Comparison of the Revenue Acts of 1934 and 1936

funds required by law and held by it at the end of the taxable year upon business transacted within the United States is of the reserve funds held by it at the end of the taxable year upon all business transacted.

SEC. 202. GROSS INCOME OF LIFE INSURANCE COMPANIES.

In the case of a life insurance company the term "gross income" means the gross amount of income received during the taxable year from interest, dividends, and rents.

(b) The term "reserve funds required by law" includes, in the case of assessment insurance, sums actually deposited by any company or association with State or Territorial officers pursuant to law as guaranty or reserve funds, and any funds maintained under the charter or articles of incorporation of the company or association exclusively for the payment of claims arising under certificates of membership or policies issued upon the assessment plan and not subject to any other use.

SEC. 203. NET INCOME OF LIFE INSURANCE COM

PANIES.

(a) GENERAL RULE.-In the case of a life insurance company the term "net income" means the gross income less

(1) TAX-FREE INTEREST.-The amount of interest received during the taxable year which under section 22 (b) (4) is excluded from gross income;

(2) RESERVE FUNDS.-An amount equal to 4 per centum of the mean of the reserve funds required by law and held at the beginning and end of the taxable year, except that in the case of any such reserve fund which is computed at a lower interest assumption rate, the rate of 33 per centum shall be substituted for 4 per centum. Life insurance companies issuing policies covering life, health, and accident insurance combined

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in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, shall be allowed, in addition to the above, a deduction of 33 per centum of the mean of such reserve funds (not required by law) held at the beginning and end of the taxable year, as the Commissioner finds to be necessary for the protection of the holders of such policies only;

(3) DIVIDENDS. The amount received as dividends from a domestic corporation which is subject to taxation under this title, other than a corporation entitled to the benefits of section 251, and other than a corporation organized under the China Trade Act, 1922;

(4) (3) RESERVE FOR DIVIDENDS.-An amount equal to 2 per centum of any sums held at the end of the taxable year as a reserve for dividends (other than dividends payable during the year following the taxable year) the payment of which is deferred for a period of not less than five years from the date of the policy contract;

(5) (4) INVESTMENT EXPENSES. — Investment expenses paid during the taxable year: Provided, That if any general expenses are in part assigned to or included in the investment expenses, the total deduction under this paragraph shall not exceed one-fourth of 1 per centum of the book value of the mean of the invested assets held at the beginning and end of the taxable year;

46) (5) REAL ESTATE EXPENSES.-Taxes and other expenses paid during the taxable year exclusively upon or with respect to the real estate owned by the company, not including taxes assessed against local benefits of a kind tending to increase the value of the property assessed, and not including any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any prop

erty. The deduction allowed by this paragraph shall be allowed in the case of taxes imposed upon a shareholder of a company upon his interest as shareholder, which are paid by the company without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes:

+7 (6) DEPRECIATION.-A reasonable allowance, as provided in section 23 (1), for the exhaustion, wear and tear of property, including a reasonable allowance for obsolescence; and

(8) (7) INTEREST.-All interest paid within the taxable year on its indebtedness, except on indebtedness incurred or continued to purchase or carry obligations (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title.

(b) RENTAL VALUE OF REAL ESTATE. The deduction under subsection (a) (6) or (7) (5) or (6) of this section on account of any real estate owned and occupied in whole or in part by a life insurance company, shall be limited to an amount which bears the same ratio to such deduction (computed without regard to this subsection) as the rental value of the space not so occupied bears to the rental value of the entire property.

fe) FOREIGN LIFE INSURANCE COMPANIES. In the ease of a foreign life insurance company the amount of its net income for any taxable year from sources within the United States shall be the same proportion of its net income for the taxable year from sources within and without the United States, which the reserve funds required by law and held by it at the end of the taxable year upon business transacted within the United States is of the reserve funds held by it at the end of the taxable year upon all business transacted.

SEC. 204. INSURANCE COMPANIES OTHER THAN LIFE OR MUTUAL.

(a) IMPOSITION OF TAX.

(1) IN GENERAL.-In lieu of the tax imposed by section sections 13 and 14 of this title, there shall be levied, collected, and paid for each taxable year upon the normal tax net income of every insurance company (other than a life or mutual insurance company) a tax of 15 per centum of the amount thereof as follows:

+1 In the case of such a domestic insurance company, a tax at the rates specified in section 13 upon the amount of its net income in excess of the eredit provided in subsection (f) of this section;

NOTE.-Section 104 of the Revenue Act of 1935, approved August 30, 1935, substituted in the above paragraph the words "a tax at the rates specified in section 13 upon" for the words "1334 per centum of". Under section 107 of the 1935 Act the amendment applied only in the case of taxable years beginning after December 31, 1935.

(2) In the ease of such a foreign insurance company, a tax at the rates specified in section 13 upon the amount of its net income from sources within the United States in excess of the credit provided in subsection (f) of this section.

(2) NORMAL-TAX NET INCOME OF FOREIGN COMPANIES.—In the case of a foreign insurance company (other than a life or mutual insurance company), the normal-tax net income shall be the net income from sources within the United States minus the sum of—

(A) Interest on Obligations of the United States and Its Instrumentalities.-The credit provided in section 26 (a).

(B) Dividends Received. The credit provided in section 26 (b).

(3) No UNITED STATES INSURANCE BUSINESS.Foreign insurance companies not carrying on an insurance business within the United States shall not be taxable under this section but shall be taxable as other foreign corporations.

(b) DEFINITION OF INCOME, ETC.-In the case of an insurance company subject to the tax imposed by this section

(1) GROSS INCOME.-"Gross income" means the sum of (A) the combined gross amount earned during the taxable year, from investment income and from underwriting income as provided in this subsection, computed on the basis of the underwriting and investment exhibit of the annual statement approved by the National Convention of Insurance Commissioners, and (B) gain during the taxable year from the sale or other disposition of property, and (C) all other items constituting gross income under section 22;

(2) NET INCOME.-"Net income" means the gross income as defined in paragraph (1) of this subsection less the deductions allowed by subsection (c) of this section;

(3) INVESTMENT INCOME. "Investment income" means the gross amount of income earned during the taxable year from interest, dividends, and rents, computed as follows:

To all interest, dividends and rents received during the taxable year, add interest, dividends and rents due and accrued at the end of the taxable year, and deduct all interest, dividends and rents due and accrued at the end of the preceding taxable year;

(4) UNDERWRITING INCOME.-"Underwriting income" means the premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred:

(5) PREMIUMS EARNED.-"Premiums earned on insurance contracts during the taxable year" means an amount computed as follows:

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