Small Property and Casualty Insurance Company Equity Act of 1997

Summary: Small Property and Casualty Insurance Company Equity Act of 1997 - Amends the Internal Revenue Code to provide for a small insurance company (assets of less than $500 million) deduction (60 percent of tentative taxable income of $3 millon or less) from the insurance company tax.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Small Property and 
Casualty Insurance Company Equity Act of 1997''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. SMALL COMPANY DEDUCTION.

    (a) Section 832(c) is amended by striking ``and'' at the end of 
paragraph (12), by striking the period at the end of paragraph (13) and 
inserting ``; and'', and by adding at the end thereof the following new 
paragraph:
            ``(14) the small insurance company deduction allowed by 
        subsection (h).''
    (b) Section 832 is amended by adding at the end thereof the 
following new subsections:
    ``(h) Small Insurance Company Deduction.--In the case of taxable 
years beginning after December 31, 1997--
            ``(1) In general.--There shall be allowed as a deduction 
        for the taxable year 60 percent of so much of the tentative 
        taxable income for such taxable year as does not exceed 
        $3,000,000 (hereinafter in this section referred to as the 
        `small insurance company deduction').
            ``(2) Phaseout between $3,000,000 and $15,000,000.--The 
        amount of the small insurance company deduction determined 
        under paragraph (1) for any taxable year shall be reduced (but 
        not below zero) by 15 percent of so much of the tentative 
        taxable income for such taxable year as exceeds $3,000,000.
            ``(3) Small insurance company deduction not allowable to 
        company with assets of $500,000,000 or more.--
                    ``(A) In general.--The small insurance company 
                deduction shall not be allowed for any taxable year to 
                any insurance company which, at the close of such 
                taxable year, has assets equal to or greater than 
                $500,000,000.
                    ``(B) Assets.--For purposes of this paragraph, the 
                term `assets' means all assets of the company.
                    ``(C) Valuation of assets.--For purposes of this 
                paragraph, the amount attributable to--
                            ``(i) real property and stock shall be the 
                        fair market value thereof, and
                            ``(ii) any other asset shall be the 
                        adjusted basis of such asset for purposes of 
                        determining gain on sale or other disposition.
                    ``(D) Special rule for interests in partnerships 
                and trusts.--For purposes of this paragraph--
                            ``(i) an interest in a partnership or trust 
                        shall not be treated as an asset of the 
                        company, but
                            ``(ii) the company shall be treated as 
                        actually owning its proportionate share of the 
                        assets held by the partnership or trust (as the 
                        case may be).
    ``(i) Tentative Taxable Income.--For purposes of subsection (h)--
            ``(1) In general.--The term `tentative taxable income' 
        means taxable income determined without regard to the small 
        insurance company deduction.
            ``(2) Exclusion of items attributable to noninsurance 
        businesses.--The amount of the tentative taxable income for any 
        taxable year shall be determined without regard to all items 
        attributable to noninsurance businesses.
            ``(3) Noninsurance businesses.--
                    ``(A) In general.--The term ``non-insurance 
                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 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 property or casualty insurance 
                        benefits.
                    ``(C) Limitation of amount of loss from 
                noninsurance business which may offset income from 
                insurance business.--In computing the taxable income of 
                any insurance company subject to tax imposed by section 
                831, any loss from a noninsurance business shall be 
                limited under the principles of section 1503(c).
    ``(j) Special Rule for Controlled Groups.--
            ``(1) Small insurance company deduction determined on 
        controlled group basis.--For purposes of subsections (h) and 
        (i)--
                    ``(A) all insurance companies which are members of 
                the same controlled group shall be treated as 1 
                insurance company, and
                    ``(B) any small insurance company deduction 
                determined with respect to such group shall be 
                allocated among the insurance companies which are 
                members of such group in proportion to their respective 
                tentative taxable incomes.
            ``(2) Noninsurance members included for asset test.--For 
        purposes of subsection (h)(3), all members of the same 
        controlled group (whether or not insurance companies) shall be 
        treated as 1 company.
            ``(3) Controlled group.--For purposes of this subsection, 
        the term `controlled group' means any controlled group of 
        corporations (as defined in section 1563(a)); except that 
        subsections (a)(4) and (b)(2)(D) of section 1563 shall not 
        apply.
            ``(4) Adjustments to prevent excess detriment or benefit.--
        Under regulations prescribed by the Secretary, proper 
        adjustments shall be made in the application of this subsection 
        to prevent any excess detriment or benefit (whether from year-
        to-year or otherwise) arising from the application of this 
        subsection.''

SEC. 3. EFFECTIVE DATE.

    The amendments made by this Act shall apply to taxable years 
beginning after December 31, 1997.