(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 the first sentence of section 170 (b) (2) shall be 5 percent of the gain from operations computed without regard to

(i) the deduction provided by section 170,

(ii) the deductions provided by paragraphs (3), (5), (6), and (8) of subsection (d), and

(iii) any operations loss carry back to the taxable year under section 812; and

(B) under regulations prescribed by the Secretary or his delegate, a rule similar to the rule contained in section 170 (b) (3) shall be applied.

(4) AMORTIZABLE BOND PREMIUM.-Section 171 shall not apply. (5) NET OPERATING LOSS DEDUCTION.-The deduction for net operating losses provided in section 172 shall not be allowed.

(6) PARTIALLY TAX-EXEMPT INTEREST.-The deduction for partially tax-exempt interest provided by section 242 shall not be allowed.

(7) DIVIDENDS RECEIVED.-The deductions for dividends received provided by sections 243, 244, and 245 shall not be allowed. (f) LIMITATION ON CERTAIN DEDUCTIONS.

(1) IN GENERAL. The amount of the deductions under paragraphs (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 taxable 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 deduction under subsection (d) (6), then to the amount of the deduction under subsection (d) (5), and finally to the amount of the deduction under subsection (d) (3).

(g) LIMITATIONS ON DEDUCTION FOR CERTAIN MUTUALIZATION DISTRIBUTIONS.—

(1) DEDUCTION NOT TO REDUCE TAXABLE INVESTMENT INCOME. The amount of the deduction under subsection (d) (11) shall not exceed the amount (if any) by which

(A) the gain from operations for the taxable year, computed without regard to such deduction (but after the application of subsection (f)), exceeds

-The

(B) the taxable investment income for the taxable year. (2) DEDUCTION NOT TO REDUCE TAX BELOW 1957 LAW. deduction under subsection (d) (11) for the taxable year shall be allowed only to the extent that such deduction (after the application of all other deductions provided by subsection (d)) does not reduce the amount of the tax imposed by section 802 (a) (1) for such taxable year below the amount of tax which would have been imposed by section 802 (a) as in effect for 1957, if this part, as in effect for 1957, applied for such taxable year.

(3) APPLICATION OF SECTION 815.-That portion of any distribution with respect to which a deduction is allowed under subsection (d) (11) shall not be treated as a distribution to shareholders for purposes of section 815; except that in the case of any distribution made in 1959, such portion shall be treated as a distribution with respect to which a reduction is required under section 815 (e) (2) (B).

SEC. 810. RULES FOR CERTAIN RESERVES.

(a) ADJUSTMENT FOR DECREASE.-If the sum of the items described in subsection (c) as of the beginning of the taxable year exceeds the sum of such items as of the close of the taxable year (reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809 (a) (1)), the excess shall be taken into account as a net decrease referred to in section 809 (c) (2).

(b) ADJUSTMENT FOR INCREASE. If the sum of the items described in subsection (c) as of the close of the taxable year (reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809 (a) (1)) exceeds the sum of such items as of the beginning of the taxable year, the excess shall be taken into account as a net increase referred to in section 809 (d) (2).

(c) ITEMS TAKEN INTO ACCOUNT.-The items referred to in subsections (a) and (b) are as follows:

(1) The life insurance reserves (as defined in section 801 (b)). (2) The unearned premiums and unpaid losses included in total reserves under section 801 (c) (2).

(3) The amounts (discounted at the rates of interest assumed by the company) necessary to satisfy the obligations under insurance or annuity contracts (including contracts supplementary thereto), but only if such obligations do not involve (at the time with respect to which the computation is made under this paragraph) life, health, or accident contingencies.

(4) Dividend accumulations, and other amounts, held at interest in connection with insurance or annuity contracts (including contracts supplementary thereto).

(5) Premiums received in advance, and liabilities for premium deposit funds.

In applying this subsection, the same item shall be counted only once. (d) ADJUSTMENT FOR CHANGE IN COMPUTING RESERVES.

(1) IN GENERAL.-If the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between

(A) the amount of the item at the close of the taxable year, computed on the new basis, and

(B) the amount of the item at the close of the taxable year, computed on the old basis,

as is attributable to contracts issued before the taxable year shall be taken into account for purposes of this subpart as follows:

(i) if the amount determined under subparagraph (A) exceeds the amount determined under subparagraph (B), o of such excess shall be taken into account, for each of the suc

ceeding 10 taxable years, as a net increase to which section 809 (d) (2) applies; or

(ii) if the amount determined under subparagraph (B) exceeds the amount determined under subparagraph (A), 。 of such excess shall be taken into account for each of the 10 succeeding taxable years, as a net decrease to which section 809 (c) (2) applies.

(2) TERMINATION AS LIFE INSURANCE COMPANY.-Except as provided in section 381 (c) (22) (relating to carryovers in certain corporate readjustments), if for any taxable year the taxpayer is not a life insurance company, the balance of any adjustments under this paragraph shall be taken into account for the preceding taxable year.

(3) EFFECT OF PRELIMINARY TERM ELECTION.-An election under section 818 (c) shall not be treated as a change in the basis for determining an item referred to in subsection (c) to which this subsection applies. If an election under section 818 (c) applies for the taxable year, the amounts of the items referred to in subparagraphs (A) and (B) of paragraph (1) shall be determined without regard to such election. If such an election would apply in respect of such item for the taxable year but for the new basis, the amount of the item referred to in subparagraph (B) shall be determined on the basis which would have been applicable under section 818 (c) if the election applied in respect of the item for the taxable year.

(e) CERTAIN DECREASES IN RESERVES OF VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS.

(1) DECREASES DUE TO VOLUNTARY LAPSES OF POLICIES ISSUED BEFORE JANUARY 1, 1958.-For purposes of subsections (a) and (b), in the case of a life insurance company which meets the requirements of section 501 (c) (9) other than the requirement of subparagraph (B) thereof, there shall be taken into account only 11%2 percent of any decrease in the life insurance reserve on any policy issued before January 1, 1958, which is attributable solely to the voluntary lapse of such policy on or after January 1, 1958. In applying the preceding sentence, the decrease in the reserve for any policy shall be determined by reference to the amount of such reserve as of the beginning of the taxable year, reduced by any amount allowable as a deduction under section 809 (d) (1) in respect of such policy by reason of such lapse. This paragraph shall apply for any taxable year only if the taxpayer has made an election under paragraph (3) which is effective for such taxable year.

(2) DISALLOWANCE OF CARRYOVERS FROM PRE-1958 LOSSES FROM OPERATIONS. In the case of a life insurance company to which paragraph (1) applies for the taxable year, section 812 (b) (1) shall not apply with respect to any loss from operations for any taxable year beginning before January 1, 1958.

(3) ELECTION.-Paragraph (1) shall apply to any taxpayer for any taxable year only if the taxpayer elects, not later than the time prescribed by law (including extensions thereof) for filing the return for such taxable year, to have such paragraph apply. Such election shall be made in such manner as the Secretary or his delegate shall prescribe by regulations. Such election shall be effective for the

taxable year for which made and for all succeeding taxable years, and shall not be revoked except with the consent of the Secretary or his delegate.

SEC. 811. DIVIDENDS TO POLICYHOLDERS.

(a) DIVIDENDS TO POLICYHOLDERS DEFINED.-For purposes of this part, the term "dividends to policyholders" means dividends and similar distributions to policyholders in their capacity as such. Such term does not include interest paid (as defined in section 805 (e)). (b) AMOUNT OF DEDUCTION.

(1) IN GENERAL.-Except as limited by section 809 (f), the deduction for dividends to policyholders for any taxable year shall be an amount equal to the dividends to policyholders paid during the taxable year

(A) increased by the excess of (i) the amounts held at the end of the taxable year as reserves for dividends to policyholders (as defined in subsection (a)) payable during the year following the taxable year, over (ii) such amounts held at the end of the preceding taxable year, or

(B) decreased by the excess of (i) such amounts held at the end of the preceding taxable year, over (ii) such amounts held at the end of the taxable year.

For purposes of subparagraphs (A) and (B), there shall be included as amounts held at the end of any taxable year amounts set aside, before the 16th day of the third month of the year following such taxable year (or, in the case of a mutual savings bank subject to the tax imposed by section 594, before the 16th day of the fourth month of the year following such taxable year), for payment during the year following such taxable year.

(2) CERTAIN AMOUNTS TO BE TREATED AS NET DECREASES.-If the amount determined under paragraph (1) (B) exceeds the dividends to policyholders paid during the taxable year, the amount of such excess shall be a net decrease referred to in section 809 (c) (2).

SEC. 812. OPERATIONS LOSS DEDUCTION.

(a) DEDUCTION ALLOWED.-There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of

(1) the operations loss carryovers to such year, plus

(2) the operations loss carry backs to such year.

For purposes of this part, the term "operations loss deduction” means the deduction allowed by this subsection.

(b) OPERATIONS LOSS CARRYBACKS AND CARRYOVERS.

(1) YEARS TO WHICH LOSS MAY BE CARRIED.—

(A) IN GENERAL.-The loss from operations for any taxable year (hereinafter in this section referred to as the "loss year") beginning after December 31, 1954, shall be

(i) an operations loss carry back to each of the 3 taxable years preceding the loss year.

(ii) an operations loss carryover to each of the 5 taxable years following the loss year, and

(iii) subject to subsection (e), if the life insurance company is a new company for the loss year, an operations loss carryover to each of the 3 taxable years following the 5 taxable years described in clause (ii).

(B) SPECIAL TRANSITIONAL RULES FOR CARRYBACKS.-A loss from operations for any taxable year beginning before January 1, 1958, shall not be an operations loss carry back to any taxable year beginning before January 1, 1955. A loss from operations for any taxable year beginning after December 31, 1957, shall not be an operations loss carry back to any taxable year beginning before January 1, 1958.

(C) APPLICATION FOR YEARS PRIOR TO 1958. For purposes of this section, this part (as in effect for 1958) and section 381 (c) (22) shall be treated as applying to all taxable years beginning after December 31, 1954, and before January 1, 1958. (2) AMOUNT OF CARRYBACKS AND CARRYOVERS. The entire amount of the loss from operations for any loss year shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess (if any) of the amount of such loss over the sum of the offsets (as defined in subsection (d)) for each of the prior taxable years to which such loss may be carried.

(c) COMPUTATION OF LOSS FROM OPERATIONS.-In computing the loss from operations for purposes of this section

(1) The operations loss deduction shall not be allowed.

(2) The deductions allowed by sections 243 (relating to dividends received by corporations), 244 (relating to dividends received on certain preferred stock of public utilities), and 245 (relating to dividends received from certain foreign corporations) shall be computed without regard to section 246 (b) as modified by section 809 (d) (8) (B).

(d) OFFSET DEFINED.

(1) IN GENERAL.-For purposes of subsection (b) (2), the term "offset" means, with respect to any taxable year, an amount equal to that increase in the operations loss deduction for the taxable year which reduces the life insurance company taxable income (computed without regard to section 802 (b) (3)) for such year

to zero.

(2) OPERATIONS LOSS DEDUCTION.-For purposes of paragraph (1), the operations loss deduction for any taxable year shall be computed without regard to the loss from operations for the loss year or for any taxable year thereafter.

(e) RULES RELATING TO NEW COMPANIES.—

(1) NEW COMPANY DEFINED. For purposes of this part, a life insurance company is a new company for any taxable year only if such taxable year begins not more than 5 years after the first day on which it (or any predecessor, if section 381 (c) (22) applies or would have applied if in effect) was authorized to do business as an insurance company.

(2) LIMITATIONS ON 8-YEAR CARRYOVER.

(A) IN GENERAL.-For purposes of subsection (b) (1) (A) (iii), a life insurance company shall not be treated as a new company for any loss year if at any time during such year it was a nonqualified corporation. If, at any time during any taxable year after the loss year, the life insurance company is a non