‘‘(c) SPECIAL RULE FOR SERIES ISSUANCES.—If a 
catastrophic risk transfer company (within the meaning 
of subsection (a)), or a protected cell of such company, 
issues a series or class of securities which primarily has 
recourse to, or is primarily linked to, a designated reinsur-
ance agreement and pool of collateral or assets, such series 
or class shall be treated as a separate corporation for pur-
poses of this title (other than determining whether the re-
quirements of subsection (a) are met). 
‘‘(d) FAILURE TO SATISFY GROSS INCOME TEST.— 
‘‘(1) DISCLOSURE
REQUIREMENT.—A cata-
strophic risk transfer company which fails to meet 
the requirement of paragraph (2) of subsection (b) 
for any taxable year shall nevertheless be considered 
to have satisfied the requirement of such paragraph 
for such taxable year if— 
‘‘(A) following the catastrophic risk trans-
fer company identification of the failure to meet 
such requirement for such taxable year, a de-
scription of each item of its gross income de-
scribed in such paragraph is set forth in a 
schedule for such taxable year filed in the man-
ner provided by the Secretary, and 
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‘‘(B) the failure to meet such requirement 
is due to reasonable cause and not due to will-
ful neglect. 
‘‘(2) IMPOSITION
OF
TAX
ON
FAILURES.—If 
paragraph (1) applies to catastrophic risk transfer 
company for any taxable year, there is hereby im-
posed on such company a tax in an amount equal to 
the excess of— 
‘‘(A) the gross income of such company 
which is not derived from sources referred to in 
subsection (b)(2), over 
‘‘(B) one-ninth of the gross income of such 
company which is derived from such sources. 
‘‘(e) DEFINITIONS.—For purposes of this part— 
‘‘(1) CATASTROPHIC RISK.— 
‘‘(A) IN
GENERAL.—The term ‘cata-
strophic risk’ means a risk of loss which has a 
low likelihood of occurring but which will be 
large in amount. 
‘‘(B) SPECIAL
RULES.—For purposes of 
subparagraph (A)— 
‘‘(i) in the case of direct insurance, a 
risk of loss shall not be treated as large in 
amount unless such loss would exceed 
$25,000,000 if it occurs, and 
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‘‘(ii) in the case of mortality risk, the 
risk of loss transferred may be taken into 
account under subparagraph (A) only if it 
involves a pool of mortality or longevity 
risks. 
‘‘(2) INVESTMENTS AND INCOME.— 
‘‘(A) QUALIFIED INVESTMENT.—The term 
‘qualified investment’ means— 
‘‘(i) cash, 
‘‘(ii) interests in money market funds, 
and 
‘‘(iii) investment-grade debt securities 
and funds primarily holding such debt se-
curities. 
‘‘(B) INVESTMENT
INCOME.—The term 
‘investment income’ means interest that is ac-
crued or received on, distributions in connection 
with, or proceeds from the disposition of, quali-
fied investments. 
‘‘(3) REGULATED INSURANCE COMPANY.—The 
term ‘regulated insurance company’ means any com-
pany which is licensed to engage in the business of 
insurance in a State and which is subject to State 
law which regulates insurance (within the meaning 
of section 514(b)(2) of the Employee Retirement In-
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come Security Act of 1974, as in effect on the date 
of the enactment of this section). 
‘‘(4) RELATED
PERSON.—A person shall be 
treated as related person to another person if such 
person bears a relationship to such other person de-
scribed in section 267(b) or 707(b). 
‘‘SEC. 860N. TAXATION OF CATASTROPHIC RISK TRANSFER 
COMPANIES. 
‘‘(a) 
REQUIREMENTS
APPLICABLE
TO
CATA-
STROPHIC RISK TRANSFER COMPANIES.—The provisions 
of this part (other than subsection (c) of this section) shall 
not be applicable to a catastrophic risk transfer company 
for a taxable year unless— 
‘‘(1) the deduction for dividends paid during 
the taxable year (as defined in section 561) equals 
or exceeds 90 percent of its catastrophic risk trans-
fer company taxable income for the taxable year de-
termined without regard to subsection (b)(2)(C), and 
‘‘(2) as of the close of the taxable year, the cat-
astrophic risk transfer company has no earnings and 
profits accumulated in any taxable year to which the 
provisions of this part (or the corresponding provi-
sions of prior law) did not apply to it. 
‘‘(b) METHOD OF TAXATION OF COMPANIES.— 
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‘‘(1) IMPOSITION
OF
TAX
ON
CATASTROPHIC 
RISK TRANSFER COMPANIES.—There is hereby im-
posed for each taxable year upon the catastrophic 
risk transfer company taxable income of every cata-
strophic risk transfer company a tax computed as 
provided in section 11, as though the catastrophic 
risk transfer company taxable income were the tax-
able income referred to in section 11. 
‘‘(2) CATASTROPHIC RISK TRANSFER COMPANY 
TAXABLE INCOME.—The catastrophic risk transfer 
company taxable income shall be the taxable income 
of the catastrophic risk transfer company adjusted 
as follows: 
‘‘(A) The net operating loss deduction pro-
vided in section 172 shall not be allowed. 
‘‘(B) The deductions for corporations pro-
vided in part VIII (except section 248) in sub-
chapter B (section 241 and following, relating 
to the deduction for dividends received, etc.) 
shall not be allowed. 
‘‘(C) The deduction for dividends paid (as 
defined in section 561) shall be allowed. 
‘‘(D) The taxable income shall be com-
puted without regard to section 443(b) (relating 
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to computation of tax on change of annual ac-
counting period). 
‘‘(E) The taxable income shall be com-
puted without regard to section 454(b) (relating 
to short-term obligations issued on a discount 
basis) if the company so elects in a manner pre-
scribed by the Secretary. 
‘‘(F) There shall be deducted an amount 
equal to the tax imposed by subsection (d)(2) of 
section 860M for the taxable year. 
‘‘(G) There will be allowed as a deduction 
loss adjustment expenses and expenses of— 
‘‘(i) modeling firms, claims reviewers, 
loss reserve specialists, attorneys, account-
ants, actuaries, indenture trustees (includ-
ing 
reinsurance 
trustees 
and 
paying 
agents), independent directors, administra-
tors of the catastrophic risk transfer com-
pany, rating agencies of any securities 
issued by the catastrophic risk transfer 
company, reset and calculation agents, re-
porting agencies, data providers, model es-
crow agents, securities listings, and securi-
ties listing agents, and 
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‘‘(ii) other professionals or service 
providers, or other out-of-pocket costs in-
curred with issuing securities, reasonably 
related thereto. 
‘‘(3) SECTION 311(b) NOT TO APPLY TO CER-
TAIN
DISTRIBUTIONS.—Section 311(b) shall not 
apply to any distribution by a catastrophic risk 
transfer company to which this part applies, if such 
distribution is in redemption of its stock or securi-
ties upon the demand of the holder. 
‘‘(4) TIME
CERTAIN
DIVIDENDS
TAKEN
INTO 
ACCOUNT.—For purposes of this title, any dividend 
declared by a catastrophic risk transfer company 
during any calendar year and payable to security 
holders of record on a specified date in such a year 
shall be deemed— 
‘‘(A) to have been received by each security 
holder on December 31 of such calendar year, 
and 
‘‘(B) to have been paid by such company 
on December 31 of such calendar year (or, if 
earlier, as provided in section 860P). 
The preceding sentence shall apply only if such divi-
dend is actually paid by the company prior to the 
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15th day of the 9th month of the following calendar 
year. 
‘‘(c) EARNINGS AND PROFITS.— 
‘‘(1) DISTRIBUTIONS TO MEET REQUIREMENTS 
OF SUBSECTION (a)(2).—Any distribution which is 
made in order to comply with the requirements of 
subsection (a)(2)— 
‘‘(A) shall be treated for purposes of this 
subsection and subsection (a)(2) as made from 
earnings and profits which, but for the distribu-
tion, would result in a failure to meet such re-
quirements (and allocated to such earnings on 
a first-in, first-out basis), and 
‘‘(B) to the extent treated under subpara-
graph (A) as made from accumulated earnings 
and profits, shall not be treated as a distribu-
tion for purposes of subsection (b)(2)(C) and 
section 860P. 
‘‘(2) CATASTROPHIC
RISK
TRANSFER
COM-
PANY.—For purposes of this subsection, the term 
‘catastrophic risk transfer company’ includes a do-
mestic corporation which is a catastrophic risk 
transfer company determined without regard to the 
requirements of subsection (a). 
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‘‘(d) PROCEDURES SIMILAR TO DEFICIENCY DIVI-
DEND PROCEDURES MADE APPLICABLE.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) there is a determination that the pro-
visions of this part do not apply to a cata-
strophic risk transfer company for any taxable 
year (hereafter in this subsection referred to as 
the ‘non-CART year’), and 
‘‘(B) such catastrophic risk transfer com-
pany meets the distribution requirements of 
paragraph (2) with respect to the non-CART 
year, 
then, for purposes of applying subsection (a)(2) to 
subsequent taxable years, the provisions of this part 
shall be treated as applying to such catastrophic risk 
transfer company for the non-CART year. If the de-
termination under subparagraph (A) is solely as a 
result of the failure to meet the requirements of sub-
section (a)(2), the preceding sentence shall also 
apply for purposes of applying subsection (a)(2) to 
the non-CART year and the amount referred to in 
paragraph (2)(A)(i) shall be the portion of the accu-
mulated earnings and profits which resulted in such 
failure. 
‘‘(2) DISTRIBUTION REQUIREMENTS.— 
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‘‘(A) IN
GENERAL.—The distribution re-
quirements of this paragraph are met with re-
spect to any non-CART year if, within the 90- 
day period beginning on the date of the deter-
mination (or within such longer period as the 
Secretary may permit), the catastrophic risk 
transfer company makes 1 or more qualified 
designated distributions and the amount of 
such distributions is not less than the excess 
of— 
‘‘(i) the portion of the accumulated 
earnings and profits of the catastrophic 
risk transfer company (as of the date of 
the determination) which are attributable 
to the non-CART year, over 
‘‘(ii) any interest payable under para-
graph (3). 
‘‘(B) QUALIFIED
DESIGNATED
DISTRIBU-
TION.—For purposes of this paragraph, the 
term ‘qualified designated distribution’ means 
any distribution made by the catastrophic risk 
transfer company if— 
‘‘(i) section 301 applies to such dis-
tribution, and 
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‘‘(ii) such distribution is designated 
(at such time and in such manner as the 
Secretary shall by regulations prescribe) as 
being taken into account under this para-
graph with respect to the non-CART year. 
‘‘(C) EFFECT ON DIVIDENDS PAID DEDUC-
TION.—Any qualified designated distribution 
shall not be included in the amount of dividends 
paid for purposes of computing the dividends 
paid deduction for any taxable year. 
‘‘(3) INTEREST CHARGE.— 
‘‘(A) IN GENERAL.—If paragraph (1) ap-
plies to any non-CART year of a catastrophic 
risk transfer company, such catastrophic risk 
transfer company shall pay interest at the un-
derpayment rate established under section 
6621— 
‘‘(i) on an amount equal to 50 percent 
of the amount referred to in paragraph 
(2)(A)(i), and 
‘‘(ii) for the period— 
‘‘(I) which begins on the last day 
prescribed for payment of the tax im-
posed for the non-CART year (deter-
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mined without regard to extensions), 
and 
‘‘(II) which ends on the date the 
determination is made. 
‘‘(B) COORDINATION WITH SUBTITLE F.— 
Any interest payable under subparagraph (A) 
may be assessed and collected at any time dur-
ing the period during which any tax imposed 
for the taxable year in which the determination 
is made may be assessed and collected. 
‘‘(4) PROVISIONS NOT TO APPLY IN THE CASE 
OF FRAUD.—The provisions of this subsection shall 
not apply if the determination contains a finding 
that the failure to meet any requirement of this part 
was due to fraud with intent to evade tax. 
‘‘(5) DETERMINATION.—For purposes of this 
subsection, the term ‘determination’ has the mean-
ing given to such term by section 860(e). Such term 
also includes a determination by the catastrophic 
risk transfer company filed with the Secretary that 
the provisions of this part do not apply to the cata-
strophic risk transfer company for a taxable year. 
‘‘(e) DEFINITIONS.—For purposes of this part— 
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‘‘(1) the terms ‘dividend’ and ‘distribution’ shall 
include payments made to holders of debt securities, 
and 
‘‘(2) the term ‘security holder’ shall include 
holders of equity and debts securities issued by a 
catastrophic risk transfer company. 
‘‘SEC. 860O. TAXATION OF SECURITY HOLDERS OF CATA-
STROPHIC RISK TRANSFER COMPANY; LIMI-
TATIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM CATASTROPHIC RISK TRANS-
FER COMPANY. 
‘‘(a) CHARACTER OF DIVIDENDS.—Each catastrophic 
risk transfer company shall identify in a statement issued 
to each security holder the portion of its dividends paid 
with respect to the year, under the rules of section 860N, 
which are attributable to the following types of income of 
the catastrophic risk transfer company: 
‘‘(1) Interest. 
‘‘(2) Tax-exempt interest. 
‘‘(3) Qualified dividend income, within the 
meaning of subparagraph (B) of section 1(h)(11) of 
this title. 
‘‘(4) Dividends other than qualified dividend in-
come. 
‘‘(5) Capital gains. 
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‘‘(6) Insurance or reinsurance premiums. 
‘‘(b) LOOK THROUGH
FOR TAXATION
OF DIVI-
DENDS.— 
‘‘(1) GENERAL.—Except as provided in sub-
section (n) of section 871 or subsection (f) of section 
881 of this title, each security holder shall be subject 
to taxation under this title on the dividends received 
from a catastrophic risk transfer company in the 
same manner as if such security holder had received 
the portions of each dividend identified on the state-
ment provided under subsection (a) directly. 
‘‘(2) DIVIDEND INCOME.—In computing any de-
duction under section 243 with respect to the por-
tion of a dividend identified on the statement under 
subsection (a) as dividend income referenced in 
paragraphs (3) or (4) of such subsection, such por-
tion shall be treated as received from a corporation 
which is not a 20-percent owned corporation. 
‘‘(3) CAPITAL GAIN INCOME.—The portion of a 
dividend identified on the statement under sub-
section (a) as capital gain income referenced in 
paragraph (5) of such subsection shall be treated by 
the security holders as a gain from the sale or ex-
change of a capital asset held for more than 1 year. 
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‘‘SEC. 860P. DIVIDENDS PAID BY CATASTROPHIC RISK 
TRANSFER COMPANY AFTER CLOSE OF TAX-
ABLE YEAR. 
‘‘(a) GENERAL RULE.—For purposes of this chapter, 
if a catastrophic risk transfer company— 
‘‘(1) declares a dividend on or before the later 
of— 
‘‘(A) the 15th day of the 9th month fol-
lowing the close of the taxable year, or 
‘‘(B) in the case of an extension of time 
for filing the company’s return for the taxable 
year, the due date for filing such return taking 
into account such extension, and 
‘‘(2) distributes the amount of such dividend to 
security holders in the 12-month period following the 
close of such taxable year and not later than the 
date of the first dividend payment of the same type 
of dividend made after such declaration, 
the amount so declared and distributed shall, except as 
provided in subsection (b) and to the extent the company 
elects in such return in accordance with regulations pre-
scribed by the Secretary, be considered as having been 
paid during such taxable year. 
‘‘(b) RECEIPT BY SECURITY HOLDER.—Amounts to 
which subsection (a) applies shall be treated as received 
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by the security holder in the taxable year in which the 
distribution is made.’’. 
(b) EXEMPTION FROM WITHHOLDING TAXES
ON 
NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.— 
(1) NONRESIDENT ALIENS.—Section 871 of the 
Internal Revenue Code of 1986 is amended by redes-
ignating subsection (n) as subsection (o) and by in-
serting after subsection (m) the following: 
‘‘(n) EXEMPTION FOR QUALIFIED INVESTMENT IN-
COME DIVIDENDS
OF CATASTROPHIC RISK TRANSFER 
COMPANIES.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), no tax shall be imposed under paragraph 
(1)(A) of subsection (a) on any qualified investment 
income dividend received from a catastrophic risk 
transfer company which meets the requirements of 
section 860M(a) for the taxable year with respect to 
which the dividend is paid. 
‘‘(2) EXCEPTIONS.—Paragraph (1) shall not 
apply— 
‘‘(A) to any qualified investment income 
dividend received from a catastrophic risk 
transfer company by a person to the extent 
such dividend is attributable to investment in-
come received by such company on indebtedness 
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issued by such person or by any corporation or 
partnership with respect to which such person 
is a 10-percent shareholder, 
‘‘(B) to any qualified investment income 
dividend with respect to stock of a catastrophic 
risk transfer company unless the person who 
would otherwise be required to deduct and with-
hold tax from such dividend under chapter 3 re-
ceives a statement (which meets requirements 
similar to the requirements of subsection 
(h)(5)) that the beneficial owner of such stock 
is not a United States person, and 
‘‘(C) to any qualified investment income 
dividend paid to any person within a foreign 
country (or any such dividend payment ad-
dressed to, or for the account of, persons within 
such foreign country) during any period de-
scribed in subsection (h)(6) with respect to such 
country. 
Subparagraph (C) shall not apply to any dividend 
with respect to any stock which was acquired on or 
before the date of the publication of the Secretary’s 
determination under subsection (h)(6). 
‘‘(3) QUALIFIED
INVESTMENT
INCOME
DIVI-
DEND.—For purposes of this paragraph, the term 
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