I 
113TH CONGRESS 
1ST SESSION H. R. 2054 
To amend the Internal Revenue Code of 1986 to prevent the avoidance 
of tax by insurance companies through reinsurance with non-taxed affiliates. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 20, 2013 
Mr. NEAL (for himself and Mr. PASCRELL) 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 prevent 
the avoidance of tax by insurance companies through 
reinsurance with non-taxed affiliates. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. PREVENTION OF AVOIDANCE OF TAX THROUGH 
REINSURANCE WITH NON-TAXED AFFILIATES. 
(a) IN GENERAL.—Part III of subchapter L of chap-
ter 1 of the Internal Revenue Code of 1986 is amended 
by adding at the end the following new section: 
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‘‘SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON- 
LIFE CONTRACTS WITH NON-TAXED AFFILI-
ATES. 
‘‘(a) IN GENERAL.—The taxable income under sec-
tion 831(a) or the life insurance company taxable income 
under section 801(b) (as the case may be) of an insurance 
company shall be determined by not taking into account— 
‘‘(1) any non-taxed reinsurance premium, 
‘‘(2) any additional amount paid by such insur-
ance company with respect to the reinsurance for 
which such non-taxed reinsurance premium is paid, 
to the extent such additional amount is properly al-
locable to such non-taxed reinsurance premium, and 
‘‘(3) any return premium, ceding commission, 
reinsurance recovered, or other amount received by 
such insurance company with respect to the reinsur-
ance for which such non-taxed reinsurance premium 
is paid, to the extent such return premium, ceding 
commission, reinsurance recovered, or other amount 
is properly allocable to such non-taxed reinsurance 
premium. 
‘‘(b) NON-TAXED REINSURANCE PREMIUMS.—For 
purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘non-taxed rein-
surance premium’ means any reinsurance premium 
paid directly or indirectly to an affiliated corporation 
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with respect to reinsurance of risks (other than ex-
cepted risks), to the extent that the income attrib-
utable to the premium is not subject to tax under 
this subtitle (either as the income of the affiliated 
corporation or as amounts included in gross income 
by a United States shareholder under section 951). 
‘‘(2) EXCEPTED
RISKS.—The term ‘excepted 
risks’ means any risk with respect to which reserves 
described in section 816(b)(1) are established. 
‘‘(c) AFFILIATED CORPORATIONS.—For purposes of 
this section, a corporation shall be treated as affiliated 
with an insurance company if both corporations would be 
members of the same controlled group of corporations (as 
defined in section 1563(a)) if section 1563 were applied— 
‘‘(1) by substituting ‘at least 50 percent’ for ‘at 
least 80 percent’ each place it appears in subsection 
(a)(1), and 
‘‘(2) without regard to subsections (a)(4), 
(b)(2)(C), (b)(2)(D), and (e)(3)(C). 
‘‘(d) ELECTION TO TREAT REINSURANCE INCOME AS 
EFFECTIVELY CONNECTED.— 
‘‘(1) IN GENERAL.—A specified affiliated cor-
poration may elect for any taxable year to treat 
specified reinsurance income as— 
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‘‘(A) income effectively connected with the 
conduct of a trade or business in the United 
States, and 
‘‘(B) for purposes of any treaty between 
the United States and any foreign country, in-
come attributable to a permanent establishment 
in the United States. 
‘‘(2) EFFECT OF ELECTION.—In the case of 
any specified reinsurance income with respect to 
which the election under this subsection applies— 
‘‘(A) DEDUCTION ALLOWED FOR REINSUR-
ANCE
PREMIUMS.—For exemption from sub-
section (a), see definition of non-taxed reinsur-
ance premiums in subsection (b). 
‘‘(B) EXCEPTION FROM EXCISE TAX.—The 
tax imposed by section 4371 shall not apply 
with respect to any income treated as effectively 
connected with the conduct of a trade or busi-
ness in the United States under paragraph (1). 
‘‘(C) 
TAXATION
UNDER
THIS
SUB-
CHAPTER.—Such income shall be subject to tax 
under this subchapter to the same extent and 
in the same manner as if such income were the 
income of a domestic insurance company. 
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‘‘(D) COORDINATION WITH FOREIGN TAX 
CREDIT PROVISIONS.—For purposes of subpart 
A of part III of subchapter N and sections 78 
and 960— 
‘‘(i) such specified reinsurance income 
shall be treated as derived from sources 
without the United States, and 
‘‘(ii) subsections (a), (b), and (c) of 
section 904 and sections 902, 907, and 
960 shall be applied separately with re-
spect to each item of such income. 
The Secretary may issue regulations or other 
guidance which provide that related items of 
specified reinsurance income may be aggregated 
for purposes of applying clause (ii). 
‘‘(3) SPECIFIED AFFILIATED CORPORATION.— 
For purposes of this subsection, the term ‘specified 
affiliated corporation’ means any affiliated corpora-
tion which is a foreign corporation and which meets 
such requirements as the Secretary shall prescribe to 
ensure that tax on the specified reinsurance income 
of such corporation is properly determined and paid. 
‘‘(4) SPECIFIED
REINSURANCE
INCOME.—For 
purposes of this paragraph, the term ‘specified rein-
surance income’ means all income of a specified af-
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filiated corporation which is attributable to reinsur-
ance with respect to which subsection (a) would (but 
for the election under this subsection) apply. 
‘‘(5) RULES
RELATED
TO
ELECTION.—Any 
election under paragraph (1) shall— 
‘‘(A) be made at such time and in such 
form and manner as the Secretary may provide, 
and 
‘‘(B) apply for the taxable year for which 
made and all subsequent taxable years unless 
revoked with the consent of the Secretary. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be appropriate 
to carry out, or to prevent the avoidance of the purposes 
of, this section, including regulations or other guidance 
which provide for the application of this section to alter-
native reinsurance transactions, fronting transactions, 
conduit and reciprocal transactions, and any economically 
equivalent transactions.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part III of subchapter L of chapter 1 of such Code 
is amended by adding at the end the following new item: 
‘‘Sec. 849. Special rules for reinsurance of non-life contracts with non-taxed af-
filiates.’’. 
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