The basis of an installment obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.
Except as provided in section 691 (relating to recipients of income in respect of decedents), this section shall not apply to the transmission of installment obligations at death.
Exception for distributions to which section 337(a) applies Subsection (a) shall not apply to any distribution to which section 337(a) applies.
(1) In general
In the case of a disposition of an installment obligation by any person other than a life insurance company (as defined in section 816(a)) to such an insurance company or to a partnership of which such an insurance company is a partner, no provision of this subtitle providing for the nonrecognition of gain shall apply with respect to any gain resulting under subsection (a). If a corporation which is a life insurance company for the taxable year was (for the preceding taxable year) a corporation which was not a life insurance company, such corporation shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year, all installment obligations which it held on such last day. A partnership of which a life insurance company becomes a partner shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year of such partnership, all installment obligations which it holds at the time such insurance company becomes a partner.
(2) Special rule where life insurance company elects to treat income as not related to insurance business
Paragraph (1) shall not apply to any transfer or deemed transfer of an installment obligation if the life insurance company elects (at such time and in such manner as the Secretary may by regulations prescribe) to determine its life insurance company taxable income?
(A) by returning the income on such installment obligation under the installment method prescribed in section 453, and
(B) as if such income were an item attributable to a noninsurance business.
(3) Noninsurance business
(A) In general
For purposes of this subsection, the term ?noninsurance business? means any activity which is not an insurance business.
(B) Certain activities treated as insurance businesses
For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if?
(i)it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
(ii)it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.