52 STAT.] 75TH CONG. , 3D SESS.-CH. 289-MAY 28, 1938 (2) SPECIAL CLASS NET INCOME OF FOREIGN LIFE INSURANCE COM- PANIES. -In the case of a foreign life insurance company, the special class net income shall be an amount which bears the same ratio to the special class net income computed without regard to this paragraph, as the reserve funds required by law and held by it at the end of the taxable year upon business transacted within the United States bear to the reserve funds held by it at the end of the taxable year upon all business transacted. (3) No UNITED STATES INSURANCE BUSINESS.- Foreign life insurance companies not carrying on an insurance business within the United States and holding no reserve funds upon busi- ness transacted within the United States, shall not be tax- able under this section but shall be taxable as other foreign corporations. SEC. 202. GROSS INCOME OF LIFE INSURANCE COMPANIES. (a) In the case of a life insurance company the term "gross income" means the gross amount of income received during the taxable year from interest, dividends, and rents. For inclusion in computation of tax of amount specified in shareholder's consent, see section 28. (b) The term "reserve funds required by law" includes, in the case of assessment insurance, sums actually deposited by any company or association with State or Territorial officers pursuant to law as guaranty or reserve funds, and any funds maintained under the charter or articles of incorporation of the company or association exclusively for the payment of claims arising under certificates of membership or policies issued upon the assessment plan and not subject to any other use. SEC. 203. NET INCOME OF LIFE INSURANCE COMPANIES. (a) GENERAL RUTE. -In the case of a life insurance company the term "net income" means the gross income less- (1) TAX-FREE INTEREST.- The amount of interest received dur- ing the taxable year which under section 22 (b) (4) is excluded from gross income; (2) RESERVE FUNDS.- An amount equal to 4 per centum of the mean of the reserve funds required by law and held at the beginning and end of the taxable year, except that in the case of any such reserve fund which is computed at a lower interest assumption rate, the rate of 334 per centum shall be substituted for 4 per centum. Life insurance companies issuing policies covering life, health, and accident insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, shall be allowed, in addition to the above, a deduction of 33/4 per centum of the mean of such reserve funds (not required by law) held at the beginning and end of the taxable year, as the Commissioner finds to be necessary for the protection of the holders of such policies only; (3) RESERVE FOR DIVIDENDs. -An amount equal to 2 per centum of any sums held at the end of the taxable year as a reserve for dividends (other than dividends payable during the year following the taxable year) the payment of which is deferred for a period of not less than five years from the date of the policy contract; 523 Foreign companies, special class net in- come. No United States insurance business. Gross income of life insurance companies. "Gross income" de- fined. Ante, p. 470. "Reserve funds re- quired by law." Net Income of life insurance companies. General rule. Tax-tree Interest. Ante, p. 458 . Reserve funds. Policies of combined Insurance. Resere for divi dends.
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