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. SCAR-
BOROUGH, 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.
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, 1999, 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 determines, through ap-
propriate State action, that coverage in the author-
ized insurance market is not reasonably available to
a substantial number of insurable real properties
(and any successor association) 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,
‘‘(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, or
‘‘(IV) to make remittances pursuant
to State law to be used by the State to
provide for the payment of claims on poli-
cies written by the association, purchase
reinsurance covering losses under such
policies, or to support governmental pro-
grams to prepare for or mitigate the ef-
fects of natural catastrophic events,
‘‘(iii) the State law governing the associa-
tion permits the association to levy assessments
on insurance companies authorized to sell prop-
erty and casualty insurance in the State, or on
property and casualty insurance policyholders
with insurable interests in property located in
the State to fund deficits of the association, in-
cluding the creation of reserves,
‘‘(iv) the plan of operation of the associa-
tion is subject to approval by the chief executive
officer or other 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)(i) An entity described in clause (ii) (and
any successor entity) shall be disregarded as a sepa-
rate entity and treated as part of the association de-
scribed in subparagraph (A) from which it receives
remittances described in clause (ii) if an election is
made within 30 days after the date that such asso-
ciation is determined to be exempt from tax.
‘‘(ii) An entity is described in this clause if it
is an entity or fund created before January 1, 1999,
pursuant to State law and organized and operated
exclusively to receive, hold, and invest remittances
from an association described in subparagraph (A)
and exempt from tax under subsection (a), to make
disbursements to pay claims on insurance contracts
issued by such association, and to make disburse-
ments to support governmental programs to prepare
for or mitigate the effects of natural catastrophic
events.’’.
(b) UNRELATED BUSINESS TAXABLE INCOME.—
Subsection (a) of section 512 of such Code (relating to
unrelated business taxable income) is amended by adding
at the end the following new paragraph:
‘‘(6) SPECIAL RULE APPLICABLE TO ORGANIZA-
TIONS
DESCRIBED
IN
SECTION
501(c)(28)—In the
case of an organization described in section
501(c)(28), the term ‘unrelated business taxable in-
come’ means taxable income for a taxable year com-
puted without the application of section 501(c)(28)
if at the end of the immediately preceding taxable
year the organization’s net equity exceeded 15 per-
cent of the total coverage in force under insurance
contracts issued by the organization and outstanding
at the end of such preceding year.’’.
(c) 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).
(d) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2001.
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