I
105TH CONGRESS
2D SESSION
H. R. 4361
To amend the Internal Revenue Code of 1986 to provide that an organization
shall be exempt from income tax if it is created by a State to provide
property and casualty insurance coverage for property for which such
coverage is otherwise unavailable.
IN THE HOUSE OF REPRESENTATIVES
JULY 30, 1998
Mr. SHAW (for himself, Mr. BILIRAKIS, Mr. BOYD, Mr. CANADY of Florida,
Mr. DEUTSCH, Mrs. FOWLER, Mr. GOSS, Mr. HASTINGS of Florida, Mr.
MCCOLLUM, Mrs. MEEK of Florida, Mr. MICA, Mr. MILLER of Florida,
Ms. ROS-LEHTINEN, Mr. STEARNS, Mrs. THURMAN, Mr. WELDON of
Florida, and Mr. WEXLER) introduced the following bill; which was re-
ferred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
that an organization shall be exempt from income tax
if it is created by a State to provide property and cas-
ualty insurance coverage for property for which such
coverage is otherwise unavailable.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXEMPTION FROM INCOME TAX FOR STATE-
CREATED ORGANIZATIONS PROVIDING PROP-
ERTY AND CASUALTY INSURANCE FOR PROP-
ERTY FOR WHICH SUCH COVERAGE IS OTH-
ERWISE UNAVAILABLE.
(a) IN GENERAL.—Subsection (c) of section 501 of
the Internal Revenue Code of 1986 (relating to exemption
from tax on corporations, certain trusts, etc.) is amended
by adding at the end the following new paragraph:
‘‘(28)(A) Any association created before Janu-
ary 1, 1998, by State law and organized and oper-
ated exclusively to provide property and casualty in-
surance coverage for property located within the
State for which the State has determined that cov-
erage in the authorized insurance market is limited
or unavailable at reasonable rates, if—
‘‘(i) no part of the net earnings of which
inures to the benefit of any private shareholder
or individual,
‘‘(ii) except as provided in clause (v), no
part of the assets of which may be used for, or
diverted to, any purpose other than—
‘‘(I) to satisfy, in whole or in part, the
liability of the association for, or with re-
spect to, claims made on policies written
by the association,
‘‘(II) to invest in investments author-
ized by applicable law, or
‘‘(III) to pay reasonable and nec-
essary administration expenses in connec-
tion with the establishment and operation
of the association and the processing of
claims against the association,
‘‘(iii) the State law governing the associa-
tion permits the association to levy assessments
on property and casualty insurance policy-
holders with insurable interests in property lo-
cated in the State to fund deficits of the asso-
ciation, including the creation of reserves,
‘‘(iv) the plan of operation of the associa-
tion is subject to approval by the chief executive
officer or other executive branch official of the
State, by the State legislature, or both, and
‘‘(v) the assets of the association revert
upon dissolution to the State, the State’s des-
ignee, or an entity designated by the State law
governing the association, or State law does not
permit the dissolution of the association.
‘‘(B) Subparagraph (A) shall not apply to an
association for any taxable year if the association’s
surplus income for such year exceeds 5 percent of
the total insured value of properties insured by the
association as of the close of the taxable year unless
the association pays a tax equal to 35 percent of
such excess for such year. Such tax shall be treated
as imposed by chapter 42 for purposes of this title.’’
(b) TRANSITIONAL RULE.—No income or gain shall
be recognized by an association as a result of a change
in status to that of an association described by section
501(c)(28) of the Internal Revenue Code of 1986, as
amended by subsection (a).
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1997.
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