70 S T A T. ]
PUBLIC LAW 429-MAR. 13, 1966
242 (relating to partially tax-exempt interest) shall each be decreased to reflect the appropriate amortization of premium and increased to reflect the appropriate accrual of discount attributable to the taxable year on bonds, notes, debentures, or other evidences of indebtedness held by a life insurance company. Such amortization and accrual shall be determined— " (1) in accordance with the method regularly employed by such company, if such method is reasonable, and "(2) in all other cases, in accordance with regulations prescribed by the Secretary or his delegate. "SEC. 804. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. " (a) GENERAL RTLE.—Except as provided in subsection (b), for purposes of this subpart the term 'reserve and other policy liability deduction' means the sum of the amounts determined by applying the following percentages to the excess of the net investment income over the net mvestment income allocable to non-life insurance reserves (determined under subsection (d)): "(1) 87.5 percent of so much of such excess as does not exceed $1,000,000; and "(2) 85 percent of so nnich of such excess as exceeds $1,000,000. "(b)
MAXIMUM DEDUCTION.—
"(1) IN GENERAL.—The reserve and other policy liability deduction shall in no case exceed that amount which is equal to the sum of the following: " (A) the amount equal to 2 times the amount determined under paragraph (1) of section 805(c) (relating to required interest on life insurance reserves); " (B) the amount determined under paragraph (2) of section 805(c) (relating to required interest on reserves for deferred dividends); " (C) the amount of the interest paid (as defined in section 805 (d)); " (D) the dividends to policyholders paid or declared (other than dividends on contracts meeting the requirements of subsection (d)(2)(A)); and " (E) in the case of a mutual assessment life insurance company or association, the amount equal to 2 times whichever of the following is the lesser: (i) the amount of the net investment income on life insurance reserves described in subparagraph (A) or (B) of section 801(b)(3), or (ii) 3 percent of the life insurance reserves so described, reduced by the amount of the adjustment for policy loans provided in paragraph (2) of this subsection. For purposes of subparagraph (D) of the preceding sentence, the term 'paid or declared' shall be construed according to the method of accounting regularly employed in keeping the books of the insurance company. "(2) REDUCTION TOR CERTAIN POLICY LOANS.—The adjustment described in paragraph (1) of this subsection shall be an amount equal to— " (A) the mean of the aggregates, at the beginning and end of the taxable year, of the outstanding policy loans with respect to contracts for which life insurance reserves are maintained, multiplied by " (B) the average rate of interest applicable to life insurance reserves. For purposes of subparagraph (B) of the preceding sentence, the term 'average rate of interest applicable to life insurance reserves'
41 26'uicf*242^"
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