I

107TH CONGRESS

1ST SESSION H. R. 1789

To amend the Internal Revenue Code of 1986 to exempt from income tax

State-created organizations providing property and casualty insurance

for property for which such coverage is otherwise unavailable.

IN THE HOUSE OF REPRESENTATIVES

MAY 9, 2001

Mr. SHAW (for himself, Mr. FOLEY, Mr. DAVIS of Florida, Mr. SCARBOROUGH, Mrs. MEEK of Florida, Ms. ROS-LEHTINEN, Ms. BROWN of

Florida, Mr. MICA, Mr. DIAZ-BALART, Mr. WEXLER, Mr. PUTNAM, Mrs.

THURMAN, Mr. CRENSHAW, Mr. KELLER, Mr. GOSS, Mr. BILIRAKIS, Mr.

DEUTSCH, and Mr. WELDON of Florida) 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 exempt

from income tax State-created organizations providing

property and casualty insurance 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 determines, through ap15 propriate State action, that coverage in the author16 ized insurance market is not reasonably available to

17 a substantial number of insurable real properties

18 (and any successor association) if—

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

20 inures to the benefit of any private shareholder

21 or individual,

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

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

24 diverted to, any purpose other than—

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

26 liability of the association for, or with re-
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1 spect to, claims made on policies written

2 by the association,

3 ‘‘(II) to invest in investments author4 ized by applicable law,

5 ‘‘(III) to pay reasonable and nec6 essary administration expenses in connec7 tion with the establishment and operation

8 of the association and the processing of

9 claims against the association, or

10 ‘‘(IV) to make remittances pursuant

11 to State law to be used by the State to

12 provide for the payment of claims on poli13 cies written by the association, purchase

14 reinsurance covering losses under such

15 policies, or to support governmental pro16 grams to prepare for or mitigate the ef17 fects of natural catastrophic events,

18 ‘‘(iii) the State law governing the associa19 tion permits the association to levy assessments

20 on insurance companies authorized to sell prop21 erty and casualty insurance in the State, or on

22 property and casualty insurance policyholders

23 with insurable interests in property located in

24 the State to fund deficits of the association, in25 cluding the creation of reserves,
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1 ‘‘(iv) the plan of operation of the associa2 tion is subject to approval by the chief executive

3 officer or other official of the State, by the

4 State legislature, or both, and

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

6 upon dissolution to the State, the State’s des7 ignee, or an entity designated by the State law

8 governing the association, or State law does not

9 permit the dissolution of the association.

10 ‘‘(B)(i) An entity described in clause (ii) (and

11 any successor entity) shall be disregarded as a sepa12 rate entity and treated as part of the association de13 scribed in subparagraph (A) from which it receives

14 remittances described in clause (ii) if an election is

15 made within 30 days after the date that such asso16 ciation is determined to be exempt from tax.

17 ‘‘(ii) An entity is described in this clause if it

18 is an entity or fund created before January 1, 1999,

19 pursuant to State law and organized and operated

20 exclusively to receive, hold, and invest remittances

21 from an association described in subparagraph (A)

22 and exempt from tax under subsection (a), to make

23 disbursements to pay claims on insurance contracts

24 issued by such association, and to make disburse25 ments to support governmental programs to prepare
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1 for or mitigate the effects of natural catastrophic

2 events.’’.

3 (b) UNRELATED BUSINESS TAXABLE INCOME.—

4 Subsection (a) of section 512 of such Code (relating to

5 unrelated business taxable income) is amended by adding

6 at the end the following new paragraph:

7 ‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA8 TIONS DESCRIBED IN SECTION 501(c)(28)—In the

9 case of an organization described in section

10 501(c)(28), the term ‘unrelated business taxable in11 come’ means taxable income for a taxable year com12 puted without the application of section 501(c)(28)

13 if at the end of the immediately preceding taxable

14 year the organization’s net equity exceeded 15 per15 cent of the total coverage in force under insurance

16 contracts issued by the organization and outstanding

17 at the end of such preceding year.’’.

18 (c) TRANSITIONAL RULE.—No income or gain shall

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

20 in status to that of an association described by section

21 501(c)(28) of the Internal Revenue Code of 1986, as

22 amended by subsection (a).
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1 (d) EFFECTIVE DATE.—The amendment made by

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

3 December 31, 2001.

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