INSURANCE COMPANIES.

SEC. 907. INSURANCE COMPANIES. (a) Special Contingency Reserves Under Group Contracts.— (1) Interest paid.—Section 805(e)(4) (relating to interest paid on certain reserves) is amended to read as follows: “(4) Interest on certain special contingency reserves.—Interest for the taxable year on special contingency reserves under contracts of group term life insurance or group health and accident insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or for a combination thereof.” (2) Rules for certain contingency reserves.—Section 810(c) (relating to items taken into account as reserves) is amended by inserting after paragraph (5) the following new paragraph: “(6) Special contingency reserves under contracts of group term life insurance or group health and accident insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or for a combination thereof.” (b) Certain Distributions.— (1) Exception from definition of distribution.—Section 815(f) (relating to definition of distribution) is amended— (A) by striking out “or” at the end of paragraph (3); (B) by striking out the period at the end of paragraph (4) and inserting in lieu thereof “; or”; 83 Stat. 716 (C) by inserting after paragraph (4) the following new paragraph: “(5) any distribution after December 31, 1968, of the stock of a controlled corporation to which section 355 applies, if such distribution is made to a corporation which immediately after the distribution is the owner of all the stock of all classes of both the distributing corporation and such controlled corporation and if, immediately before the distribution, the distributing corporation had been the owner of all of the stock of all classes of such controlled corporation at all times since December 31, 1957.”; (D) by striking out “Neither paragraph (3) nor paragraph (4) shall apply” in the next to the last sentence and inserting in lieu thereof “Paragraphs (3), (4), and (5) shall not apply”; and (E) by striking out “paragraphs (3) and (4)” in the last sentence and inserting in lieu thereof “paragraphs (3), (4), and (5)”. (2) Special rule.—Section 815 (relating to distributions to shareholders) is amended by adding at the end thereof the following new subsection: “(g) Certain Distributions Related to Former Subsidiaries.—If subsection (f)(5) applied to the distribution by a life insurance company of the stock of a corporation which was a controlled corporation— “(1) any distribution by such corporation to its shareholders (after the date of the distribution of its stock by the life insurance company), and “(2) any disposition of the stock of such corporation by the distributee corporation, shall, for purposes of this section, be treated as a distribution to its shareholders by such life insurance company, until the amounts so treated equal the amount of the distribution of such stock which by reason of subsection (f)(5) was not included as a distribution for purposes of this section.” (c) Carryover of Losses.— (1) In general.—Part IV of subchapter L of chapter 1 (relating to provisions of general application to insurance companies) is amended by adding at the end thereof the following new section: “SEC. 844. SPECIAL LOSS CARRYOVER RULES. “(a) General Rule.—If an insurance company— “(1) is subject to the tax imposed by part I, II, or III of this subchapter for the taxable year, and “(2) was subject to the tax imposed by a different part of this subchapter for a prior taxable year beginning after December 31, 1962, then any operations loss carryover under section 812, unused loss carryover under section 825, or net operating loss carryover under section 172, as the case may be, arising in such prior taxable year shall be included in its operations loss deduction under section 812(a), unused loss deduction under section 825(a), or net operating loss deduction under section 832(c)(10), as the case may be. “(b) Limitation.—The amount included under section 812(a), 825(a), or 832(c)(10), as the case may be, by reason of the application of subsection (a) shall not exceed the amount that would have constituted the loss carryover under such section if for all relevant taxable years such company had been subject to the tax imposed by the part referred to in subsection (a)(1) rather than the part referred 83 Stat. 717 to in subsection (a)(2). For purposes of applying the preceding sentence— “(1) in the case of a mutual insurance company which becomes a stock insurance company, an amount equal to 25 percent of the deduction under section 832(c)(11) (relating to dividends to policyholders) shall not be allowed, and “(2) section 812(b)(1)(A)(iii) (relating to additional years to which losses may be carried by new life insurance companies) shall not apply. “(c) Regulations.—The Secretary or his delegate shall prescribe such regulations as may be necessary to carry out the purposes of this section.” (2) Clerical and conforming amendments.— (A) The table of sections for part IV of subchapter L of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 844. Special loss carryover rules.” (B) Sections 809(e)(5) and 823(b)(1) are each amended by striking out “The” and inserting in lieu thereof “Except as provided by section 844, the”. (C) Section 825(g)(2) is amended by striking out “to or from” and inserting in lieu thereof “except as provided by section 844, to or from”. (D) Section 825(g)(3) is amended by striking out “to any” and inserting in lieu thereof “except as provided by section 844, to any”. (d) Effective Date.—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 1957. The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 1968. The amendments made by subsection (c) shall apply with respect to losses incurred in taxable years beginning after December 31, 1962, but shall not affect any tax liability for any taxable year beginning before January 1, 1967.