unused loss deduction.
"Sec. 826. Election by reciprocal.

"SEC. 821. TAX ON MUTUAL INSURANCE COMPANIES TO WHICH PART II APPLIES

"(a) IMPOSITION OF TAX.-A tax is hereby imposed for each taxable year beginning after December 31, 1962, on the mutual insurance company taxable income of every mutual insurance company (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by by section 831). Such tax shall consist of

"(1) NORMAL TAX.

"(A) TAXABLE YEARS BEGINNING BEFORE JULY 1, 1963.In the case of taxable years beginning before July 1, 1963, a normal tax of 30 percent of the mutual insurance company taxable income, or 60 percent of the amount by which such taxable income exceeds $6,000, whichever is the lesser;

"(B) TAXABLE YEARS BEGINNING AFTER JUNE 30, 1963.In the case of taxable years beginning after June 30, 1963, a normal tax of 25 percent of the mutual insurance company taxable income, or 50 percent of the amount by which such taxable income exceeds $6,000, whichever is the lesser; plus "(2) SURTAX.-A surtax of 22 percent of the mutual insurance company taxable income (computed without regard to the deduction provided in section 242 for partially tax-exempt interest) in excess of $25,000.

"(b) MUTUAL INSURANCE COMPANY TAXABLE INCOME DEFINED. For purposes of this part, the term 'mutual insurance company taxable income' means, with respect to any taxable year, the amount by which

"(1) the sum of

"(A) the taxable investment income (as defined in section 822(a)(1)),

"(B) the statutory underwriting income (as defined in section 823(a)(1)), and

"(C) the amounts required by section 824(d) to be subtracted from the protection against loss account, exceeds "(2) the sum of—

"(A) the investment loss (as defined in section 822(a) (2)), "(B) the statutory underwriting loss (as defined in section 823(a)(2)), and

"(C) the unused loss deduction provided by section 825(a). "(c) ALTERNATIVE TAX FOR CERTAIN SMALL COMPANIES.

"(1) IMPOSITION OF TAX.-In the case of taxable years beginning after December 31, 1962, there is hereby imposed for each taxable year on the income of each mutual insurance com

SEC. 821 (revised 1962)-Continued

pany to which this subsection applies a tax (which shall be in lieu
of the tax imposed by subsection (a)) computed as follows:
"(A) NORMAL TAX.-

"(i) TAXABLE YEARS BEGINNING BEFORE JULY 1, 1963.— In the case of taxable years beginning before July 1, 1963, a normal tax of 30 percent of the taxable investment income, or 60 percent of the amount by which such taxable income exceeds $3,000, whichever is the lesser;

"(ii) TAXABLE YEARS BEGINNING AFTER JUNE 30, 1963.In the case of taxable years beginning after June 30, 1963, a normal tax of 25 percent of the taxable investment income, or 50 percent of the amount by which such taxable income exceeds $3,000, whichever is the lesser; plus

"(B) SURTAX.-A surtax of 22 percent of the taxable investment income (computed without regard to the deduction provided in section 242 for partially tax-exempt interest) in excess of $25,000.

"(2) GROSS AMOUNT RECEIVED, OVER $150,000 BUT LESS THAN $250,000.-If the gross amount received during the taxable year from the items described in section 822(b) (other than paragraph (1) (D) thereof) and premiums (including deposits and assessments) is over $150,000 but less than $250,000, the tax imposed by paragraph (1) shall be reduced to an amount which bears the same proportion to the amount of the tax determined under paragraph (1) as the excess over $150,000 of such gross amount received bears to $100,000.

"(3) COMPANIES TO WHICH SUBSECTION APPLIES.

"(A) IN GENERAL.-Except as provided in subparagraph (B), this subsection shall apply to every mutual insurance company (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by section 831) which received during the taxable year from the items described in section 822(b) (other than paragraph (1)(D) thereof) and premiums (including deposits and assessments) a gross amount in excess of $150,000 but not in excess of $500,000.

"(B) EXCEPTIONS.-This subsection shall not apply to a mutual insurance company for the taxable year if

"(i) there is in effect an election by such company made under subsection (d) to be taxable under subsection (a); or "(ii) there is any amount in the protection against loss account at the beginning of the taxable year.

"(d) ELECTION TO INCLUDE STATUTORY UNDERWRITING INCOME OR LOSS.

"(1) IN GENERAL.-Any mutual insurance company which is subject to the tax imposed by subsection (c) may elect, in such manner and at such time as the Secretary or his delegate may by regulations prescribe, to be subject to the tax imposed by subsection (a).

"(2) EFFECT OF ELECTION.-If an election is made under paragraph (1), the electing company shall be subject to the tax imposed by subsection (a) (and shall not be subject to the tax imposed by subsection (c)) for the first taxable year for which such election is made and for all taxable years thereafter unless the Secretary or his delegate consents to a revocation of such election.

SEC. 821 (revised 1962)—Continued

"(e) No UNITED STATES INSURANCE BUSINESS.-Foreign mutual insurance companies (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by section 831) not carrying on an insurance business within the United States shall not be subject to this part but shall be taxable as other foreign corporations.

"(f) SPECIAL TRANSITIONAL UNDERWRITING LOSS.

"(1) COMPANIES TO WHICH SUBSECTION APPLIES.-This subsection shall apply to every mutual insurance company which has been subject to the tax imposed by this section (as in effect before the enactment of this subsection) for the 5 taxable years immediately preceding January 1, 1962, and has incurred an underwriting loss for each of such 5 taxable years.

"(2) REDUCTION OF STATUTORY UNDERWRITING INCOME.-For purposes of this part, the statutory underwriting income of a company described in paragraph (1) for the taxable year shall be the statutory underwriting income for the taxable year (determined without regard to this subsection) reduced by the amount by which

"(A) the sum of the underwriting losses of such company for the 5 taxable years immediately preceding January 1, 1962, exceeds

"(B) the total amount by which the company's statutory underwriting income was reduced by reason of this subsection for prior taxable years.

"(3) UNDERWRITING LOSS DEFINED. For purposes of this subsection, the term 'underwriting loss' means statutory underwriting loss, computed without any deduction under section 824 (a) and without any deduction under section 832 (c) (11).

"(4) YEARS TO WHICH SUBSECTION APPLIES.-This subsection shall apply with respect to any taxable year beginning after December 31, 1962, and before January 1, 1968, for which the taxpayer is subject to the tax imposed by subsection (a). "(g) CROSS REFERENCES.

"(1) For exemption from tax of certain mutual insurance companies, see section 501(c) (15).

"(2) For alternative tax in case of capital gains, see section 1201(a)."

Applicability:

Taxable years beginning after December 31, 1962.

(Id., § 8(h), 76 Stat. 999.)

It should be noted that limited applicability for subsection (f) of the new section 821 is provided in paragraph (4) of such subsection. (a)(1).. ... June 29, 1963, H.R. 6755, P.L. 88-52, § 2, 77 Stat. 72: (dates Amended Sec. 821 (a) (1) (as added by P.L. 87-834, § 8(a), p. 361 changed) above)

(1) by striking out in the heading and in the text of subparagraph (A)—

"July 1, 1963"

and inserting in lieu thereof

"July 1, 1964"; and

SEC. 821 (revised 1962)-Continued

(a)(1)(amended 1963)-Continued

(a).
(in full)

(2) by striking out in the heading and in the text of subparagraph

(B)

"June 30, 1963"

and inserting in lieu thereof

"June 30, 1964".

Applicability:

Indicated by the terms of the amendment.

Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 123(a), 78 Stat. 29: Amended subsection (a) of Sec. 821 (as added by P.L. 87-834, § 8(a), p. 361 above) to read as follows:

"(a) IMPOSITION OF TAX.-A tax is hereby imposed for each taxable year beginning after December 31, 1963, on the mutual insurance company taxable income of every mutual insurance company (other than a life insurance company and other than a fire, flood, or marine insurance company subject to the tax imposed by section 831). Such tax shall consist of

"(1) NORMAL TAX.-A normal tax of 22 percent of the mutual insurance company taxable income, or 44 percent of the amount by which such taxable income exceeds $6,000, whichever is the lesser; plus

"(2) SURTAX.-A surtax on the mutual insurance company taxable income computed as provided in section 11(c) as though the mutual insurance company taxable income were the taxable income referred to in section 11(c)."

Applicability:

Taxable years beginning after December 31, 1963.
(Id., § 131, 78 Stat. 30.)

(c)(1)(A)............ June 29, 1963, H.R. 6755, P.L. 88-52, § 2, 77 Stat. 72:

(dates changed)

(c) (1). (in full)

Amended Sec. 821(c)(1)(A) (as added by P.L. 87-834, § 8(a), p. 362 above)—

(1) by striking out in the heading and in the text of clause (i)— "July 1, 1963"

and inserting in lieu thereof

"July 1, 1964"; and

(2) by striking out in the heading and in the text of clause (ii)— "June 30, 1963"

and inserting in lieu thereof

"June 30, 1964".

Applicability:

Indicated by the terms of the amendment.

Feb. 26, 1964, H.R. 8363, P.L. 88-272, § 123 (a) (2), 78 Stat. 29: Amended paragraph (1) of Sec. 821 (c) (as added by P.L. 87-834, § 8(a), p. 361 above) to read as follows:

"(1) IMPOSITION OF TAX.-In the case of taxable years beginning after December 31, 1963, there is hereby imposed for each taxable year on the income of each mutual insurar ce company to which this subsection applies a tax (which shall be in lieu of the tax imposed by subsection (a)) computed as follows:

"(A) NORMAL TAX.-A normal tax of 22 percent of the taxable investment income, or 44 percent of the amount by which

SEC. 821 (revised 1962)—Continued

(c) (1) (revised 1964)-Continued

such taxable income exceeds $3,000, whichever is the lesser; plus

"(B) SURTAX.-A surtax on the taxable investment income computed as provided in section 11(c) as though the taxable investment income were the taxable income referred to in section 11(c)."

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SEC. 822. DETERMINATION OF TAXABLE INVESTMENT INCOME (68A Stat. 261-263):

Heading, (a). Oct. 16, 1962, H.R. 10650, P.L. 87-834, § 8(b) (1), 76 Stat. 992: (in full) Amended Sec. 822 by striking out the heading and subsection (a) 228 and inserting in lieu thereof the following:

(b).. (in full)

"SEC. 822. DETERMINATION OF TAXABLE INVESTMENT INCOME.

"(a) DEFINITIONS.-For purposes of this part

"(1) The term 'taxable investment income' means the gross investment income, minus the deductions provided in subsection (c).

"(2) The term 'investment loss' means the amount by which the deductions provided in subsection (c) exceed the gross investment income."

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Mar. 13, 1956, H.R. 7201, P.L. 84-429, § 3(a) (3), 70 Stat. 47:
Amended Sec. 822 (b) 229 to read as follows:

"(b) GROSS INVESTMENT INCOME.-For purposes of subsection (a), the term 'gross investment income' means the sum of the following:

"(1) The gross amount of income during the taxable year from

"(A) interest, dividends, rents, and royalties,

"(B) the entering into of any lease, mortgage, or other instrument or agreement from which the insurance company derives interest, rents, or royalties,

"(C) the alteration or termination of any instrument or agreement described in subparagraph (B), and

"(D) gains from sales or exchanges of capital assets to the extent provided in subchapter P (sec. 1201 and following, relating to capital gains and losses).

"(2) The gross income during the taxable year from any trade or business (other than an insurance business) carried on by the insurance company, or by a partnership of which the insurance

223 The heading and subsection (a) of section 822 originally read as follows (68A Stat. 261):

"SEC. 822. DETERMINATION OF MUTUAL INSURANCE COMPANY TAXABLE INCOME.

"(a) DEFINITION.-For purposes of section 821, the term 'mutual insurance company taxable income' means the gross investment income minus the deductions provided in subsection (c)." In addition to the changes made by the Revision of 1962, amendments to section 822 both before and after such Revision are set forth below.

229 Subsection (b) of section 822 originally read as follows (68A Stat. 261):

"(b) GROSS INVESTMENT INCOME. For purposes of subsection (a), the term 'gross investment income' means the gross amount of income during the taxable year from interest, dividends, rents, and gains from sales or exchanges of capital assets to the extent provided in subchapter P (sec. 1201 and following, relating to capital gains and losses)."

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