SECTION 1. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
              COMPANIES PERMITTED.

    (a) In General.--Section 1504(b) of the Internal Revenue Code of 
1986 (defining includible corporation) is amended by striking paragraph 
(2) and by redesignating paragraphs (3) through (8) as paragraphs (2) 
through (7), respectively.
    (b) Conforming Amendments.--
            (1) Section 1503 of the Internal Revenue Code of 1986 is 
        amended by striking subsection (c) (relating to special rule 
        for application of certain losses against income of insurance 
        companies taxed under section 801) and by redesignating 
        subsections (d), (e), and (f) as subsections (b), (c), and (d), 
        respectively.
            (2) Section 1504 of such Code is amended by striking 
        subsection (c) and by redesignating subsections (d), (e), and 
        (f) as subsections (c), (d), and (e), respectively.
            (3) Section 243(b)(2)(A) of such Code is amended by 
        striking ``sections 1504(b)(2), 1504(b)(4), and 1504(c)'' and 
        inserting ``section 1504(b)(3)''.
            (4) Section 805(a)(4)(E) of such Code is amended by 
        striking ``1504(b)(3)'' and inserting ``1504(b)(2)''.
            (5) Section 818(e)(1) of such Code is amended to read as 
        follows:
            ``(1) Items of companies other than insurance companies.--
        If an affiliated group includes members which are and which are 
        not life insurance companies, all items of the members of such 
        group which are not life insurance companies shall not be taken 
        into account in determining the amount of the tentative LICTI 
        of members of such group which are life insurance companies.''.
            (6) Section 832(b)(5)(D)(ii)(II) of such Code is amended by 
        striking ``1504(b)(3)'' and inserting ``1504(b)(2)''.
            (7) Section 864(e)(5)(A) of such Code is amended by 
        striking ``paragraph (4)'' and inserting ``paragraph (3)''.
            (8) Section 936(i)(5)(A) of such Code is amended by 
        striking ``section 1504(b)(3) or (4)'' and inserting ``section 
        1504(b)(2) or (3)''.
            (9) Section 952(c)(1)(B)(vii)(II) of such Code is amended 
        by striking ``1504(b)(3)'' and inserting ``1504(b)(2)''.
            (10) Section 953(d)(3) of such Code is amended by striking 
        ``1503(d)'' and inserting ``1503(c)''.
            (11) Section 954(h)(4)(F)(ii) of such Code is amended by 
        striking ``1504(b)(3)'' and inserting ``1504(b)(2)''.
            (12) Section 6166(b)(10)(B)(ii)(V) of such Code is amended 
        by striking ``1504(b)(3)'' and inserting ``1504(b)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 2. PHASE-IN OF APPLICATION OF CERTAIN LOSSES AGAINST INCOME OF 
              INSURANCE COMPANIES.

    (a) Phase-in.--
            (1) In general.--For taxable years beginning after December 
        31, 2003, and before January 1, 2010, if--
                    (A) an affiliated group includes 1 or more domestic 
                insurance companies subject to tax under section 801 of 
                the Internal Revenue Code of 1986,
                    (B) the common parent of such group has not elected 
                under subsection (b) to treat all such insurance 
                companies as corporations which are not includible 
                corporations, and
                    (C) the consolidated taxable income of the members 
                of the group not taxed under such section 801 results 
                in a consolidated net operating loss for such taxable 
                year,
        then, under regulations prescribed by the Secretary of the 
        Treasury or his delegate, the amount of such loss which cannot 
        be absorbed in the applicable carryback periods against the 
        taxable income of such members not taxed under such section 801 
        shall be taken into account in determining the consolidated 
        taxable income of the affiliated group for such taxable year to 
        the extent of the applicable percentage of such loss or the 
        applicable percentage of the taxable income of the members 
        taxed under such section 801, whichever is less. The unused 
        portion of such loss shall be available as a carryover, subject 
        to the same limitations (applicable to the sum of the loss for 
        the carryover year and the loss (or losses) carried over to 
        such year), in applicable carryover years.
            (2) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage shall be determined in accordance 
        with the following table:

                                                         The applicable
  For taxable years beginning in:                        percentage is:
        2004...................................................     40 
        2005...................................................     50 
        2006...................................................     60 
        2007...................................................     70 
        2008...................................................     80 
        2009...................................................     90.
    (b) Election for Pre-2010 Years of Groups With Insurance 
Companies.--For taxable years beginning after December 31, 2003, and 
before January 1, 2010, the common parent of an affiliated group 
(determined without regard to section 1504(b)(2) of the Internal 
Revenue Code of 1986 as in effect on the day before the date of 
enactment of this Act) which includes 1 or more domestic insurance 
companies subject to tax under section 801 of such Code may elect to 
treat all such insurance companies as corporations which are not 
includible corporations within the meaning of subsection (b) of section 
1504 of such Code, if, as of the date of enactment of this section--
            (1) such affiliated group included 1 or more insurance 
        companies subject to tax under section 801 of such Code, and
            (2) no additional election was in effect under section 
        1504(c)(2) of such Code (as in effect on the day before the 
        date of the enactment of this Act).
    (c) No Carryback Before January 1, 2004.--To the extent that a 
consolidated net operating loss is allowed or increased by reason of 
this section or the amendments made by this Act, such loss may not be 
carried back to a taxable year beginning before January 1, 2004.
    (d) Nontermination of Group.--No affiliated group shall terminate 
solely as a result of this section or the amendments made by this Act.
    (e) Subsidiary Stock Basis Adjustments.--A member corporation's 
basis in the stock of a subsidiary corporation shall be adjusted upon 
consolidation to reflect the preconsolidation income, gain, deduction, 
loss, distributions, and other relevant amounts during a period when 
such corporations were members of an affiliated group (determined 
without regard to section 1504(b)(2) of the Internal Revenue Code of 
1986 as in effect on the day before the date of enactment of this Act) 
but were not included in a consolidated return of such group by 
operation of section 1504(c)(2)(A) of such Code (as in effect on the 
day before the date of the enactment of this Act) or by reason of the 
election allowed under subsection (b).
    (f) Waiver of 5-Year Waiting Period.--An automatic waiver from the 
5-year waiting period for reconsolidation provided in section 
1504(a)(3) of the Internal Revenue Code of 1986 shall be granted to any 
corporation which was previously an includible corporation but was 
subsequently deemed a nonincludible corporation as a result of becoming 
a subsidiary of a corporation which was not an includible corporation 
solely by operation of section 1504(c)(2) of such Code (as in effect on 
the day before the date of enactment of this Act), subject to such 
conditions as the Secretary may prescribe.
Amends the Internal Revenue Code to include life insurance companies as an "includible corporation" for purposes of filing consolidated tax returns.Permits an affiliated group which includes at least one domestic insurance company that elects to file a consolidated return rather than pay tax under certain life insurance provisions to use a phased-in percentage of insurance company net operating loss in determining its own taxable income. (Permits unused loss carryover.) Provides for: (1) subsidiary stock basis adjustment; and (2) waiver of the five-year reconsolidation waiting period for certain formerly includible corporations which became nonincludible as a result of becoming a subsidiary of a nonincludible life insurance company.
A bill to amend the Internal Revenue Code of 1986 to permit the consolidation of life insurance companies with other companies.