70 S T A T. ]
PUBLIC LAW 429-MAR. 13, 1956
"(c) KuLE FOR COMPUTATION OF SPECIAL INTEREST DEDUCTION.—In computing the special interest deduction under section 805 in the case of any taxable year with respect to which a tax is imposed under this section— "(1) in lieu of the reduction of the net investment income provided in paragraphs (3)(A) and (4)(A) of section 805(a), the net investment income shall be reduced by the amount of the adjustment for certain reserves provided in section 813, and "(2) in lieu of subtracting the amount provided in paragraph (2) of section 805(b), subtract 50 percent of the amount of the adjustment for certain reserves provided in section 813. "SEC. 812. RESERVE AND OTHER POLICY LIABILITY DEDUCTION. " (a) GENERAL RULE.—For purposes of this subpart, the term 'reserve and other policy liability deduction' means an amount computed by multiplying the net investment income by a figure, to be determined and proclaimed by the Secretary or his delegate for each taxable year with respect to which a tax is imposed by section 811. This figure shall be based on such data with respect to life insurance companies for the preceding taxable year as the Secretary or his delegate considers representative and shall be computed in accordance with the following formula: The ratio which a numerator comprised of the aggregate of the sums of— " (1) 2 percent of the reserves for deferred dividends, "(2) interest paid, and "(3) the product of— " (A) the mean of the adjusted reserves at the beginning and end of the taxable year, and " (B) the reserve earnings rate, bears to a denominator comprised of the aggregate of the excess of net investment incomes (computed without the deduction for whollyexempt interest allowed by section 803(c)(1)) over the adjustment for certain reserves provided in section 813. " (b) DEFINITIONS.—For purposes of subsection (a) — "(1) RESERVES FOR DEFERRED DIVIDENDS.—The term 'reserves for deferred dividends' has the same meaning as when used in section 804 (c)(4). "(2) IN'IT.REST PAID.—The term 'interest paid' has the meaninggiven to such term by section 805(d). "(3) ADJUSTED RESERVES.—The term 'adjusted reserves' means the life insurance reserves (as defined in section 801(b)), plus 7 percent of that portion of such reserves as are computed on a preliminary term basis. "(4) RESERVE EARNINGS RATE.—The term 'reserve earnings rate' means a rate computed by adding 2.1125 percent (65 percent of 31/4 percent) to 35 percent of the average rate of interest assumed in computing life insurance reserves. Such average rate shall be calculated by multiplying each assumed rate of interest by the means of the amounts of the adjusted reserves computed at that rate at the beginning and end of the taxable year and dividing the sum of the products b}' the mean of the total adjusted reserves at the beginning and end of the taxable year. "(c) MAXIMUM DEDUCTION.—The reserve and other policy liability deduction allowed by subsection (a) of this section shall in no case exceed an amount equal to the amount which would be determined under subsection (b) of section 804 if such subsection applied with respect to the taxable year.
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