In the computation of the partial tax, the deductions provided by sections 170 (as modified by section 809(a)(3)), 243, 244, 245 (as modified by sections 804 (a)(5) and 809(d)(8)(B)), and the limitation provided by section 809(f), shall not be recomputed as a result of the reduction of taxable investment income, and gain from operations, by the amount of such excess. Except as modified by section 817 (rules relating to certain gains and losses), the general rules of the Code relating to gains and losses (such as the rules for determining the amount, characterization and treatment thereof) shall apply with respect to life insurance companies.
Example. For the taxable year 1959, T, a life insurance company, has life insurance company taxable income of $300,000 (including $25,000 of net short-term capital gain) and $80,000 of net long-term capital gain. The tax of T under section 802(a) for 1959 is $170,500 ($90,000 normal tax, $60,500 surtax, and $20,000 capital gains tax) computed as follows:
COMPUTATION OF NORMAL TAX | |
Life insurance company taxable income | $300,000 |
Normal tax (30% of $300,000) | 90,000 |
COMPUTATION OF SURTAX | |
Life insurance company taxable income | $300,000 |
Less: Exemption from surtax | 25,000 |
Excess of life insurance company taxable income subject to surtax | 275,000 |
Surtax (22% of $275,000) | 60,500 |
COMPUTATION OF CAPITAL GAINS TAX | |
Excess of net long-term capital gain over net short-term capital loss | $80,000 |
Capital gains tax (25% of $80,000) | 20,000 |
26 C.F.R. §1.802-3