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.

Summary: Amends the Internal Revenue Code to deny a tax deduction for excess reinsurance premiums with respect to U.S. risks paid to affiliated insurance companies that are not subject to U.S. taxation.

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:
            ``(9) Limitation on deduction for excess non-taxed 
        reinsurance premiums paid to affiliates.--
                    ``(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--
                            ``(i) the premium limitation for such 
                        taxable year, plus
                            ``(ii) the qualified ceding commissions 
                        with respect to such premiums.
                    ``(B) Affiliated non-taxed reinsurance premiums.--
                For purposes of this paragraph--
                            ``(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.
                            ``(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.
                            ``(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.
                    ``(C) Premium limitation.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `premium 
                        limitation' means, with respect to any covered 
                        insurance company for any taxable year, the 
                        excess of--
                                    ``(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, over
                                    ``(II) the aggregate reinsurance 
                                premiums paid by such covered insurance 
                                company during the taxable year which 
                                are not affiliated non-taxed 
                                reinsurance premiums.
                        Such limitation shall not be less than zero.
                            ``(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--
                                    ``(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, and
                                    ``(II) the denominator of which is 
                                the aggregate gross premiums written by 
                                covered insurance companies during such 
                                second preceding calendar year.
                            ``(iii) Separate application to each line 
                        of business.--With respect to each line of 
                        business--
                                    ``(I) the Secretary shall determine 
                                a separate industry fraction with 
                                respect to each such line of business, 
                                and
                                    ``(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.
                    ``(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--
                            ``(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 by
                            ``(ii) a fraction--
                                    ``(I) the numerator of which is so 
                                much of such premiums as exceeds the 
                                premium limitation for such taxable 
                                year, and
                                    ``(II) the denominator of which is 
                                the aggregate amount of such premiums.
                    ``(E) Election to treat reinsurance income as 
                effectively connected.--
                            ``(i) In general.--A specified affiliated 
                        corporation may elect for any taxable year--
                                    ``(I) to treat specified 
                                reinsurance income as income 
                                effectively connected with the conduct 
                                of a trade or business in the United 
                                States, and
                                    ``(II) to be treated as carrying on 
                                an insurance business within the United 
                                States.
                            ``(ii) Specified affiliated corporation.--
                        For purposes of this subparagraph, the term 
                        `specified affiliated corporation' means any 
                        affiliated corporation which--
                                    ``(I) is a foreign corporation 
                                which would qualify under part I or 
                                this part for the taxable year if it 
                                were a domestic corporation,
                                    ``(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, and
                                    ``(III) meets such requirements as 
                                the Secretary shall prescribe to ensure 
                                that tax on such income is properly 
                                determined and paid.
                            ``(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--
                                    ``(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, and
                                    ``(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.
                            ``(iv) Rules related to election.--Any 
                        election under clause (i) shall--
                                    ``(I) be made at such time and in 
                                such form and manner as the Secretary 
                                may provide, and
                                    ``(II) apply for the taxable year 
                                for which made and all subsequent 
                                taxable years unless revoked with the 
                                consent of the Secretary.
                    ``(F) Other definitions and special rules.--For 
                purposes of this paragraph--
                            ``(i) Covered insurance company.--The term 
                        `covered insurance company' means any insurance 
                        company subject to the tax imposed by section 
                        831.
                            ``(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.
                            ``(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--
                                    ``(I) `more than 25 percent' shall 
                                be substituted for `at least 80 
                                percent' each place it appears in 
                                section 1563(a)(1), and
                                    ``(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.
                            ``(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.
                    ``(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.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2009.