I 

111TH CONGRESS 

1ST SESSION H. R. 3424 

To amend the Internal Revenue Code of 1986 to disallow the deduction 

for excess non-taxed reinsurance premiums with respect to United States 

risks paid to affiliates. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 30, 2009 

Mr. NEAL of Massachusetts 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 disallow 

the deduction for excess non-taxed reinsurance premiums 

with respect to United States risks paid to affiliates. 

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

3 SECTION 1. DISALLOWANCE OF DEDUCTION FOR EXCESS 

4 NON-TAXED REINSURANCE PREMIUMS PAID 

5 TO AFFILIATES. 

6 (a) IN GENERAL.—Subsection (b) of section 832 of 

7 the Internal Revenue Code of 1986 is amended by adding 

8 at the end the following new paragraph: 


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1 ‘‘(9) LIMITATION ON DEDUCTION FOR EXCESS

2 NON-TAXED REINSURANCE PREMIUMS PAID TO AF3 FILIATES.— 

4 ‘‘(A) IN GENERAL.—No deduction shall be 

5 allowed under paragraph (4) for so much of the 

6 affiliated non-taxed reinsurance premiums paid 

7 by a covered insurance company during the tax8 able year as exceeds the sum of— 

9 ‘‘(i) the premium limitation for such 

10 taxable year, plus 

11 ‘‘(ii) the qualified ceding commissions 

12 with respect to such premiums. 

13 ‘‘(B) AFFILIATED NON-TAXED REINSUR14 ANCE PREMIUMS.—For purposes of this para15 graph— 

16 ‘‘(i) IN GENERAL.—The term ‘affili17 ated non-taxed reinsurance premium’ 

18 means any reinsurance premium paid di19 rectly or indirectly to an affiliated corpora20 tion if, with respect to such affiliated cor21 poration, such premium is neither subpart 

22 F income (as defined in section 952) nor 

23 subject to tax under this subtitle. 

24 ‘‘(ii) NETTING OF PREMIUMS PAID TO

25 COVERED INSURANCE COMPANY BY AFFILIVerDate Nov 24 2008 04:54 Aug 01, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3424.IH H3424

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1 ATES.—The amount of premiums which 

2 would (but for this clause) be treated as 

3 affiliated non-taxed reinsurance premiums 

4 with respect to any affiliated corporation 

5 for any taxable year shall be reduced (but 

6 not below zero) by any reinsurance pre7 miums paid directly or indirectly to the 

8 covered insurance company by such affili9 ated corporation during such taxable year. 

10 ‘‘(iii) PREMIUMS TREATED AS NON11 TAXED TO EXTENT OF TREATY REDUC12 TION.—Rules similar to the rules of section 

13 163(j)(5)(B) shall apply for purposes of 

14 determining the extent to which tax is im15 posed by this subtitle with respect to any 

16 premium. 

17 ‘‘(C) PREMIUM LIMITATION.—For pur18 poses of this paragraph— 

19 ‘‘(i) IN GENERAL.—The term ‘pre20 mium limitation’ means, with respect to 

21 any covered insurance company for any 

22 taxable year, the excess of— 

23 ‘‘(I) the product of the gross pre24 miums written by such covered insur25 ance company on insurance contracts 


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1 during the taxable year multiplied by 

2 the industry fraction for such taxable 

3 year, over 

4 ‘‘(II) the aggregate reinsurance 

5 premiums paid by such covered insur6 ance company during the taxable year 

7 which are not affiliated non-taxed re8 insurance premiums. 

9 Such limitation shall not be less than zero. 

10 ‘‘(ii) INDUSTRY FRACTION.—In the 

11 case of any taxable year beginning in a cal12 endar year, the term ‘industry fraction’ 

13 means the fraction, determined by the Sec14 retary on the basis of published aggregate 

15 data from annual statements of insurance 

16 companies— 

17 ‘‘(I) the numerator of which is 

18 the aggregate reinsurance premiums 

19 paid by covered insurance companies 

20 to non-affiliated corporations during 

21 the second preceding calendar year, 

22 and 

23 ‘‘(II) the denominator of which is 

24 the aggregate gross premiums written 

25 by covered insurance companies durVerDate Nov 24 2008 04:54 Aug 01, 2009 Jkt 079200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3424.IH H3424

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1 ing such second preceding calendar 

2 year. 

3 ‘‘(iii) SEPARATE APPLICATION TO

4 EACH LINE OF BUSINESS.—With respect to 

5 each line of business— 

6 ‘‘(I) the Secretary shall deter7 mine a separate industry fraction with 

8 respect to each such line of business, 

9 and 

10 ‘‘(II) subparagraph (A) shall be 

11 applied separately to each such line of 

12 business by taking into account the 

13 industry fraction determined with re14 spect to such line of business. 

15 ‘‘(D) QUALIFIED CEDING COMMISSION.— 

16 For purposes of this paragraph, the term 

17 ‘qualified ceding commission’ means, with re18 spect to the affiliated non-taxed reinsurance 

19 premiums paid by a covered insurance company 

20 during any taxable year, the product of— 

21 ‘‘(i) the ceding commissions which are 

22 paid to such company with respect to such 

23 premiums and which are included in in24 come of such company, multiplied by 

25 ‘‘(ii) a fraction— 


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1 ‘‘(I) the numerator of which is so 

2 much of such premiums as exceeds 

3 the premium limitation for such tax4 able year, and 

5 ‘‘(II) the denominator of which is 

6 the aggregate amount of such pre7 miums. 

8 ‘‘(E) ELECTION TO TREAT REINSURANCE

9 INCOME AS EFFECTIVELY CONNECTED.— 

10 ‘‘(i) IN GENERAL.—A specified affili11 ated corporation may elect for any taxable 

12 year— 

13 ‘‘(I) to treat specified reinsurance 

14 income as income effectively connected 

15 with the conduct of a trade or busi16 ness in the United States, and 

17 ‘‘(II) to be treated as carrying on 

18 an insurance business within the 

19 United States. 

20 ‘‘(ii) SPECIFIED AFFILIATED COR21 PORATION.—For purposes of this subpara22 graph, the term ‘specified affiliated cor23 poration’ means any affiliated corporation 

24 which— 


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1 ‘‘(I) is a foreign corporation 

2 which would qualify under part I or 

3 this part for the taxable year if it 

4 were a domestic corporation, 

5 ‘‘(II) waives all benefits granted 

6 by the United States under any treaty 

7 between the United States and any 

8 foreign country with respect to speci9 fied reinsurance income with respect 

10 to which the election under clause (i) 

11 applies, and 

12 ‘‘(III) meets such requirements 

13 as the Secretary shall prescribe to en14 sure that tax on such income is prop15 erly determined and paid. 

16 ‘‘(iii) SPECIFIED REINSURANCE IN17 COME.—For purposes of this subpara18 graph, the term ‘specified reinsurance in19 come’ means, with respect to any specified 

20 affiliated corporation for any taxable 

21 year— 

22 ‘‘(I) all reinsurance premiums 

23 which would (but for the election 

24 made under this subparagraph) be af25 filiated non-taxed reinsurance preVerDate Nov 24 2008 04:54 Aug 01, 2009 Jkt 079200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3424.IH H3424

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1 miums and which are received by such 

2 corporation during such taxable year 

3 directly or indirectly from covered in4 surance companies with respect to 

5 which such corporation is affiliated, 

6 and 

7 ‘‘(II) so much of the net invest8 ment income (within the meaning of 

9 section 842(b)) for such taxable year 

10 as is allocable to reinsurance pre11 miums with respect to which an elec12 tion under clause (i) applies for such 

13 taxable year or any prior taxable year. 

14 ‘‘(iv) RULES RELATED TO ELEC15 TION.—Any election under clause (i) 

16 shall— 

17 ‘‘(I) be made at such time and in 

18 such form and manner as the Sec19 retary may provide, and 

20 ‘‘(II) apply for the taxable year 

21 for which made and all subsequent 

22 taxable years unless revoked with the 

23 consent of the Secretary. 

24 ‘‘(F) OTHER DEFINITIONS AND SPECIAL

25 RULES.—For purposes of this paragraph— 


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1 ‘‘(i) COVERED INSURANCE COM2 PANY.—The term ‘covered insurance com3 pany’ means any insurance company sub4 ject to the tax imposed by section 831. 

5 ‘‘(ii) TREATMENT OF CONTROLLED

6 GROUP.—All domestic members of a con7 trolled group of corporations (as defined in 

8 section 1563) of which a covered insurance 

9 company is a member shall be treated as 

10 one corporation. 

11 ‘‘(iii) AFFILIATED CORPORATIONS.—A 

12 corporation shall be treated as affiliated 

13 with a covered insurance company if both 

14 corporations are members of the same con15 trolled group of corporations, as defined in 

16 section 1563(a) except that— 

17 ‘‘(I) ‘more than 25 percent’ shall 

18 be substituted for ‘at least 80 percent’ 

19 each place it appears in section 

20 1563(a)(1), and 

21 ‘‘(II) the determination shall be 

22 made without regard to subsections 

23 (a)(4), (b)(2)(C), (b)(2)(D), and 

24 (e)(3)(C) of section 1563. 


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1 ‘‘(iv) TREATMENT OF REINSURANCE

2 ASSUMED BY COVERED INSURANCE COM3 PANY.—Reinsurance ceded by a non-affili4 ated corporation to a covered insurance 

5 company shall be taken into account in the 

6 same manner as premiums written by such 

7 covered insurance company. 

8 ‘‘(G) REGULATIONS.—The Secretary shall 

9 prescribe such regulations as may be appro10 priate to carry out or to prevent the avoidance 

11 of the purposes of this paragraph, including 

12 regulations which provide for the application of 

13 this section to alternative reinsurance trans14 actions, fronting transactions, conduit and re15 ciprocal transactions, and any economically 

16 equivalent transactions.’’. 

17 (b) EFFECTIVE DATE.—The amendment made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2009. 

Æ 


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