I

103D CONGRESS

1ST SESSION H. R. 1242

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

MARCH 4, 1993

Mr. THOMAS of California (for himself, Mr. MATSUI, Mr. SUNDQUIST, Mr.

PACKARD, Mr. BUNNING, Mr. COX, Mr. JACOBS, Mr. MINETA, and Mr.

HANCOCK) 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 1993’’.

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
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1 to, or repeal of, a section or other provision, the reference

2 shall be considered to be made to a section or other

3 provision of the Internal Revenue Code of 1986.

4 SEC. 2. SMALL COMPANY DEDUCTION.

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

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

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

8 adding at the end thereof the following new paragraph:

9 ‘‘(14) the small insurance company deduction

10 allowed by subsection (h).’’

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

12 thereof the following new subsections:

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

14 the case of taxable years beginning after December 31,

15 1992—

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

17 deduction for the taxable year 60 percent of so much

18 of the tentative taxable income for such taxable year

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

20 section referred to as the ‘small insurance company

21 deduction’).

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

23 $15,000,000.—The amount of the small insurance

24 company deduction determined under paragraph (1)

25 for any taxable year shall be reduced (but not below
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1 zero) by 15 percent of so much of the tentative tax2 able income for such taxable year as exceeds

3 $3,000,000.

4 ‘‘(3) SMALL INSURANCE COMPANY DEDUCTION

5 NOT ALLOWABLE TO COMPANY WITH ASSETS OF

6 $500,000,000 OR MORE.—

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

8 company deduction shall not be allowed for any

9 taxable year to any insurance company which,

10 at the close of such taxable year, has assets

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

12 ‘‘(B) ASSETS.—For purposes of this para13 graph, the term ‘assets’ means all assets of the

14 company.

15 ‘‘(C) VALUATION OF ASSETS.—For pur16 poses of this paragraph, the amount attrib17 utable to—

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

19 the fair market value thereof, and

20 ‘‘(ii) any other asset shall be the ad21 justed basis of such asset for purposes of

22 determining gain on sale or other disposi23 tion.
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1 ‘‘(D) SPECIAL RULE FOR INTERESTS IN

2 PARTNERSHIPS AND TRUSTS.—For purposes of

3 this paragraph—

4 ‘‘(i) an interest in a partnership or

5 trust shall not be treated as an asset of the

6 company, but

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

8 actually owning its proportionate share of

9 the assets held by the partnership or trust

10 (as the case may be).

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

12 of subsection (h)—

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

14 income’ means taxable income determined without

15 regard to the small insurance company deduction.

16 ‘‘(2) EXCLUSION OF ITEMS ATTRIBUTABLE TO

17 NONINSURANCE BUSINESSES.—The amount of the

18 tentative taxable income for any taxable year shall

19 be determined without regard to all items attrib20 utable to noninsurance businesses.

21 ‘‘(3) NONINSURANCE BUSINESSES.—

22 ‘‘(A) IN GENERAL.—The term

23 ‘‘noninsurance business’’ means any activity

24 which is not an insurance business.
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1 ‘‘(B) CERTAIN ACTIVITIES TREATED AS IN2 SURANCE BUSINESSES.—For purposes of sub3 paragraph (A), any activity which is not an in4 surance business shall be treated as an insur5 ance business if—

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

7 on by insurance companies for investment

8 purposes, but only if the carrying on of

9 such activity (other than in the case of real

10 estate) does not constitute the active con11 duct of a trade or business, or

12 ‘‘(ii) it involves the performance of ad13 ministrative services in connection with

14 plans providing property or casualty insur15 ance benefits.

16 ‘‘(C) LIMITATION OF AMOUNT OF LOSS

17 FROM NONINSURANCE BUSINESS WHICH MAY

18 OFFSET INCOME FROM INSURANCE BUSI19 NESS.—In computing the taxable income of any

20 insurance company subject to tax imposed by

21 section 831, any loss from a noninsurance busi22 ness shall be limited under the principles of sec23 tion 1503(c).

24 ‘‘(j) SPECIAL RULE FOR CONTROLLED GROUPS.—
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1 ‘‘(1) SMALL INSURANCE COMPANY DEDUCTION

2 DETERMINED ON CONTROLLED GROUP BASIS.—For

3 purposes of subsections (h) and (i)—

4 ‘‘(A) all insurance companies which are

5 members of the same controlled group shall be

6 treated as 1 insurance company, and

7 ‘‘(B) any small insurance company deduc8 tion determined with respect to such group

9 shall be allocated among the insurance compa10 nies which are members of such group in

11 proportion to their respective tentative taxable

12 incomes.

13 ‘‘(2) NONINSURANCE MEMBERS INCLUDED FOR

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

15 members of the same controlled group (whether or

16 not insurance companies) shall be treated as 1

17 company.

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

19 this subsection, the term ‘controlled group’ means

20 any controlled group of corporations (as defined in

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

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

23 ‘‘(4) ADJUSTMENTS TO PREVENT EXCESS DET24 RIMENT OR BENEFIT.—Under regulations prescribed

25 by the Secretary, proper adjustments shall be made
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1 in the application of this subsection to prevent any

2 excess detriment or benefit (whether from year-to3 year or otherwise) arising from the application of

4 this subsection.’’

5 SEC. 3. EFFECTIVE DATE.

6 The amendments made by this Act shall apply to tax7 able years beginning after December 31, 1992.

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