HR 3424 IHCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to disallow the deduction for excess non-taxed reinsurance premiums with respect to United States risks paid to affiliates.CommentsClose CommentsPermalink

July 30, 2009CommentsClose CommentsPermalink

Mr. NEAL of Massachusetts introduced the following bill; which was referred to the Committee on Ways and MeansCommentsClose CommentsPermalink

To amend the Internal Revenue Code of 1986 to disallow the deduction for excess non-taxed reinsurance premiums with respect to United States risks paid to affiliates.CommentsClose CommentsPermalink

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink

SECTION 1. DISALLOWANCE OF DEDUCTION FOR EXCESS NON-TAXED REINSURANCE PREMIUMS PAID TO AFFILIATES.

(a) In General- Subsection (b) of section 832 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:CommentsClose CommentsPermalink





‘(9) LIMITATION ON DEDUCTION FOR EXCESS NON-TAXED REINSURANCE PREMIUMS PAID TO AFFILIATES-CommentsClose CommentsPermalink





‘(A) IN GENERAL- No deduction shall be allowed under paragraph (4) for so much of the affiliated non-taxed reinsurance premiums paid by a covered insurance company during the taxable year as exceeds the sum of--CommentsClose CommentsPermalink





‘(i) the premium limitation for such taxable year, plusCommentsClose CommentsPermalink





‘(ii) the qualified ceding commissions with respect to such premiums.CommentsClose CommentsPermalink





‘(B) AFFILIATED NON-TAXED REINSURANCE PREMIUMS- For purposes of this paragraph--CommentsClose CommentsPermalink





‘(i) IN GENERAL- The term ‘affiliated non-taxed reinsurance premium’ means any reinsurance premium paid directly or indirectly to an affiliated corporation if, with respect to such affiliated corporation, such premium is neither subpart F income (as defined in section 952) nor subject to tax under this subtitle.CommentsClose CommentsPermalink





‘(ii) NETTING OF PREMIUMS PAID TO COVERED INSURANCE COMPANY BY AFFILIATES- The amount of premiums which would (but for this clause) be treated as affiliated non-taxed reinsurance premiums with respect to any affiliated corporation for any taxable year shall be reduced (but not below zero) by any reinsurance premiums paid directly or indirectly to the covered insurance company by such affiliated corporation during such taxable year.CommentsClose CommentsPermalink





‘(iii) PREMIUMS TREATED AS NON-TAXED TO EXTENT OF TREATY REDUCTION- Rules similar to the rules of section 163(j)(5)(B) shall apply for purposes of determining the extent to which tax is imposed by this subtitle with respect to any premium.CommentsClose CommentsPermalink





‘(C) PREMIUM LIMITATION- For purposes of this paragraph--CommentsClose CommentsPermalink





‘(i) IN GENERAL- The term ‘premium limitation’ means, with respect to any covered insurance company for any taxable year, the excess of--CommentsClose CommentsPermalink





‘(I) the product of the gross premiums written by such covered insurance company on insurance contracts during the taxable year multiplied by the industry fraction for such taxable year, overCommentsClose CommentsPermalink





‘(II) the aggregate reinsurance premiums paid by such covered insurance company during the taxable year which are not affiliated non-taxed reinsurance premiums.CommentsClose CommentsPermalink





Such limitation shall not be less than zero.CommentsClose CommentsPermalink





‘(ii) INDUSTRY FRACTION- In the case of any taxable year beginning in a calendar year, the term ‘industry fraction’ means the fraction, determined by the Secretary on the basis of published aggregate data from annual statements of insurance companies--CommentsClose CommentsPermalink





‘(I) the numerator of which is the aggregate reinsurance premiums paid by covered insurance companies to non-affiliated corporations during the second preceding calendar year, andCommentsClose CommentsPermalink





‘(II) the denominator of which is the aggregate gross premiums written by covered insurance companies during such second preceding calendar year.CommentsClose CommentsPermalink





‘(iii) SEPARATE APPLICATION TO EACH LINE OF BUSINESS- With respect to each line of business--CommentsClose CommentsPermalink





‘(I) the Secretary shall determine a separate industry fraction with respect to each such line of business, andCommentsClose CommentsPermalink





‘(II) subparagraph (A) shall be applied separately to each such line of business by taking into account the industry fraction determined with respect to such line of business.CommentsClose CommentsPermalink





‘(D) QUALIFIED CEDING COMMISSION- For purposes of this paragraph, the term ‘qualified ceding commission’ means, with respect to the affiliated non-taxed reinsurance premiums paid by a covered insurance company during any taxable year, the product of--CommentsClose CommentsPermalink





‘(i) the ceding commissions which are paid to such company with respect to such premiums and which are included in income of such company, multiplied byCommentsClose CommentsPermalink





‘(ii) a fraction--CommentsClose CommentsPermalink





‘(I) the numerator of which is so much of such premiums as exceeds the premium limitation for such taxable year, andCommentsClose CommentsPermalink





‘(II) the denominator of which is the aggregate amount of such premiums.CommentsClose CommentsPermalink





‘(E) ELECTION TO TREAT REINSURANCE INCOME AS EFFECTIVELY CONNECTED-CommentsClose CommentsPermalink





‘(i) IN GENERAL- A specified affiliated corporation may elect for any taxable year--CommentsClose CommentsPermalink





‘(I) to treat specified reinsurance income as income effectively connected with the conduct of a trade or business in the United States, andCommentsClose CommentsPermalink





‘(II) to be treated as carrying on an insurance business within the United States.CommentsClose CommentsPermalink





‘(ii) SPECIFIED AFFILIATED CORPORATION- For purposes of this subparagraph, the term ‘specified affiliated corporation’ means any affiliated corporation which--CommentsClose CommentsPermalink





‘(I) is a foreign corporation which would qualify under part I or this part for the taxable year if it were a domestic corporation,CommentsClose CommentsPermalink





‘(II) waives all benefits granted by the United States under any treaty between the United States and any foreign country with respect to specified reinsurance income with respect to which the election under clause (i) applies, andCommentsClose CommentsPermalink





‘(III) meets such requirements as the Secretary shall prescribe to ensure that tax on such income is properly determined and paid.CommentsClose CommentsPermalink





‘(iii) SPECIFIED REINSURANCE INCOME- For purposes of this subparagraph, the term ‘specified reinsurance income’ means, with respect to any specified affiliated corporation for any taxable year--CommentsClose CommentsPermalink





‘(I) all reinsurance premiums which would (but for the election made under this subparagraph) be affiliated non-taxed reinsurance premiums and which are received by such corporation during such taxable year directly or indirectly from covered insurance companies with respect to which such corporation is affiliated, andCommentsClose CommentsPermalink





‘(II) so much of the net investment income (within the meaning of section 842(b)) for such taxable year as is allocable to reinsurance premiums with respect to which an election under clause (i) applies for such taxable year or any prior taxable year.CommentsClose CommentsPermalink





‘(iv) RULES RELATED TO ELECTION- Any election under clause (i) shall--CommentsClose CommentsPermalink





‘(I) be made at such time and in such form and manner as the Secretary may provide, andCommentsClose CommentsPermalink





‘(II) apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.CommentsClose CommentsPermalink





‘(F) OTHER DEFINITIONS AND SPECIAL RULES- For purposes of this paragraph--CommentsClose CommentsPermalink





‘(i) COVERED INSURANCE COMPANY- The term ‘covered insurance company’ means any insurance company subject to the tax imposed by section 831.CommentsClose CommentsPermalink





‘(ii) TREATMENT OF CONTROLLED GROUP- All domestic members of a controlled group of corporations (as defined in section 1563) of which a covered insurance company is a member shall be treated as one corporation.CommentsClose CommentsPermalink





‘(iii) AFFILIATED CORPORATIONS- A corporation shall be treated as affiliated with a covered insurance company if both corporations are members of the same controlled group of corporations, as defined in section 1563(a) except that--CommentsClose CommentsPermalink





‘(I) ‘more than 25 percent’ shall be substituted for ‘at least 80 percent’ each place it appears in section 1563(a)(1), andCommentsClose CommentsPermalink





‘(II) the determination shall be made without regard to subsections (a)(4), (b)(2)(C), (b)(2)(D), and (e)(3)(C) of section 1563.CommentsClose CommentsPermalink





‘(iv) TREATMENT OF REINSURANCE ASSUMED BY COVERED INSURANCE COMPANY- Reinsurance ceded by a non-affiliated corporation to a covered insurance company shall be taken into account in the same manner as premiums written by such covered insurance company.CommentsClose CommentsPermalink





‘(G) REGULATIONS- The Secretary shall prescribe such regulations as may be appropriate to carry out or to prevent the avoidance of the purposes of this paragraph, including regulations which provide for the application of this section to alternative reinsurance transactions, fronting transactions, conduit and reciprocal transactions, and any economically equivalent transactions.’.CommentsClose CommentsPermalink





(b) Effective Date- The amendment made by this section shall apply to taxable years beginning after December 31, 2009.CommentsClose CommentsPermalink