Page 514

TITLE 26-INTERNAL REVENUE CODE Subsec. (c). Pub. L. 94-455, § 1901(a)(100), struck out subsec. (c) which related to limitation on pre-1959 cap- ital losses. Subsec. d). Pub. L. 94-455, § 1951(b)(l1)(A), struck out subsec. (d) which related to gain on transactions occurring prior to Jan. 1, 1959. Subsec. (e). Pub. L. 94-455. § 1901(a)(100), struck out subsec. (e) which related to certain reinsurance trans- actions in 1958. EFFECTIVE DATE OF 1976 AMENDMENT Section 1402(b)(1) of Pub. L. 94-455 provided in part that the substitution of I9 months" for "6 months" in subsec. (a)(1)(A) of this section by section 1402(b)(1)(M) of Pub. L. 94-455 Is effective with re- spect to taxable years beginning in 1977. Amendment of subsecs. (c) and (e) by section 1901(a)(100) of Pub. L. 94-455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under section 2 of this title. EFFECTIVE DATE Section applicable only with respect to taxable years beginning after Dec. 31, 1957, see section 4 of Pub. L. 86-69, set out as an Effective Date note under section 801 of this title. SAVINGS PROVISIONS Section 1951(b)(11)(B) of Pub. L. 94-455 provided that: "Notwithstanding subparagraph (A) [repealing subsec. Cd) of this section], any gain in a taxable year beginning after December 31, 1976, from any sale or other disposition of property prior to January 1, 1959, would be excluded or not taken into account for pur- poses of part 1 of subchapter L of chapter 1 if subsec- tion (d) of section 817 of such Code were still in effect for such taxable year, such gain shall be excluded for purposes of such part." SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 953 of this title. § 818. Accounting provisions (a) Method of accounting All computations entering into the determi- nation of the taxes imposed by this part shall be made- (1) under an accrual method of accounting, or (2) to the extent permitted under regula- tions prescribed by the Secretary, under a combination of an accrual method of account- Ing with any other method permitted by this chapter (other than the cash receipts and dis- bursements method). Except as provided in the preceding sentence, all such computations shall be made in a manner consistent with the manner required for purposes of the annual statement approved by the National Association of Insurance Com- missioners. (b) Amortization of premium and accrual of discount (1) In general The appropriate items of income, deduc- tions, and adjustments under this part shall be adjusted to reflect the appropriate amorti- zation of premium and the appropriate accru- al of discount attributable to the taxable year on bonds, notes, debentures, or other evi- dences of indebtedness held by a life insur- ance company. Such amortization and accrual shall be determined- (A) in accordance with the method regu- larly employed by such company, if such method is reasonable, and (B) in all other cases, in accordance with regulations prescribed by the Secretary. (2) Special rules (A) Amortization of bond premium In the case of any bond (as defined in sec- tion 171(d)) acquired after December 31, 1957, the amount of bond premium, and the amortizable bond premium for the taxable year, shall be determined under section 171(b) as if the election set forth in section 171(c) had been made, (B) Convertible evidences of indebtedness In no case shall the amount of premium on a convertible evidence of indebtedness include any amount attributable to the con- version features of the evidence of indebt- edness. (3) Exception For taxable years beginning after December 31, 1962, no accrual of discount shall be re- quired under paragraph (1) on any bond (as defined in section 171(d)), except in the case of discount which is- (A) interest to which section 103 applies, or (B) original issue discount (as defined in section 1232(b)). For purposes of section 805(b)(3)(A), the cur- rent earnings rate for any taxable year begin- ning before January 1, 1963, shall be deter- mined as if the preceding sentence applied to such taxable year. c) Life insurance reserves computed on preliminary term basis For purposes of this part (other than section 801), at the election of the taxpayer the amount taken into account as life insurance re- serves with respect to contracts for which such reserves are computed on a preliminary term basis may be determined on either of the fol- lowing bases: (1) Exact revaluation As if the reserves for all such contracts had been computed on a net level premium basis (using the same mortality assumptions and interest rates for both the preliminary term basis and the net level premium basis). (2) Approximate revaluation The amount computed without regard to this subsection- (A) increased by $21 per $1,000 of insur- ance in force (other than term insurance) under such contracts, less 2.1 percent of re- serves under such contracts, and (B) increased by $5 per $1,000 of term in- surance in force under such contracts which at the time of issuance cover a period of more than 15 years, less 0.5 percent of re- serves under such contracts. If the taxpayer makes an election under either paragraph (1) or (2) for any taxable year, the basis adopted shall be adhered to in making the computations under this part (other than sec- tion 801) for the taxable year and all subse- quent taxable years unless a change in the basis § 818 Page 514