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TITLE 26-INTERNAL REVENUE CODE tracts not issued by the taxpayer) on insur- ance and annuity contracts (including con- tracts supplementary thereto); less return premiums, and premiums and other consider- ation arising out of reinsurance ceded. Except in the case of amounts of premiums or other consideration returned to another life insur- ance company in respect of reinsurance ceded, amounts returned where the amount is not fixed in the contract but depends on the experience of the company or the discretion of the management shall not be included in return premiums. (2) Decreases in certain reserves Each net decrease in reserves which is re- quired by section 810 or 811(b)(2) to be taken into account for purposes of this paragraph. (3) Other amounts All amounts, not included in computing in- vestment yield and not includible under para- graph (1) or (2), which under this subtitle are includible in gross income. Except as included in computing investment yield, there shall be excluded any gain from the sale or exchange of a capital asset, and any gain considered as gain from the sale or exchange of a capital asset. (d) Deductions For purposes of subsections (b)(1) and (2), there shall be allowed the following deductions: (1) Death benefits, etc. All claims and benefits accrued, and all losses incurred (whether or not ascertained), during the taxable year on insurance and an- nuity contracts (including contracts supple- mentary thereto). (2) Increases in certain reserves The net increase in reserves which is re- quired by section 810 to be taken into account for purposes of this paragraph. (3) Dividends to policyholders The deduction for dividends to policy- holders (determined under section 811(b)). (4) Operations loss deduction The operations loss deduction (determined under section 812). (5) Certain nonparticipating contracts An amount equal to 10 percent of the in- crease for the taxable year in the reserves for nonparticipating contracts or (if greater) an amount equal to 3 percent of the premiums for the taxable year (excluding that portion of the premiums which is allocable to annuity features) attributable to nonparticipating contracts (other than group contracts) which are issued or renewed for periods of 5 years or more. For purposes of this paragraph, the term "reserves for nonparticipating con- tracts" means such part of the life insurance reserves (excluding that portion of the re- serves which is allocable to annuity features) as relates to nonparticipating contracts (other than group contracts). For purposes of this paragraph and paragraph (6), the term 'pre- miums" means the net amount of the premi- ums and other consideration taken into ac- count under subsection (c)(1). For purposes of this paragraph, the period for which any con- tract is issued or renewed includes the period for which such contract is guaranteed renew- able. (6) Certain accident and health insurance and group life insurance An amount equal to 2 percent of the premi- ums for the taxable year attributable to acci- dent and health insurance contracts (other than those to which paragraph (5) applies) and group life insurance contracts. The de- duction under this paragraph for the taxable year and all preceding taxable years shall not exceed an amount equal to 50 percent of the premiums for the taxable year attributable to such contracts. (7) Assumption by another person of liabilities under insurance, etc., contracts The consideration (other than consider- ation arising out of reinsurance ceded) in re- spect of the assumption by another person of liabilities under insurance and annuity con- tracts (including contracts supplementary thereto). (8) Tax-exempt interest, dividends, etc. (A) Life insurance company's share Each of the following items: (I) the life insurance company's share of interest which under section 103 is ex- cluded from gross income, (i) the deductions for dividends re- ceived provided by sections 243, 244, and 245 (as modified by subparagraph (B)) computed with respect to the life insur- ance company's share of the dividends re- ceived. (B) Application of section 2,16(b) In applying section 246(b) (relating to limitation on aggregate amount of deduc- tions for dividends received) for purposes of subparagraph (A)(iii), the limit on the ag- gregate amount of the deductions allowed by sections 243(a)(1). 244(a), and 245 shall be 85 percent of the gain from operations computed without regard to- (I) the deductions provided by para- graphs (3), (5), and (6) of this subsection, (ii) the operations loss deduction pro- vided by section 812, and (iii) the deductions allowed by sections 243(a)(1), 244(a), and 245, but such limit shall not apply for any tax- able yr ar for which there is a loss from op- erations. (9) Investment expenses, etc. Investment expenses to the extent not al- lowed as a deduction under section 804(c)(1) in computing investment yield, and the amount (if any) by which the sum of the de- ductions allowable under section 804(c) ex- ceeds the gross investment income. (10) Small business deduction A small business deduction in an amount equal to the amount determined under sec- tion 804(a)(3). (11) Other deductions Subject to the modifications provided by subsection (e), all other deductions allowed under this subtitle for purposes of computing § 809 Page 504