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TITLE 26-INTERNAL REVENUE CODE (3) Subtractions from account There shall be subtracted from the policy- holders surplus account for any taxable year an amount equal to the sum of- (A) the amount which (without regard to subparagraph (B)) is treated under this sec- tion as distributed out of the policyholders surplus account, and (B) the amount by which the tax imposed for the taxable year by section 802(a) is in- creased by reason of section 802(b)(3). (d) Special rules (1) Election to transfer amounts from policyholders surplus account to shareholders surplus ac- count (A) In general A taxpayer may elect for any taxable year for which it is a life insurance company to subtract from its policyholders surplus ac- count any amount in such account as of the close of such taxable year. The amount so subtracted, less the amount of the tax im- posed with respect to such amount by reason of section 802(b)(3), shall be added to the shareholders surplus account as of the beginning of the succeeding taxable year. (B) Manner and effect of election The election provided by subparagraph (A) shall be made (in such manner and in such form as the Secretary may by regula- tions prescribe) after the close of the tax- able year and not later than the time pre- scribed by law for filing the return (includ- ing extensions thereof) for the taxable year. Such an election, once made, may not be re- voked. (2) Termination as life insurance company (A) Effect of termination Except as provided in section 381(c)(22) (relating to carryovers in certain corporate readjustments), if- (I) for any taxable year the taxpayer is not an insurance company, or (ii) for any two successive taxable years the taxpayer is not a life insurance com- pany, then the amount taken into account under section 802(b)(3) for the last preceding tax- able year for which it was a life insurance company shall be increased (after the appli- cation of subparagraph (B)) by the amount remaining in its policyholders surplus ac- count at the close of such last preceding taxable year. (B) Effect of certain distributions If for any taxable year the taxpayer is an insurance company but not a life insurance company, then any distribution to share- holders during such taxable year shall be treated as made on the last day of the last preceding taxable year for which the tax- payer was a life insurance company. (3) Treatment of certain indebtedness If- (A) the taxpayer makes any payment in discharge of its indebtedness, and (B) such indebtedness is attributable to a distribution by the taxpayer to its share- holders after February 9, 1959, then the amount of such payment shall, for purposes of this section and section 802(b)(3), be treated as a distribution in cash to share- holders, but only to the extent that the distri- bution referred to in subparagraph (B) was treated as made out of accounts other than the shareholders and policyholders surplus accounts. (4) Limitation or amount in policyholders surplus account There shall be treated as a subtraction from the policyholders surplus account for a tax- able year for which the taxpayer is a life in- surance company the amount by which the policyholders surplus account (computed at the end of the taxable year without regard to this paragraph) exceeds whichever of the fol- lowing is the greatest- (A) 15 percent of life insurance reserves at the end of the taxable year, (B) 25 percent of the amount by which the life insurance reserves at the end of the taxable year exceed the life insurance re- serves at the end of 1958, or (C) 50 percent of the net amount of the premiums and other consideration taken into account for the taxable year under sec- tion 809(c)(1). The amount so treated as subtracted, less the amount of the tax imposed with respect to such amount by reason of section 802(b)(3), shall be added to the shareholders surplus ac- count as of the beginning of the succeeding taxable year. (5) Reduction of policyholders surplus account for certain unused deductions If- (A) an amount added to the policyholders surplus account for any taxable year in- creased (or created) a loss from operations for such year, and (B) any portion of the increase (or amount created) in the loss from operations referred to in subparagraph (A) did not reduce the life insurance company taxable income for any taxable year to which such loss was carried, the policyholders surplus account for the tax- able year referred to in subparagraph (A) shall be reduced by the amount described In subparagraph (B). (6) Restoration of amounts distributed out of policy-holders surplus account Notwithstanding any other provision of this subchapter, no amount shall be subtracted from a taxpayer's policyholders surplus ac- count with respect to a distribution made during the last month of the taxable year which, without regard to this paragraph, would be treated in whole or in part as a dis- tribution out of the policyholders surplus ac- count, to the extent that amounts so distrib- uted are returned to the taxpayer no later than the time prescribed by law (including extensions thereof) for filing the taxpayer's return for the taxable year in which the'dis- tribution was made. For purposes of this Page 510 §s815