Section 1.804-3 - Gross investment income of a life insurance company(a)Gross investment income defined. For purposes of part I, subchapter L, chapter 1 of the Code, section 804(b) defines the term gross investment income of a life insurance company as the sum of the following:(1) The gross amount of income from:(i) Interest (including tax-exempt interest and partially tax-exempt interest), as described in § 1.61-7 . Interest shall be adjusted for amortization of premium and accrual of discount in accordance with the rules prescribed in section 818(b) and the regulations thereunder.(ii) Dividends, as described in § 1.61-9 .(iii) Rents and royalties, as described in § 1.61-8 .(iv) The entering into of any lease, mortgage, or other instrument or agreement from which the life insurance company may derive interest, rents, or royalties.(v) The alteration or termination of any instrument or agreement described in subdivision (iv) of this subparagraph. For example, gross investment income includes amounts received as commitment fees, as a bonus for the entering into of a lease, or as a penalty for the early payment of a mortgage.
(2) In the case of a taxable year beginning after December 31, 1958, the amount (if any) by which the net short-term capital gain (as defined in section 1222(5)) exceeds the net long-term capital loss (as defined in section 1222(8)), and(3) The gross income from any trade or business (other than an insurance business) carried on by the life insurance company, or by a partnership of which the life insurance company is a partner.(b)No double inclusion of income. In computing the gross income from any trade or business (other than an insurance business) carried on by the life insurance company, or by a partnership of which the life insurance company is a partner, any item described in section 804(b)(1) and paragraph (a)(1) of this section shall not be considered as gross income arising from the conduct of such trade or business or partnership, but shall be taken into account under section 804(b)(1) and paragraph (a)(1) of this section.(c)Exclusion of net long-term capital gains. Any net long-term capital gains from the sale or exchange of a capital asset (or any gain considered to be from the sale or exchange of a capital asset under applicable law) shall be excluded from the gross investment income of a life insurance company. However, section 804(b)(2) and paragraph (a)(2) of this section provide that the amount (if any) by which the net short-term capital gain exceeds the net long-term capital loss shall be included in the gross investment income of a life insurance company.T.D. 6513, 25 FR 12661, Dec. 10, 1960