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TITLE 26-INTERNAL REVENUE CODE taxable income to the extent not allowed as deductions in computing investment yield. Except as provided in paragraph (3), no amount shall be allowed as a deduction under this sub- section in respect of dividends to policyholders. (e Modifications The modifications referred to in subsection (d)(11) are as follows: (1) Interest In applying section 163 (relating to deduc- tion for interest), no deduction shall be al- lowed for interest In respect of Items de- scribed in section 810(c). (2) Bad debts Section 166(c) (relating to reserve for bad debts) shall not apply. (3) Charitable, etc., contributions and gifts In applying section 170- (A) the limit on the total deductions under such section provided by section 170(b)(2) shall be 5 percent of the gain from operations computed without regard to- (I) the deduction provided by section 170, (it) the deductions provided by para- graphs (3), (5), (6), and (8) of subsection (d), and (iti) any operations loss carryback to the taxable year under section 812; and (B) under regulations prescribed by the Secretary a rule similar to the rule con- tained in section 170(d)(2)(B) shall be ap- plied. (4) Amortizable bond premium Section 171 shall not apply. (5) Net operating loss deduction Except as provided by section 844, the de- duction for net operating losses provided in section 172 shall not be allowed. (6) Dividends received The deductions for dividends received pro- vided by sections 243, 244, and 245 shall not be allowed. (fM Limitation on certain deductions (I) In general The amount of the deductions under para- graphs (3), (5), and (6) of subsection (d) shall not exceed $250,000 plus the amount (if any) by which- (A) the gain from operations for the tax- able year, computed without regard to such deductions, exceeds (B) the taxable investment income for the taxable year. (2) Application of limitation The limitation provided by paragraph (1) shall apply first to the amount of the deduc- tion under subsection (d)(3), then to the amount of the deduction under subsection (d)(6), and finally to the amount of the de- duction under subsection (d)(5). (Added Pub. L. 86-69, § 2(a), June 25, 1959, 73 Stat. 121, and amended Pub. L. 87-59, § 2(a), (b), June 27, 1961, 75 Stat. 120; Pub. L. 87-790, § 3(a), Oct. 10, 1962, 76 Stat. 808; Pub. L. 87-858, § 3(b)(3), (c), Oct. 23, 1962, 76 Stat. 1137; Pub. L. 88-272, title II, §§ 214(b)(4), 228(a), Peb. 26, 1964, 78 Stat. 55, 98; Pub. L. 91-172, title II, § 201(a)(2)(C), title IX, § 907(c)(2)(B), Dec. 30, 1969, 83 Stat. 558, 717; Pub. L. 94-455, title XV, § 1508(a), title XIX, §§ 1901(a)(98), (b)(1)(J)(iv), (L)-(N), 33(G), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1741, 1781, 1791, 1801, 1834.) AMENDMENTS 1976-Subsec. (a)(1). Pub. L. 94-455, § 1901(b)(1)(M), struck out ". partially tax-exempt interest," following "(including tax-exempt interest". Subsec. (b)(1)(A). Pub. L. 94-455, § 1901(b)(1)(M), struck out ", partially tax-exempt interest," following "(including tax-exempt interest". Subsec, (b)(1)(B). Pub. L. 94-455. § 1901(b)(33)(G), substituted "of the net capital gain" for "by which the net long-term capital gain exceeds the net short-term capital loss". Subsec. (b)(2)(A). Pub. L. 94-455, § 1901(b)(1)(M), struck out ", partially tax-exempt interest," following "(including tax-exempt interest". Subsec. (b)(2)(B). Pub. L. 94-455, § 1901(b)(33)(G), substituted "of the net capital gain" for "by which the net long-term capital gain exceeds the net short-term capital loss". Subsec. (b)(4). Pub. L. 94-455, § 1901(a)(98)(A), struck out subsec. (b)(4) which related to an exception to the definition of gain from operations. Subsec. (d)(5). Pub. L. 94-455, § 1508(a), added provi- sion that for purposes of this paragraph, the period for which any contract is issued or renewed includes the period for which such contract is guaranteed re- newable. Subsec. (d)(8)tA). Pub. L. 94-455, § 1901(b)(1)(L)(i), redesignated former cl. (iii) as (ii). Former el. (ii), which related to the deduction for partially tax- exempt interest provided by section 242 of this title, was struck out. Subsec. (d)(8)(B). Pub. L. 94-455, § 1901(b)(1)(L)(ii), substituted "subparagraph (A)(ii)" for "subparagraph (A)(iDi)". Subsec. (d)(10). Pub. L. 94-455, § 1901(b)(1)(J)(iv), substituted "section 804(a)(3)" for "section 804(a)(4)". Subsec. (d)(11). Pub. L. 94-455, § 1901(a)(98)(B)(1), redesignated former subsec. (d)(12) as (d)(11). Former subsec. (d)(11), which related to certain mutualization distributions, was struck out. Subsec. (d)(12). Pub. L. 94-455, § 1901(a)(98)(B)(i), redesignated subsec. (d)(12) as (d)(11). Subsec. (e. Pub. L. 94-455, §§ 1901(a)(98)(B)(ii), (b)(1)(M), 1906(b)(13)(A), substituted in provisions preceding par. (1) "subsection (d)(11)" for "subsection (d)(12)", struck out in par. (3)(B) "or his delegate" fol- lowing "Secretary", and redesignated former par. (7) as (6). Former par. (6). which related to partially tax- exempt interest, was struck out. Subsec, (g). Pub. L. 94-455, § 1901(a)(98)(C), struck out subsec. (g) which related to limitations on deduc- tion for certain mutualization distributions. 1969-Subsec. (e)(3). Pub. L. 91-172, § 201(a)(2)(C), struck out "the first sentence of" in subparagraph (A) and, in subparagraph (B), substituted "section 170(d)(2)(B)" for "section 170(b)(3)". Subsec. (e)(5). Pub. L. 91-172, § 907(c)(2)(B), pro- vided that section 844 of this title be excepted from the nondeduction operating loss provisions of section 172 of this title. 1964-Subsec. (d)(8)(B). Pub. L. 88-272, §214(b)(4). substituted "243(a)(1), 244(a)" for "243(a), 244" wher- ever appearing. Subsec. (d)(11). Pub. L. 88-272, § 228(a)(1), included the year 1962. Subsec. (g)(3). Pub. L. 88-272, § 228(a)(2), included the year 1962. 1962-Subsec. (b)(1), (2). Pub. L. 87-858, § 3(b)(3), added subpar. (B) to pars. (1) and (2) and redesignated former subpar. (B) as (C) in such pars. (1) and (2). Subsec. (d)(6). Pub. L. 87-790 substituted "Certain accident and health insurance and group life insur- ance" for "Group life, accident, and health insurance" § 809 Page 505