I

103D CONGRESS

2D SESSION H. R. 4510

To amend the Internal Revenue Code of 1986 to revise the limitation applicable to mutual life insurance companies on the deduction for policyholder

dividends and to exempt small life insurance companies from the required

capitalization of certain policy acquisition expenses.

IN THE HOUSE OF REPRESENTATIVES

MAY 26, 1994

Mr. FILNER (for himself, Mr. BECERRA, Mr. BERMAN, Mr. BROWN of California, Ms. FURSE, Mr. HASTINGS, Ms. MCKINNEY, Mrs. MINK of Hawaii,

Ms. NORTON, Mrs. UNSOELD, Ms. VELA ́ZQUEZ, Ms. WATERS, and Mr.

WATT) introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to revise

the limitation applicable to mutual life insurance companies on the deduction for policyholder dividends and to

exempt small life insurance companies from the required

capitalization of certain policy acquisition expenses.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Insurance Tax Fair5 ness Act of 1994’’.
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1 SEC. 2. REVISION OF LIMITATION ON DEDUCTION OF POL2 ICYHOLDER DIVIDENDS BY MUTUAL LIFE IN3 SURANCE COMPANIES.

4 (a) IN GENERAL.—Paragraph (2) of section 808(c)

5 of the Internal Revenue Code of 1986 (relating to reduc6 tion in case of mutual companies) is amended to read as

7 follows:

8 ‘‘(2) LIMITATION IN CASE OF MUTUAL COMPA9 NIES.—

10 ‘‘(A) IN GENERAL.—In the case of a mu11 tual life insurance company, the amount al12 lowed as a deduction under paragraph (1) for

13 any taxable year shall not exceed the lesser of—

14 ‘‘(i) 90 percent of the policyholder

15 dividends paid or accrued by such company

16 during such taxable year, or

17 ‘‘(ii) 30 percent of the life insurance

18 company taxable income of such company

19 for such taxable year (determined without

20 regard to any deduction for policyholder

21 dividends).

22 In no event shall the limitation under this sub23 paragraph for any taxable year be less than

24 $35,000,000.

25 ‘‘(B) TREATMENT OF STOCK COMPANIES

26 OWNED BY MUTUAL LIFE INSURANCE COMPA-
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1 NIES.—Solely for purposes of this paragraph, a

2 stock life insurance company shall be treated as

3 a mutual life insurance company if stock pos4 sessing—

5 ‘‘(i) at least 80 percent of the total

6 combined voting power of all classes of

7 stock of such stock life insurance company

8 entitled to vote, or

9 ‘‘(ii) at least 80 percent of the total

10 value of shares of all classes of stock of

11 such stock life insurance company,

12 is owned at any time during the calendar year

13 directly (or through the application of section

14 318) by one or more mutual life insurance com15 panies).’’

16 (b) REPEAL OF SECTION 809.—

17 (1) Section 809 of such Code is hereby re18 pealed.

19 (2) Subparagraph (B) of section 807(a)(2) of

20 such Code is amended to read as follows:

21 ‘‘(B) the amount of the policyholders’

22 share of tax-exempt interest,’’.

23 (3) Subparagraph (B) of section 807(b)(1) of

24 such Code is amended to read as follows:
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1 ‘‘(B) the amount of the policyholders’

2 share of tax-exempt interest,’’.

3 (4) Subparagraph (A) of section 812(b)(3) of

4 such Code is amended by striking ‘‘sections 808 and

5 809’’ and inserting ‘‘section 808’’.

6 (5) Subsection (c) of section 817 of such Code

7 is amended by striking ‘‘(other than section 809)’’.

8 (6) Subsection (c) of section 842 of such Code

9 is amended by striking paragraph (3) and by redes10 ignating paragraph (4) as paragraph (3).

11 (c) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in para13 graph (2), the amendments made by this section

14 shall apply to taxable years beginning after Decem15 ber 31, 1993.

16 (2) RECOMPUTATION UNDER SECTION 809(f)

17 NOT AFFECTED.—The amendments made by this

18 section shall not affect the application of section

19 809(f) of the Internal Revenue Code of 1986 (as in

20 effect before its repeal by subsection (b)) in respect

21 of any taxable year beginning before January 1,

22 1994.

23 (3) LIMITATION ON LOSS CARRYBACKS.—In the

24 case of a life insurance company subject to the limi25 tation under section 808(b)(2) of such Code, no cap-
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1 ital loss arising in a taxable year beginning after De2 cember 31, 1993, may be carried to a taxable year

3 beginning before January 1, 1994.

4 SEC. 3. SMALL LIFE INSURANCE COMPANIES EXEMPT

5 FROM REQUIRED CAPITALIZATION OF CER6 TAIN POLICY ACQUISITION EXPENSES.

7 Section 848 of the Internal Revenue Code of 1986

8 (relating to capitalization of certain policy acquisition ex9 penses) is amended by adding at the end the following new

10 subsection:

11 ‘‘(k) EXEMPTION FOR SMALL LIFE INSURANCE COM12 PANIES.—This section shall not require any small life in13 surance company (as defined in section 806) to capitalize

14 any specified policy acquisition expenses for any taxable

15 year beginning after December 31, 1993.’’

16 SEC. 4. SENSE OF CONGRESS RELATING TO USE OF IN17 CREASED REVENUES.

18 It is the sense of the Congress that any increase in

19 revenues to the Treasury resulting from the amendments

20 made by this Act shall be dedicated to the funding of pro21 grams benefiting the nutrition, early education, housing,

22 and family support of the Nation’s children.

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