14

claim for an award, (2) that the EIRF has determined to be a
valid contract, and (3) with respect to which the EIRF has made
one or more resolution payments to an eligible party (e.g., a
potentially responsible party) during any of the four calendar
years preceding the year in which the assessment is imposed.

The EIRF would be required to identify to each insurer its
assessable direct policies for each year, and to permit the
insurer to identify which, if any, of those policies was
reinsured. The coverage limit of any assessable direct policy
generally would be reduced by 80 percent of the amount of any
reinsurance.’ This reduction also would be reflected in the
aggregate limits on all assessable direct policies for purposes
of determining the EIRF-certified percentage.

The EIRF would be required to determine the EIRF-certified
percentages and to report them to the Treasury Department no
later than August 1 of each calendar year in which the
assessments were to be imposed. The Treasury Department then
would be required to notify insurers of the amount of their
assessments, which would be payable no later than September 30 of
each year.

The determinations made by the EIRF of EIRF-certified
percentages would not be subject to judicial review. Similarly,
the EIRF-certified percentages would not be subject to review by
the Department of the Treasury in any administrative proceeding.

The Administration proposal would establish a new
Environmental Insurance Resolution Trust Fund (the "Trust Fund")
in the Trust Fund Code of the Internal Revenue Code. The Trust
Fund would receive deposits of the gross receipts from the new
excise taxes (including the assessments), as well as any
regulatory filing fees authorized under Title VIII of S. 1834 and
recoveries of certain amounts by the EIRF.

Amounts in the Trust Fund would be used to fund the new
direct spending authorized for the EIRF by Title VIII. Revenues
available to the EIRF for expenditure would be limited to an
amount equal to the excise taxes, assessments, and other revenues
deposited in the Trust Fund. Also, the Trust Fund would be the
sole source of payment for all activities of the EIRF. The Trust
Fund generally would not be permitted to borrow from the
Treasury. The Trust Fund, however, could borrow money as

‘© This reduction would not be allowed in certain
circumstances, such as if the reinsurer and the reinsured were
members of the same controlled group.



5

with two new excise taxes and a new assessment generally imposed
with respect to commercial insurance. These taxes would be
imposed as follows:

- 995- ---A retrospective excise tax based on
certain insurance premiums written during the period 1968 through
1985 would raise approximately 69 percent of projected total
revenues during this four-year period. Of this amount,
approximately 46 percent of total revenues ($374 million a year)
would be collected through a tax based on net direct insurance
premiums written and 23 percent of such revenues ($188 million a
year) would be collected through a tax based on net reinsurance
premiums written. The remaining 31 percent of revenues ($248
million a year) would be raised by a prospective tax on premiums
written for direct insurance. Tax rates (described below) would
be established in a manner that would raise total revenues of
approximately $810 million per year.

The following caps would apply to the taxes imposed during
this four-year period: (1) the revenues from the retrospective
tax on direct insurance could not exceed $1.496 billion ($374
million times four); (2) the revenues from the retrospective tax
on reinsurance premiums could not exceed $752 million ($188
million times four); and (3) the revenues from the prospective
tax could not exceed $992 million ($248 million times four).

In addition, separate caps would apply to the retrospective
taxes collected on foreign and domestic reinsurance premiums.
During this four year period, the revenues collected from the
retrospective tax on reinsurance premiums issued by domestic
reinsurers could not exceed $444 million ($111 million times
four) and the revenues collected from the retrospective tax on
reinsurance premiums issued by foreign reinsurers could not
exceed $308 million ($77 million times four) .?

Years 5- 99-20 ---The retrospective tax on direct
insurance would be replaced by an assessment on direct insurers
designed to raise approximately 11 percent of total revenues ($85
million per year). The retrospective tax on reinsurance would
produce 23 percent of total revenues ($188 million a year). The
prospective tax rate would be increased to provide the remaining
66 percent of total revenues ($537 million a year). As in the
first four years, total projected revenues would be approximately

? The caps applicable to domestic and foreign reinsurers
were determined by the Administration based on the relative
market shares of the domestic and foreign reinsurance premiums
during the base-period years. The Administration does not
believe that these caps violate the obligations of the United
States under any existing tax treaty or trade agreement, or under
the proposed General Agreement on Trade in Services.



10

any reinsurance policy with respect to such an insurance
policy." For this purpose, a casualty insurance policy would be
any insurance policy other than any "policy of life, sickness, or
accident insurance, or annuity contract" as defined in Code
section 4372 (e).

The alternative foreign excise tax would be an amount equal
to one-half of one percent (0.5%) of the maximum limit of
liability of the foreign insurer under the policy. However, the
total liability for the alternative foreign excise tax and the
prospective tax with respect to a transaction would be limited to
the total amount of premiums and other similar consideration
related to such transaction.

The term "maximum limit of liability" generally would be
defined as the total amount for which the foreign insurer (or
reinsurer) would be liable if each person entitled to recover
from the insurer (or reinsurer) under the policy was
simultaneously entitled to the maximum recovery allowed under the
policy. The maximum limit of liability under a policy would be
reduced by any amount for deductibles and self-insured
retentions, but would not be reduced by the amount of any
reinsurance.

All persons having control, receipt, custody, disposal, or
payment of any premium or other amount under the policy subject
to the tax would be personally liable for withholding and
remitting the tax to the Treasury Department.

Foreign persons that are not assessable persons could elect
to be subject to the retrospective tax in the same manner as an
assessable person (see discussion above), instead of the
alternative foreign excise tax. Electing parties generally would
be required to enter into a closing agreement with the Treasury
Department to ensure proper computation and payment of the
retrospective tax and the assessments imposed on insurers and
reinsurers.” Pending execution of such a closing agreement, the
alternative foreign excise tax would not apply to any premium

"The tax, however, would not be imposed on a policy of

reinsurance of a risk with respect to which the foreign reinsurer
can demonstrate that the tax had been paid previously by or on
behalf of the reinsured foreign person.

Foreign insurers and reinsurers that are not subject to
U.S. income tax on a net basis and that seek to enter into a
closing agreement with respect to the retrospective tax and
assessments would be permitted to bring a declaratory judgment
action challenging the reasonableness of the position of the
Internal Revenue Service with respect to such insurer or
reinsurer’s retrospective tax, subject to certain conditions.



7

risks, losses, or liabilities within the United States;* and (2)
the premiums for which were reported in the applicable annual
statement’ (or would have been reported had an annual statement
been filed) as relating to the commercial multiple peril, or the
“other liability" lines of business. A qualified commercial
policy, however, would not include any policy for which premiums
were required to be reported as relating to the "other liability"
line of business, if the policy either (1) did not provide any
commercial coverage, or (2) did not provide any comprehensive
general liability coverage or any environmental liability
coverage. For example, premiums related to medical malpractice
coverage would be excluded; however, premiums related to
commercial property damage insurance could not be excluded from
either the commercial multiple peril or "other liability" line of
business.

In the case of direct insurance, the retrospective tax
generally would be determined by multiplying (1) a direct
insurance funding rate for the calendar year, by (2) the total
net direct premiums written by the assessable person (or certain
predecessors in interest) during the base period in excess of an
exemption amount of $50 million.’ For reinsurance, the
retrospective tax generally would be determined by multiplying a
reinsurance funding rate for the calendar year by the total net
reinsurance premiums written by the assessable person (or certain

3 For purposes of the excise taxes and the assessment under

the Administration proposal, the United States generally would
include Puerto Rico, and U.S. possessions and territories. The
term "United States person", however, would have the meaning in
Code section 7701. Thus, for purposes of determining whether a
person was a "United States person", the term "United States"
would not include Puerto Rico, or U.S. possessions and
territories.

* The annual statement is the financial statement filed for
State regulatory purposes, on the form approved by the National
Association of Insurance Commissioners.

5 Certain related Parties would be required to share one
exemption amount. For this Purpose, related parties would
include: (1) persons treated as a single employer as of February
2, 1994, under Code sections 52(a) and (b), as determined on a
worldwide basis; (2) persons participating in certain joint
underwriting operations as of February 2, 1994; and (3) persons
participating in a joint underwriting operation that is subject
to a closing agreement as of February 2, 1994.



$810 million per year.

The following caps would apply to the taxes imposed during
this six year period: (1) the revenues from the retrospective tax
on reinsurance premiums could not exceed $1.128 billion ($188
million times six); and (2) the revenues from the prospective tax
could not exceed $3.222 billion ($537 million times six). As in
the first four years, a separate cap would apply to the
retrospective taxes collected on foreign and domestic reinsurance
premiums. During this six year period, the revenues collected
from the retrospective tax on reinsurance premiums issued by
domestic reinsurers could not exceed $666 million ($111 million
times six) and the revenues collected from the retrospective tax
on reinsurance premiums issued by foreign reinsurers could not
exceed $462 million ($77 million times six).

Tax Rates.--The tax rates required to produce the revenues
described above would be --

Years 1-4 Years 5-10
Retrospective tax --
Direct insurance 0.22% N/A
Reinsurance 0.48% 0.48%
Prospective tax -- 0.37% 0.69%

The gross revenues from these excise taxes and assessments
would be deposited in the Environmental Insurance Resolution
Trust Fund (the "Trust Fund"), a new trust fund established for
this purpose in the Trust Fund Code of the Internal Revenue Code.

Retrospective tax
in general

The retrospective tax would be imposed on any "assessable
person" that engages in a trade or business (whether or not
related to the current issuance of insurance) within the United
States. The retrospective tax would be based on the net premiums
written for direct insurance and reinsurance by the assessable
person (or certain predecessors in interest) during the 18-year
period from January 1, 1968 through December 31, 1985 (the "base
period"), with respect to certain "qualified commercial
policies".

In general, a qualified commercial policy would mean any
insurance or reinsurance policy: (1) with respect to hazards,



9

reinsurance,* and 33 percent of the net premiums written during
the base period from unallocated reinsurance. For this purpose,
premiums from reinsurance between members of certain "controlled
groups" would be treated, in certain cases, as direct premiums
rather than reinsurance in recognition of the fact that such
transactions did not shift risk outside the controlled group.°
Net premiums written would only be subject to tax to the extent
that they are attributable to the coverage of United States
risks.

The determination of the net premiums written for a year
generally would be based on the underwriting and investment
exhibit of the annual statement filed for that year. If no
annual statement was filed for a given year, the premium
information would be determined on a basis consistent with the
annual statement requirements applicable to such year. The
Treasury Department could accept a reasonable method of premium
determination if Treasury determines that adequate records are
not reasonably available.

Special rules would apply for determining a person’s net
premiums written during the base period where the person has
engaged in acquisitions or dispositions, assumption reinsurance
transactions, commutation of reinsurance, or similar other
transactions.

Alternative tax on foreign insurance

A foreign person that is not an assessable person, and that
therefore would not be liable for the retrospective tax,
generally would be subject to an alternative excise tax imposed
on a prospective basis (herein referred to as the "alternative
foreign excise tax"). The alternative foreign excise tax
generally would be imposed as a withholding tax on (1) any
casualty insurance policy that covers hazards, risks, losses, or
liabilities wholly or partly within the United States, and (2)

® Allocated reinsurance is any reinsurance for which the net

premiums written were reported on the underwriting and investment
exhibit of the annual statement (or would have been reported had
an annual statement been filed) as relating to a covered line of
business.

° This determination would be made as of the time that the
relevant premiums were written.

© If more than one annual Statement were filed in a given

year, the determination would be based on the annual statement
filed with any State that reports and identifies the relevant
premiums most specifically by line of business.



Joint Committee on Taxation
September 27, 1994
JCX-20-94

REVENUE-RELATED PROVISIONS OF S. 1834
(SUPERFUND REFORM ACT OF 1994)

Scheduled for a Markup by the Senate Committee on Finance
on September 28, 1994

I. LEGISLATIVE BACKGROUND

S. 1834 (the "Superfund Reform Act of 1994"), the
Administration's Superfund reauthorization proposal, was
introduced (by request) by Senators Baucus and Lautenberg, on
February 7, 1994. The bill was jointly referred to the Committee
on Environment and Public Works and the Committee on Finance for
matters under their respective committee jurisdiction. Title IX
of S. 1834, as introduced, would extend the four present-law
Superfund excise taxes through December 31, 2000, and would make
conforming amendments to the Superfund Trust Fund expenditure
purposes to allow financing of the revised Superfund program.

S. 1834 was ordered favorably reported, with amendments, by
the Committee on Environment and Public Works on August 3, 1994,
and the report was filed on August 19, 1994 (Ss. Rept. 103-349).
Title VIII of the bill would create a new Environmental Insurance
Resolution Fund (the "EIRF") to settle disputes between insurers
and their policyholders concerning certain environmental cleanup
costs. The Committee on Environment and Public Works did not
amend Title IX ("Taxes") of the bill.

On August 17, 1994, the Administration submitted to the
House Committee on Ways and Means a proposal! for funding the
EIRF. The proposal would impose two new excise taxes and a
special assessment (also imposed as an excise tax under the
Internal Revenue Code) on persons issuing or bearing risks under
certain property and casualty insurance policies. A special
assessment on reinsurers was substituted for a portion of the
excise taxes on reinsurers by the House Committee on Ways and
Means in its amendment to Title IX of H.R. 3800 as approved on

August 19, 1994. (See H. Rept. 103-582, Part 3, August 26,
1994.)

The Committee on Finance held a public hearing on the
Superfund revenue proposals on September 14, 1994. In connection
with that hearing, the Administration submitted to the Committee
on Finance a revised funding proposal for the EIRF. Among other

‘' This proposal was a substitute for a prior Administration
proposal that was submitted on May 20, 1994.



12

annual statement for that year.“ Taxpayers generally would be
permitted an exemption amount of $5 million of premiums written
per year. However, certain related parties would be entitled to
only one exemption amount, which would be allocated among them.

The lines of business that would be subject to tax under the
Administration proposal are: fire, allied lines, commercial
multiple peril, farmowners multiple peril, ocean marine, inland
Marine, products liability, other liability, commercial auto no-
fault, other commercial auto liability, commercial auto physical
damage, aircraft, surety, glass, burglary and theft, and boiler
and machinery. Thus, lines of business that would not be subject
to the prospective tax (under current annual statement
classifications) are: multiple peril crop, homeowners multiple
peril, financial guaranty, mortgage guaranty, medical
malpractice, earthquake, accident and health, workers’
compensation, private passenger auto no-fault, other private
passenger auto liability, private passenger auto physical damage,
fidelity and credit.

The lines of business set forth in the preceding paragraph
are based on the 1993 form of the annual statement as approved by
the National Association of Insurance Commissioners. The
Treasury Department generally could not expand the lines of
business subject to the prospective tax. The Treasury
Department, however, would be granted authority to preserve the
inclusion of premiums for types of insurance coverage intended to
be subject to the prospective tax. For example, Treasury would
have the authority to respond to changes in the construction of
the annual statement lines originally covered. This authority
would not extend to the inclusion of any reinsurance coverage.

Premiums written for the following types of insurance
policies would not be subject to the prospective tax, even though
the premiums for such policies are required to be reported on the
annual statement as relating to a covered line of business: (1)
directors and officers liability, (2) professional liability, (3)
fire, other perils, or extended coverage on residential or farm
owner-occupied housing units, (4) personal liability umbrella,

(5) personal articles, (6) personal owner-used boats, (7
personal owner-piloted aircraft, and (7) property damage and
liability coverage for owner-occupied condominium associations.

The taxable period for the prospective tax would be a

4 If an annual statement is not filed for such year, the
determination of direct premiums written would be made on a basis
consistent with the annual statement requirements for such year.



11

written by a foreign person if certain conditions are met,
including: (1) the foreign person has in effect a binding
election (meeting requirements prescribed by the Treasury) to be
treated as an assessable person; (2) the person has posted a bond
or other security (in the manner and amount required by the
Treasury Department); and (3) the person satisfies other
requirements imposed by Treasury, such as the waiver of treaty
benefits and providing access to books and records. This
exception would apply only with respect to premiums written after
the date that the foreign person has met the three requirements
for the preliminary election described in this paragraph.

Tf a closing agreement is not finalized in a timely manner,
the foreign person would be liable for the alternative foreign
excise tax accruing from the date that the preliminary election
was effective, together with any interest, penalties and
additions to tax. The Treasury may apply any security provided
by the foreign person against the liability of the foreign person
for such amounts.

A foreign person generally would not be required to enter
into a closing agreement (and would not be subject to the
retrospective tax or the alternative foreign excise tax) if (1)
such person (and related persons) did not have net written
premiums (in excess of any applicable exemption amount) during
the base period and (2) such person complied with certain
expedited procedures.

Anti-abuse rules (including regulatory authority) would be
provided to prevent the avoidance of the retrospective tax and
the alternative foreign excise tax by foreign insurers and
reinsurers in the absence of a closing agreement.

rospec e_ tax

In general, the prospective tax would be imposed on the
direct premiums written by an insurer after December 31, 1994,
with respect to certain commercial insurance policies that cover
hazards, risks, losses, or liabilities within the United States.
The tax rate would be .37 percent during the period January i,
1995 through December 31, 1998, and .69 percent thereafter. The
determination of direct premiums written for a year generally
would be based on the exhibit of premiums and losses of the

% Withholding agents would not be liable for any amount of
the excise taxes under Title IX that may have become due with
respect to prior transactions (that occurred after the date the
preliminary election was effective) if the foreign insurer or
reinsurer fails to conclude a closing agreement.



8

predecessors in interest) during the base period.® In making
these calculations, the net premiums written in each base-period
year would be indexed for inflation and restated in 1985 dollars.

For calendar years 1995 through 1998, the annual funding
rate applicable to direct insurance would be .22 percent. After
1998, the tax applicable to direct insurance would expire. For
calendar years 1995 through 2004, the annual funding rate
applicable to reinsurance would be .48 percent.

As. i= pay

An assessable person generally would be defined as any
person that has commercial net premiums written during the base
period, and that is either (1) a United States person, or (2) any
other person that (a) is engaged in a trade or business within
the United States during the calendar year, (b) has taxable
income effectively connected with such trade or business, and (c)
is not exempt from net basis U.S. income tax under a treaty. For
example, an assessable person would include a resident of a
treaty country that has a permanent establishment in the United
States.

DB i on of n emi wri

The retrospective tax on direct insurance would be imposed
on the net direct premiums written’ during the base period from
any qualified commercial policy providing insurance. The
retrospective tax on reinsurance would be imposed on the net
premiums written during the base period from allocated

6 No exemption amount generally would apply with respect to

reinsurance. However, the Treasury Department would have the
authority to provide an exception excluding base-period
reinsurance premiums of a de-minimis amount.

7 During the base period, ceded reinsurance was not
separately reported on the annual statement for purposes of
determining the net direct premiums written and the net premiums
written for reinsurance. Accordingly, the Administration intends
that taxpayers would reduce premiums for direct insurance by any
cession of the directly written insurance and that taxpayers
would reduce premiums for reinsurance by any retrocession of the
reinsurance. In determining the net premiums written from direct
insurance and from allocated reinsurance, actual identification
of the insurance to which the ceded premiums relate would be
required. However, a reasonable and consistent allocation method
acceptable to the Treasury would be permitted if actual
identification is not possible.



4

Fund exceeds $3.5 billion on December 31, 1998, or December 31,
1999, and if the Treasury Department estimates that the
unobligated balance would exceed this amount at the end of
December 31, 1999 or December 31, 2000, respectively, if no
Superfund taxes were imposed during such year. Also, no further
taxes would be imposed if the Treasury Department estimates that
more than $22.0 billion of these taxes have been credited into
the Superfund before January 1, 2001.

The Administration proposal would conform the Superfund
expenditure purposes to the program as modified in S. 1934.

B. Proposed Environmental Insurance Resolution Trust Fund and
Excise Taxes .

Present Law

No Federal excise tax is imposed on domestic casualty
insurance policy premiums. A Federal excise tax is imposed on
premiums for certain insurance issued by foreign insurers and
reinsurers, including casualty insurance and reinsurance. The
rate of tax with respect to casualty insurance is four cents per
dollar of premiums paid, and with respect to reinsurance is one
cent per dollar of premiums paid (sec. 4371).

Revenues from the present-law excise tax on premiums paid to
foreign insurers and reinsurers are deposited in the General Fund
of the Treasury. There is no trust fund or other fund for
Federally sponsored settlement of private environmental insurance
claims.

Admin. ation sal
Overview

S. 1834 would establish a new Environmental Insurance
Resolution Fund (the "EIRF") to resolve disputes between
potentially responsible parties (persons potentially liable for
cleanup of Superfund sites) and their insurers regarding
liability for cleanup of Superfund sites. Under this program,
awards would be made to potentially responsible parties in an
amount generally equal to a statutory percentage of eligible
cleanup costs actually incurred. The percentages would vary from
20 percent to 60 percent, depending-on the State in which the
sites were located and the litigation venue for the various
sites. Potentially responsible parties electing to receive
payments from the EIRF would waive all claims against insurance
companies with respect to Superfund sites.

S. 1834, as reported by the Committee on Environment and
Public Works, does not include funding provisions for the EIRF;
the Administration, however, has proposed that the EIRF be funded



15

permitted by the Treasury solely for purposes of short-term cash
management if the following conditions are met: (1) the Treasury
Department approved the loan, including the rate of interest and
the terms and conditions of the loan, (2) the loan did not cause
the total outstanding debt of the Trust Fund to exceed $350
million, and (3) the loan was secured solely by the taxes and
assessments under Title IX of S. 1834. Any such loan could not
remain outstanding after December 31, 2003.

Effective Dates

The retrospective tax (other than the alternative foreign
excise tax) would be effective on January 1, 1995. The
prospective tax on domestic insurers and foreign insurers subject
to U.S. income tax on a net basis would apply to policies for
which direct premiums were written on or after January 1, 1995.
The assessment on insurers would be imposed beginning in calendar
years after 1998. The alternative foreign excise tax and the
Prospective tax on foreign insurers not subject to U.S. income
tax on a net basis would apply to policies for which premiums
were written after the close of the contingency period specified
in section 816 of S. 1834. The contingency period must end no
later than 225 days after the date of enactment.

Notwithstanding the preceding paragraph, none of the new
excise taxes and assessments would be collected unless the EIRF
program under Title VIII of S. 1834 is in effect on August 15,
1995, and the contingency period has expired by such date. The
EIRF program under Title VIII would terminate unless certain
minimum participation standards were achieved by the end of the
contingency period. If more than 20 percent of all eligible
potentially responsible parties reject participation in the EIRF,
the EIRF and the imposition of the excise taxes would terminate.
If the rejection rate is between 15 and 20 percent of all
eligible potentially responsible parties, the chairperson of the
EIRF, in consultation with the EIRF board, could elect to
continue or to terminate the EIRF. These determinations would be
required to be made by the end of the contingency period.

All of the new excise taxes (other than the alternative
foreign excise tax and the prospective tax on certain foreign
insurers) and the assessments would terminate after December 31,
2004. The alternative foreign excise tax and the prospective tax
on foreign.insurers not subject to U.S. tax ona net basis would
terminate 10 years after the date that such taxes first take
effect.

As provided in Title VIII, the Federal government would have
no liability for obligations incurred by the EIRF that remain
unsatisfied after the excise taxes expire and the Trust Fund has
no remaining funds. It is the intent of the Administration that
sufficient financing be obtained from the property and casualty



17
received from foreign and domestic sources.

3. Under Title VIII of S. 1834, the Environmental Protection
Agency ("EPA") would be authorized to accept ownership of certain
financial instruments, such as annuities, in connection with
settlement procedures. The proposal would require that the terms
and conditions of these financial instruments be approved by the
Treasury Department before acceptance by EPA.



II. DESCRIPTION OF PROPOSED REVENUE PROVISIONS

A. Extension of Current Superfund Taxes and Trust Fund

Present Law

Four different taxes are imposed under present law to fund
the Hazardous Substance Superfund (the "Superfund") program.
These are in general:

(1) An excise tax on certain petroleum products, imposed at
a rate of 9.7 cents per barrel;

(2) An excise tax on certain hazardous chemicals, imposed
at a rate that varies from $0.22 to $4.87 per ton;

(3) An excise tax on certain imported substances that use
as materials in their manufacture or production one or more of
the hazardous chemicals subject to tax in {2} above; and

(4) A corporate environmental income tax equal. to 0.12
percent of the amount of modified alternative minimum taxable
income of a corporation that exceeds $2 million.

Amounts equivalent to the revenues from these taxes are
dedicated to the Superfund Trust Fund, established in the Trust
Fund Code of the Internal Revenue Code. Amounts in the Superfund
Trust Fund may be expended for the purposes provided in present-
law authorizing legislation, as that legislation was enacted in
1986.

In general, the Superfund taxes are scheduled to expire
after December 31, 1995. However, the taxes would terminate
before then if either (1) the unobligated balance in the
Superfund exceeds $3.5 billion on December 31, 1994, and the
Treasury Department estimates that the unobligated balance will
exceed $3.5 billion at the end of 1995 (assuming no Superfund
taxes are imposed during 1995), or (2) the Treasury Department
estimates that more than $11.97 billion of revenues from these
taxes will be credited into the Superfund before January 1, 1996.
At the present time, neither of these early expiration events are
expected to occur.

i ti Propo

In general, the Administration proposal would extend the
present-law Superfund excise taxes on petroleum, chemicals, and
imported substances through December 31, 2000, and the present-
law corporate environmental income tax through taxable years
beginning before January 1, 2001. However, these taxes would
terminate before then if the unobligated balance in the Trust



2

things, the revised proposal would eliminate the special
assessment on reinsurers, as added by the House Committee on Ways
and Means. Subsequent revisions to the proposal were transmitted
by the Administration on September 26, 1994.

The Administration intends that the new excise taxes and the
special assessment under its proposal be incorporated in Title IX
of S. 1834 as the financing source for the new Environmental
Insurance Resolution Fund program.



13

calendar quarter; however, estimated monthly deposits would be
required to be made by the 14th day following the end of the
month in which the premium is included in direct premiums
written. No deposits of tax would be required, however, until
such time as, and only to the extent that, the direct premiums
written during the calendar year exceed the exemption amount.

A special withholding rule would apply to policies issued by
a foreign person unless the income from the premiums (or from
other amounts paid for such policies) is effectively connected
with a U.S. trade or business and is not exempt from net basis
U.S. income tax under a treaty. Under this special rule, the tax
generally must be withheld and remitted to the Treasury
Department by any person who has control or custody over any
payment of any premium or other amount under the policy. A
person that fails properly to withhold and remit the tax would be
personally liable unless that person can establish to the
satisfaction of the Treasury that withholding is not required
with respect to the foreign insurer.

The total liability for the prospective tax and the
alternative foreign excise tax with respect to a transaction
would be limited to the total amount of premiums and other
similar consideration related to such transaction.

Assessment on direct insurers

Beginning on January 1, 1999, a portion of the EIRF’s
revenues would be raised by an assessment on direct insurers
(imposed as an excise tax under the Internal Revenue Code). The
assessment imposed on a particular insurer would be based on the
EIRF awards paid with respect to policies issued by the insurer
(or certain predecessors in interest) during a prescribed prior
period. Hach direct insurer’s assessment would be determined
annually.

The assessment would be determined by multiplying an
insurer's annually-determined "EIRF-certified percentage" by $85
million. The EIRF-certified percentage of each insurer would be
determined by dividing the coverage limits on all assessable
direct policies of that insurer by the aggregate coverage limits
of all such policies of all direct insurers. Generally, the
coverage limit of an assessable direct policy would be the
aggregate limit on coverage under the policy, determined without
regard to deductibles or any self-insured retention.

An assessable direct policy would be an insurance contract
(1) that has been presented to the EIRF in connection with a

Quarterly returns would be due no later than the 30th day

following each calendar quarter.



16

insurance industry for the Trust Fund to permit it to satisfy
fully any carryover obligations of the EIRF after year ten. No
inference is intended by the allocation in any year, or
combination of years, between the retrospective tax, the
prospective tax, and the assessment on direct insurers with
respect to the structure of any tax or assessment that Congress
determines necessary to enact in the future. Expenditures, if
any, by the Trust Fund after the Trust Fund’s tenth year would
continue to be limited to no more than $810 million per year.

A Treasury study would be conducted in the eighth year of
the Trust Fund to make recommendations to Congress with respect
to the insurance industry’s financing of the Trust Fund after the
tenth year. The study, after consultation with representatives
of the insurance industry and its policyholders, would include an
analysis of the distribution of the benefits of the Trust Fund as
well as an accounting of the various sources of financing for the
Trust Fund.

Cc. Tax Exemption for Environmental Insurance Resolution Fund

Present Law

Federal tax exemption for an instrumentality of the United
States that is organized on or after July 18, 1984, may be
provided only by an amendment to the Internal Revenue Code or by
a provision enacted as part of a revenue act (sec. 501(c)(1)).

Administration Proposal

The Administration proposal would provide an exemption from
Federal income tax to the Environmental Insurance Resolution
Fund.

Effective D
The proposal would be effective on January 1, 1995.

D. Additional Proposals

The following additional matters have also been proposed for
markup:

1. The EIRF would be required to publish a biennial report
estimating its incurred liabilities for eligible sites by
eligible persons that have accepted offers from the EIRF as of
the end of the applicable reporting period.

2. The Treasury Department would be required to make public
the revenues received from each of the excise taxes and the
assessment under Title IX, including a breakdown of the revenues