I
105TH CONGRESS
1ST SESSION
H. R. 2258
To amend the Internal Revenue Code of 1986 to provide for fair treatment
of small property and casualty insurance companies.
IN THE HOUSE OF REPRESENTATIVES
JULY 24, 1997
Mr. THOMAS (for himself, Mr. MATSUI, Mr. ENGLISH of Pennsylvania, Mr.
CALVERT, and Mr. SENSENBRENNER) 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 provide
for fair treatment of small property and casualty insur-
ance companies.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Small Property and Casualty Insurance Company Equity
Act of 1997’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
SEC. 2. SMALL COMPANY DEDUCTION.
(a) Section 832(c) is amended by striking ‘‘and’’ at
the end of paragraph (12), by striking the period at the
end of paragraph (13) and inserting ‘‘; and’’, and by
adding at the end thereof the following new paragraph:
‘‘(14) the small insurance company deduction
allowed by subsection (h).’’
(b) Section 832 is amended by adding at the end
thereof the following new subsections:
‘‘(h) SMALL INSURANCE COMPANY DEDUCTION.—In
the case of taxable years beginning after December 31,
1997—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction for the taxable year 60 percent of so much
of the tentative taxable income for such taxable year
as does not exceed $3,000,000 (hereinafter in this
section referred to as the ‘small insurance company
deduction’).
‘‘(2) PHASEOUT
BETWEEN
$3,000,000
AND
$15,000,000.—The amount of the small insurance
company deduction determined under paragraph (1)
for any taxable year shall be reduced (but not below
zero) by 15 percent of so much of the tentative tax-
able income for such taxable year as exceeds
$3,000,000.
‘‘(3) SMALL INSURANCE COMPANY DEDUCTION
NOT
ALLOWABLE
TO
COMPANY
WITH
ASSETS
OF
$500,000,000 OR MORE.—
‘‘(A) IN GENERAL.—The small insurance
company deduction shall not be allowed for any
taxable year to any insurance company which,
at the close of such taxable year, has assets
equal to or greater than $500,000,000.
‘‘(B) ASSETS.—For purposes of this para-
graph, the term ‘assets’ means all assets of the
company.
‘‘(C) VALUATION
OF
ASSETS.—For pur-
poses of this paragraph, the amount attrib-
utable to—
‘‘(i) real property and stock shall be
the fair market value thereof, and
‘‘(ii) any other asset shall be the ad-
justed basis of such asset for purposes of
determining gain on sale or other disposi-
tion.
‘‘(D) SPECIAL
RULE
FOR
INTERESTS
IN
PARTNERSHIPS AND TRUSTS.—For purposes of
this paragraph—
‘‘(i) an interest in a partnership or
trust shall not be treated as an asset of the
company, but
‘‘(ii) the company shall be treated as
actually owning its proportionate share of
the assets held by the partnership or trust
(as the case may be).
‘‘(i) TENTATIVE TAXABLE INCOME.—For purposes
of subsection (h)—
‘‘(1) IN GENERAL.—The term ‘tentative taxable
income’ means taxable income determined without
regard to the small insurance company deduction.
‘‘(2) EXCLUSION OF ITEMS ATTRIBUTABLE TO
NONINSURANCE
BUSINESSES.—The amount of the
tentative taxable income for any taxable year shall
be determined without regard to all items attrib-
utable to noninsurance businesses.
‘‘(3) NONINSURANCE BUSINESSES.—
‘‘(A) IN
GENERAL.—The term ‘‘non-
insurance business’’ means any activity which is
not an insurance business.
‘‘(B) CERTAIN ACTIVITIES TREATED AS IN-
SURANCE BUSINESSES.—For purposes of sub-
paragraph (A), any activity which is not an in-
surance business shall be treated as an insur-
ance business if—
‘‘(i) it is of a type traditionally carried
on by insurance companies for investment
purposes, but only if the carrying on of
such activity (other than in the case of real
estate) does not constitute the active con-
duct of a trade or business, or
‘‘(ii) it involves the performance of ad-
ministrative services in connection with
plans providing property or casualty insur-
ance benefits.
‘‘(C) LIMITATION
OF
AMOUNT
OF
LOSS
FROM
NONINSURANCE
BUSINESS
WHICH
MAY
OFFSET
INCOME
FROM
INSURANCE
BUSI-
NESS.—In computing the taxable income of any
insurance company subject to tax imposed by
section 831, any loss from a noninsurance busi-
ness shall be limited under the principles of sec-
tion 1503(c).
‘‘(j) SPECIAL RULE FOR CONTROLLED GROUPS.—
‘‘(1) SMALL INSURANCE COMPANY DEDUCTION
DETERMINED ON CONTROLLED GROUP BASIS.—For
purposes of subsections (h) and (i)—
‘‘(A) all insurance companies which are
members of the same controlled group shall be
treated as 1 insurance company, and
‘‘(B) any small insurance company deduc-
tion determined with respect to such group
shall be allocated among the insurance compa-
nies which are members of such group in
proportion to their respective tentative taxable
incomes.
‘‘(2) NONINSURANCE MEMBERS INCLUDED FOR
ASSET TEST.—For purposes of subsection (h)(3), all
members of the same controlled group (whether or
not insurance companies) shall be treated as 1
company.
‘‘(3) CONTROLLED
GROUP.—For purposes of
this subsection, the term ‘controlled group’ means
any controlled group of corporations (as defined in
section 1563(a)); except that subsections (a)(4) and
(b)(2)(D) of section 1563 shall not apply.
‘‘(4) ADJUSTMENTS TO PREVENT EXCESS DET-
RIMENT OR BENEFIT.—Under regulations prescribed
by the Secretary, proper adjustments shall be made