II

106TH CONGRESS

1ST SESSION S. 1136

To amend the Internal Revenue Code of 1986 to provide that an organization

shall be exempt from income tax if it is created by a State to provide

property and casualty insurance coverage for property for which such

coverage is otherwise unavailable.

IN THE SENATE OF THE UNITED STATES

MAY 26, 1999

Mr. MACK (for himself and Mr. GRAHAM) introduced the following bill; which

was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

that an organization shall be exempt from income tax

if it is created by a State to provide property and casualty insurance coverage for property for which such

coverage is otherwise unavailable.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. EXEMPTION FROM INCOME TAX FOR STATE2 CREATED ORGANIZATIONS PROVIDING PROP3 ERTY AND CASUALTY INSURANCE FOR PROP4 ERTY FOR WHICH SUCH COVERAGE IS OTH5 ERWISE UNAVAILABLE.

6 (a) IN GENERAL.—Subsection (c) of section 501 of

7 the Internal Revenue Code of 1986 (relating to exemption

8 from tax on corporations, certain trusts, etc.) is amended

9 by adding at the end the following new paragraph:

10 ‘‘(28)(A) Any association created before Janu11 ary 1, 1999, by State law and organized and oper12 ated exclusively to provide property and casualty in13 surance coverage for property located within the

14 State for which the State has determined that cov15 erage in the authorized insurance market is limited

16 or unavailable at reasonable rates, if—

17 ‘‘(i) no part of the net earnings of which

18 inures to the benefit of any private shareholder

19 or individual,

20 ‘‘(ii) except as provided in clause (v), no

21 part of the assets of which may be used for, or

22 diverted to, any purpose other than—

23 ‘‘(I) to satisfy, in whole or in part, the

24 liability of the association for, or with re25 spect to, claims made on policies written

26 by the association,
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1 ‘‘(II) to invest in investments author2 ized by applicable law, or

3 ‘‘(III) to pay reasonable and nec4 essary administration expenses in connec5 tion with the establishment and operation

6 of the association and the processing of

7 claims against the association,

8 ‘‘(iii) the State law governing the associa9 tion permits the association to levy assessments

10 on property and casualty insurance policy11 holders with insurable interests in property lo12 cated in the State to fund deficits of the asso13 ciation, including the creation of reserves,

14 ‘‘(iv) the plan of operation of the associa15 tion is subject to approval by the chief executive

16 officer or other executive branch official of the

17 State, by the State legislature, or both, and

18 ‘‘(v) the assets of the association revert

19 upon dissolution to the State, the State’s des20 ignee, or an entity designated by the State law

21 governing the association, or State law does not

22 permit the dissolution of the association.

23 ‘‘(B) Subparagraph (A) shall not apply to an

24 association for any taxable year if the association’s

25 surplus income for such year exceeds 5 percent of
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1 the total insured value of properties insured by the

2 association as of the close of the taxable year unless

3 the association pays a tax equal to 35 percent of

4 such excess for such year. Such tax shall be treated

5 as imposed by chapter 42 for purposes of this title.’’

6 (b) TRANSITIONAL RULE.—No income or gain shall

7 be recognized by an association as a result of a change

8 in status to that of an association described by section

9 501(c)(28) of the Internal Revenue Code of 1986, as

10 amended by subsection (a).

11 (c) EFFECTIVE DATE.—The amendment made by

12 subsection (a) shall apply to taxable years beginning after

13 December 31, 1998.

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