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TITLE 26-INTERNAL REVENUE CODE § 805. Policy and other contract liability requirements (a) In general For purposes of this part, the term "policy and other contract liability requirements" means, for any taxable year, the sum of- (1) the adjusted life insurance reserves, multiplied by the adjusted reserves rate, (2) the mean of the pension plan reserves at the beginning and end of the taxable year, multiplied by the current earnings rate, and (3) the interest paid. (b) Adjusted reserves rate and earnings rates (1) Adjusted reserves rate For purposes of this part, the adjusted re- serves rate for any taxable year is the average earnings rate or, if lower, the current earn- ings rate. (2) Current earnings rate For purposes of this part, the current earn- ings rate for any taxable year is the amount determined by dividing- (A) the taxpayer's investment yield for such taxable year, by (B) the mean of the taxpayer's assets at the beginning and end of the taxable year. (3) Average earnings rate (A) In general For purposes of this part, the average earnings rate for any taxable year is the average of the current earnings rates for such taxable year and for each of the 4 tax- able years immediately preceding such tax- able year (excluding any of such 4 taxable years for which the taxpayer was not an in- surance company). (B) Special rule For purposes of subparagraph (A), the current earnings rate for any taxable year of any company which, for such year, is an insurance company (but not a life insurance company) shall be determined as if this part applied to such company for such year. (4) Assets For purposes of this part, the term ".rssets" means all assets of the company (including nonadmitted assets), other than real and per- sonal property (excluding money) used by it in carrying on an insurance trade or business. For purposes of this paragraph, the amount attributable to- (A) real property and stock shall be the fair market value thereof, and (B) any other asset shall be the adjusted basis, of such asset for purposes of deter- mining gain on sale or other disposition. (c) Adjusted life insurance reserves (1) Adjusted life insurance reserves defined For purposes of this part, the term "adjust- ed life insurance reserves" means- (A) the mean of the life insurance re- serves (as defined in section 801(b)), other than pension plan reserves, at the begin- ning and end of the taxaole year, multiplied by (B) that percentage which equals 100 per- cent- (1) increased by that percentage which is 10 times the average rate of interest as- sumed by the taxpayer in calculating such reserves, and (i) reduced by that percentage which is 10 times the adjusted reserves rate. (2) Average interest rate assumed For purposes of this part, the average rate of interest assumed in calculating reserves shall be computed- (A) by multiplying each assumed rate of interest by the means of the amounts of such reserves computed at that rate at the beginning and end of the taxable year, and (B) by dividing (1) the sum of the products ascertained under subparagraph (A), by (ii) the mean of the total of such reserves at the beginning and end of the taxable year. d) Pension plan reserves For purposes of this part, the term "pension plan reserves" means that portion of the life in- surance reserves which is allocable to con- tracts- (1) purchased under contracts entered into with trusts which (as of the time the con- tracts were entered into) were deemed to be (A) trusts described in section 401(a) and exempt from tax under section 501(a), or (B) trusts exempt from tax under section 165 of the Internal Revenue Code of 1939 or the cor- responding provisions of prior revenue laws; (2) purchased under contracts entered into under plans which (as of the time the con- tracts were entered into) were deemed to be plans described in section 403(a), or plans meeting the requirements of paragraphs (3), (4), (5), and (6) of section 165(a) of the Inter- nal Revenue Code of 1939; (3) provided for employees of the life insur- ance company under a plan which, for the taxable year, meets the requirements of para- graphs (3), (4), (5). (6), (7), (8), (11), (12), (13), (14), (15), (16), (19), and (20) of section 401(a); (4) purchased to provide retirement annu- ities for its employees by an organization which (as of the time the contracts were pur- chased) was an organization described in sec- tion 501(c)(3) which was exempt from tax under section 501(a) or was an organization exempt from tax under section 101(6) of the Internal Revenue Code of 1939 or the corre- sponding provisions of prior revenue laws, or purchased to provide retirement annuities for employees described in section 403(b)(1)(A)(ii) by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing; or (5) purchased under contracts entered into with trusts which (at the time the contracts were entered into) were individual retirement accounts described in section 408(a) or under contracts entered into with individual retire- ment annuities described in section 408(b). Ce) Interest paid For purposes of this part, the interest paid for any taxable year is the sum of- (1) Interest on indebtedness All interest for the taxable year on indebt- edness, except on indebtedness incurred or continued to purchase or carry obligations the interest on which is wholly exempt from taxation under this chapter. 71-999 0 - 78 - 34 (Vol. 7) Page 501 § 805