Reg. § 1.812-3 Computation of loss from operations.
(a) Modification of deductions A loss from operations is sustained by a life insurance company in any taxable year, if and to the extent that, for such year, there is an excess of the sum of the deductions provided by section over the sum of
(1) the life insurance company's share of each and every item of investment yield (including tax-exempt interest, partially tax-exempt interest, and dividends received) as determined under section , and
(2) the sum of the items of gross amount taken into account under section . In determining the loss from operations for purposes of section :
(i) No deduction shall be allowed under section for the operations loss deduction.
(ii) The 85 percent limitation on dividends received provided by section (b) as modified by section shall not apply to the deductions otherwise allowed under:
(a) Section in respect to dividends received by corporations,
(b) Section in respect of dividends received on certain preferred stock of public utilities, and
(c) Section in respect of dividends received from certain foreign corporations.
(b) Illustration of principles The application of of this section may be illustrated by the following example:
Example.
For the taxable year 1960, X, a life insurance company, has items taken into account under section amounting to $150,000, its share of the investment yield amounts to $250,000, and total deductions allowed by section of $375,000, exclusive of any operations loss deduction and exclusive of any deduction for dividends received. In 1960, X received as its share of dividends entitled to the benefits of section the amount of $100,000. These dividends are included in X's share of the investment yield. X has no other deductions to which section applies. On the basis of these facts, X has a loss from operations for the taxable year 1960 of $60,000, computed as follows:
| Deductions for 1960 | $375,000 |
| Plus: Deduction for dividends received computed without regard to the limitation provided by sec. 246(b), as modified by sec. 809(d)(8)(B) (85% of $100,000) | 85,000 |
| Total deductions as modified by sec. 812(c) | 460,000 |
| Less: Sum of sec. 809(c) items and X's share of investment yield (including $100,000 of dividends) | 400,000 |
| Loss from operations for 1960 | (60,000) |
[T.D. 6535, 26 FR 536, Jan. 20, 1961]