Sec. 1.832-2 Deductions.

The deductions allowable are specified in section

and by reason of the provisions of section

and (12) include in addition certain deductions provided in sections 161, and

and following. The deductions, however, are subject to the limitation provided in section

, relating to expenses and interest in respect of tax-exempt income. The net operating loss deduction is computed under section

and the regulations thereunder. For the purposes of section 172, relating to net operating loss deduction, "gross income" shall mean gross income as defined in section

and the allowable deductions shall be those allowed by section

with the exceptions and limitations set forth in section

. In addition to the deduction for capital losses provided in Subchapter P (section

and following), Chapter 1 of the Code, insurance companies are allowed a deduction for losses from capital assets sold or exchanged in order to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders. A special rule is provided for the application of the capital loss carryover provisions of section

. The deduction is the same as that allowed mutual insurance companies subject to the tax imposed by section

; see section

(c)(6) and the regulations thereunder. Insurance companies, other than mutual fire insurance companies described in section

, are also allowed a deduction for dividends and similar distributions paid or declared to policyholders in their capacity as such. The deduction is otherwise the same as that allowed mutual insurance companies subject to the tax imposed by section

; see section

(2) and the regulations thereunder.

(b) Among the items which may not be deducted are income and profits taxes imposed by the United States, income and profits taxes imposed by any foreign country or possession of the United States (in cases where the company chooses to claim to any extent a credit for such taxes), taxes assessed against local benefits, decrease during the year due to adjustments in the book value of capital assets, decrease in liabilities during the year on account of reinsurance treaties, dividends paid to shareholders in their capacity as such, remittances to the home office of a foreign insurance company by the United States branch, and borrowed money repaid.

(c) In computing taxable income of insurance companies, losses sustained during the taxable year from the sale or other disposition of property are deductible subject to the limitation contained in section 1211. Insurance companies are entitled to the alternative taxes provided in section 1201.