For purposes of section 804(c)(1)(B) and (C)(i) and (b) and (c)(1) of this subdivision, the term mortgage service fees includes mortgage origination fees. Such mortgage origination fees shall be amortized in accordance with the rules prescribed in section 818(b) and the regulations thereunder.
Example. The books of S, a life insurance company, reflect the following items for the taxable year 1958:
Investment expenses (including general expenses assigned to or included in investment expenses) | $125,000 | |
Mean of the assets held at the beginning and end of the taxable year | 20,000,000 | |
Mortgage service fees | 25,000 | |
Investment yield computed without regard to investment expenses | 1,200,000 | |
Mean of the value of mortgages held at the beginning and end of the taxable year for which there are no mortgage service fees | 6,000,000 |
In order to determine the limitation on investment expenses, S would make up the following schedule:
1. Mean of the assets held at the beginning and end of the taxable year | $20,000,000 | |
2. One-fourth of 1 percent of item 1 (1/4 of 1% of $20,000,000) | 50,000 | |
3. Mortgage service fees | 25,000 | |
4. The greater of (a) or (b): | ||
(a)(i) Investment yield computed without regard to investment expenses | $1,200,000 | |
(ii) Three and three-fourths percent of item 1 (33/4% * $20,000,000) | 750,000 | |
(iii) Excess of (i) over (ii) ($1,200,000 minus $750,000) | 450,000 | |
(iv) One-fourth of (iii) (1/4 * $450,000) | 112,500 | |
(v) Less: Mortgage service fees (item 3) | 25,00 | |
(vi) Excess of (iv) over (v) ($112,500 minus $25,000) | 87,500 | |
(b) One-fourth of 1 percent of the mean of the value of mortgages held at the beginning and end of the taxable year for which there are no mortgage service fees (1/4 of | ||
1% * $6,000,000) | 15,000 | |
5. The greater of item 4 (a) or (b) | 87,500 | |
6. Limitation on investment expenses (items 2, 3, and 4(a)) | 162,500 |
As the investment expenses (including general expenses assigned to or included in investment expenses) of S for the taxable year 1958 ($125,000) do not exceed the limitation on such expenses ($162,500), S would be entitled to deduct the entire $125,000 under section 804(c)(1).
26 C.F.R. §1.804-4