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104TH CONGRESS

1ST SESSION H. R. 1515

To amend the Internal Revenue Code of 1986 to provide for fair treatment

of small property and casualty insurance companies.

IN THE HOUSE OF REPRESENTATIVES

APRIL 7, 1995

Mr. THOMAS 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 provide

for fair treatment of small property and casualty insurance companies.

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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Small Property and Casualty Insurance Company Equity

6 Act of 1995’’.

7 (b) AMENDMENT OF 1986 CODE.—Except as other8 wise expressly provided, whenever in this Act an amend9 ment or repeal is expressed in terms of an amendment

10 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other

2 provision of the Internal Revenue Code of 1986.

3 SEC. 2. SMALL COMPANY DEDUCTION.

4 (a) Section 832(c) is amended by striking ‘‘and’’ at

5 the end of paragraph (12), by striking the period at the

6 end of paragraph (13) and inserting ‘‘; and’’, and by

7 adding at the end thereof the following new paragraph:

8 ‘‘(14) the small insurance company deduction

9 allowed by subsection (h).’’

10 (b) Section 832 is amended by adding at the end

11 thereof the following new subsections:

12 ‘‘(h) SMALL INSURANCE COMPANY DEDUCTION.—In

13 the case of taxable years beginning after December 31,

14 1994—

15 ‘‘(1) IN GENERAL.—There shall be allowed as a

16 deduction for the taxable year 60 percent of so much

17 of the tentative taxable income for such taxable year

18 as does not exceed $3,000,000 (hereinafter in this

19 section referred to as the ‘small insurance company

20 deduction’).

21 ‘‘(2) PHASEOUT BETWEEN $3,000,000 AND

22 $15,000,000.—The amount of the small insurance

23 company deduction determined under paragraph (1)

24 for any taxable year shall be reduced (but not below

25 zero) by 15 percent of so much of the tentative tax-
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1 able income for such taxable year as exceeds

2 $3,000,000.

3 ‘‘(3) SMALL INSURANCE COMPANY DEDUCTION

4 NOT ALLOWABLE TO COMPANY WITH ASSETS OF

5 $500,000,000 OR MORE.—

6 ‘‘(A) IN GENERAL.—The small insurance

7 company deduction shall not be allowed for any

8 taxable year to any insurance company which,

9 at the close of such taxable year, has assets

10 equal to or greater than $500,000,000.

11 ‘‘(B) ASSETS.—For purposes of this para12 graph, the term ‘assets’ means all assets of the

13 company.

14 ‘‘(C) VALUATION OF ASSETS.—For pur15 poses of this paragraph, the amount attrib16 utable to—

17 ‘‘(i) real property and stock shall be

18 the fair market value thereof, and

19 ‘‘(ii) any other asset shall be the ad20 justed basis of such asset for purposes of

21 determining gain on sale or other disposi22 tion.

23 ‘‘(D) SPECIAL RULE FOR INTERESTS IN

24 PARTNERSHIPS AND TRUSTS.—For purposes of

25 this paragraph—
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1 ‘‘(i) an interest in a partnership or

2 trust shall not be treated as an asset of the

3 company, but

4 ‘‘(ii) the company shall be treated as

5 actually owning its proportionate share of

6 the assets held by the partnership or trust

7 (as the case may be).

8 ‘‘(i) TENTATIVE TAXABLE INCOME.—For purposes

9 of subsection (h)—

10 ‘‘(1) IN GENERAL.—The term ‘tentative taxable

11 income’ means taxable income determined without

12 regard to the small insurance company deduction.

13 ‘‘(2) EXCLUSION OF ITEMS ATTRIBUTABLE TO

14 NONINSURANCE BUSINESSES.—The amount of the

15 tentative taxable income for any taxable year shall

16 be determined without regard to all items attrib17 utable to noninsurance businesses.

18 ‘‘(3) NONINSURANCE BUSINESSES.—

19 ‘‘(A) IN GENERAL.—The term ‘‘non20 insurance business’’ means any activity which is

21 not an insurance business.

22 ‘‘(B) CERTAIN ACTIVITIES TREATED AS IN23 SURANCE BUSINESSES.—For purposes of sub24 paragraph (A), any activity which is not an in-
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1 surance business shall be treated as an insur2 ance business if—

3 ‘‘(i) it is of a type traditionally carried

4 on by insurance companies for investment

5 purposes, but only if the carrying on of

6 such activity (other than in the case of real

7 estate) does not constitute the active con8 duct of a trade or business, or

9 ‘‘(ii) it involves the performance of ad10 ministrative services in connection with

11 plans providing property or casualty insur12 ance benefits.

13 ‘‘(C) LIMITATION OF AMOUNT OF LOSS

14 FROM NONINSURANCE BUSINESS WHICH MAY

15 OFFSET INCOME FROM INSURANCE BUSI16 NESS.—In computing the taxable income of any

17 insurance company subject to tax imposed by

18 section 831, any loss from a noninsurance busi19 ness shall be limited under the principles of sec20 tion 1503(c).

21 ‘‘(j) SPECIAL RULE FOR CONTROLLED GROUPS.—

22 ‘‘(1) SMALL INSURANCE COMPANY DEDUCTION

23 DETERMINED ON CONTROLLED GROUP BASIS.—For

24 purposes of subsections (h) and (i)—
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1 ‘‘(A) all insurance companies which are

2 members of the same controlled group shall be

3 treated as 1 insurance company, and

4 ‘‘(B) any small insurance company deduc5 tion determined with respect to such group

6 shall be allocated among the insurance compa7 nies which are members of such group in

8 proportion to their respective tentative taxable

9 incomes.

10 ‘‘(2) NONINSURANCE MEMBERS INCLUDED FOR

11 ASSET TEST.—For purposes of subsection (h)(3), all

12 members of the same controlled group (whether or

13 not insurance companies) shall be treated as 1

14 company.

15 ‘‘(3) CONTROLLED GROUP.—For purposes of

16 this subsection, the term ‘controlled group’ means

17 any controlled group of corporations (as defined in

18 section 1563(a)); except that subsections (a)(4) and

19 (b)(2)(D) of section 1563 shall not apply.

20 ‘‘(4) ADJUSTMENTS TO PREVENT EXCESS DET21 RIMENT OR BENEFIT.—Under regulations prescribed

22 by the Secretary, proper adjustments shall be made

23 in the application of this subsection to prevent any

24 excess detriment or benefit (whether from year-to-
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1 year or otherwise) arising from the application of

2 this subsection.’’

3 SEC. 3. EFFECTIVE DATE.

4 The amendments made by this Act shall apply to tax5 able years beginning after December 31, 1994.

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