SECTION 1. FOREIGN COMPANIES CARRYING ON INSURANCE BUSINESS OF THE 
              INTERNAL REVENUE CODE OF 1986.

    (a) Treatment of Effectively Connected Net Investment Income of 
Insurance Companies.--
            (1) In general.--Subsection (b) of section 842 of the 
        Internal Revenue Code of 1986 is amended by redesignating 
        paragraphs (2), (3), (4), and (5) as paragraphs (6), (7), (8), 
        and (9), respectively, and by striking out paragraph (1) and 
        inserting the following new paragraphs:
            ``(1) Recomputation of net investment income.--Each foreign 
        company taxable under part I or II of this subchapter shall 
        recompute its effectively connected net investment income for 
        any taxable year beginning after December 31, 1987 (hereafter 
        in this subsection referred to as the `recomputed year') by 
        making the adjustments specified in paragraph (2) for the 
        second succeeding taxable year (hereafter in the subsection 
        referred to as the `adjustment year').
            ``(2) Adjustments.--
                    ``(A) Increase where recomputed amount greater.--
                If--
                            ``(i) the recomputed effectively connected 
                        net investment income for the recomputed year, 
                        exceeds
                            ``(ii) the effectively connected net 
                        investment income for such year (determined 
                        without regard to this subsection),
                such excess shall increase the effectively connected 
                net investment income for the adjustment year.
                    ``(B) Decrease where recomputed amount lesser.--
                If--
                            ``(i) the effectively connected net 
                        investment income for the recomputed year 
                        (determined without regard to this subsection), 
                        exceeds
                            ``(ii) the recomputed effectively connected 
                        net investment income for such year,
                such excess shall reduce the effectively connected net 
                investment income for the adjustment year.
                    ``(C) Interest on adjustments.--The foreign company 
                shall pay (or be entitled to receive) interest in the 
                amount which would have been computed under chapter 67 
                on the underpayment or overpayment (as the case may be) 
                which would have resulted if the adjustment under 
                subparagraph (A) or (B) (whichever applies) were made 
                for the recomputed year.
            ``(3) Recomputed effectively connected net investment 
        income.--For purposes of this subsection, the term `recomputed 
        effectively connected net investment income' means the greater 
        of--
                    ``(A) the cumulative effectively connected net 
                investment income (determined without regard to this 
                subsection) for the recomputed year and all preceding 
                taxable years beginning after December 31, 1987, or
                    ``(B) the cumulative minimum effectively connected 
                net investment income for the recomputed year and such 
                preceding taxable years,
        reduced by the amount of the cumulative recomputed effectively 
        connected net investment income determined under this 
        subsection for such preceding taxable years.
            ``(4) Minimum effectively connected net investment 
        income.--For purposes of this subsection, the term `minimum 
        effectively connected net investment income' means, with 
        respect to any taxable year, the product of--
                    ``(A) the required United States assets of the 
                foreign company, and
                    ``(B) the domestic investment yield applicable to 
                such company for such taxable year.
            ``(5) Effectively connected net investment income.--For 
        purposes of this subsection, the term `effectively connected 
        net investment income' means the net investment income which is 
        effectively connected with the conduct of an insurance business 
        within the United States.''
            (2) Conforming amendments.--
                    (A) Paragraph (7) of section 842(b) of such Code, 
                as redesignated by subsection (a), is amended by 
                striking ``paragraph (1)(B)'' and inserting ``paragraph 
                (4)(B)''.
                    (B) Subparagraph (A) of section 842(b)(8) of such 
                Code, as redesignated by subsection (a), is amended by 
                striking ``paragraph (1)(B)'' and inserting ``paragraph 
                (4)(B)''.
                    (C) Paragraph (3) of section 842(c) of such Code is 
                amended to read as follows:
            ``(3) Adjustment of limitation on deduction for 
        policyholder dividends in the case of foreign mutual life 
        insurance companies.--For purposes of section 809, the equity 
        base of any foreign mutual life insurance company as of the 
        close of any adjustment year shall be increased by the excess 
        of--
                    ``(A) the required United States assets of the 
                company for the second preceding taxable year 
                (determined under subsection (b)(6)), over
                    ``(B) the mean of the assets held in the United 
                States during the second preceding taxable year.''
                    (D) Paragraph (4) of section 842(c) of such Code is 
                amended to read as follows:
            ``(4) Data used in determining domestic asset/liability 
        percentages and domestic investment yields.--Each domestic 
        asset/liability percentage, and each domestic investment yield, 
        for any taxable year shall be based on representative tax 
        return data with respect to domestic insurance companies for 
        such taxable year (or where such data is unavailable, such 
        representative data as the Secretary considers appropriate).''
    (b) Effective Date.--The amendments made by this section shall 
apply as if included in the provision of the Omnibus Budget 
Reconciliation Act of 1987 to which they relate.
Amends the Internal Revenue Code to revise provisions determining the effectively connected net investment income of foreign companies carrying on insurance business in the United States. Requires such companies to recompute their effectively connected net investment income for taxable years beginning after December 31, 1997. Provides for increases (or decreases, as appropriate) in such income where the recomputed amount exceeds (or is less than) the income for the recomputed year.  Requires payment (or receipt) of interest on the underpayment (or overpayment) of adjusted amounts.
To amend the Internal Revenue Code of 1986 with respect to the treatment of effectively connected investment income of insurance companies.