I 
111TH CONGRESS 
1ST SESSION H. R. 3424 
To amend the Internal Revenue Code of 1986 to disallow the deduction 
for excess non-taxed reinsurance premiums with respect to United States 
risks paid to affiliates. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 30, 2009 
Mr. NEAL of Massachusetts 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 disallow 
the deduction for excess non-taxed reinsurance premiums 
with respect to United States risks paid to affiliates. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. DISALLOWANCE OF DEDUCTION FOR EXCESS 
NON-TAXED REINSURANCE PREMIUMS PAID 
TO AFFILIATES. 
(a) IN GENERAL.—Subsection (b) of section 832 of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph: 
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‘‘(9) LIMITATION ON DEDUCTION FOR EXCESS 
NON-TAXED REINSURANCE PREMIUMS PAID TO AF-
FILIATES.— 
‘‘(A) IN GENERAL.—No deduction shall be 
allowed under paragraph (4) for so much of the 
affiliated non-taxed reinsurance premiums paid 
by a covered insurance company during the tax-
able year as exceeds the sum of— 
‘‘(i) the premium limitation for such 
taxable year, plus 
‘‘(ii) the qualified ceding commissions 
with respect to such premiums. 
‘‘(B) AFFILIATED
NON-TAXED
REINSUR-
ANCE PREMIUMS.—For purposes of this para-
graph— 
‘‘(i) IN GENERAL.—The term ‘affili-
ated 
non-taxed 
reinsurance 
premium’ 
means any reinsurance premium paid di-
rectly or indirectly to an affiliated corpora-
tion if, with respect to such affiliated cor-
poration, such premium is neither subpart 
F income (as defined in section 952) nor 
subject to tax under this subtitle. 
‘‘(ii) NETTING OF PREMIUMS PAID TO 
COVERED INSURANCE COMPANY BY AFFILI-
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ATES.—The amount of premiums which 
would (but for this clause) be treated as 
affiliated non-taxed reinsurance premiums 
with respect to any affiliated corporation 
for any taxable year shall be reduced (but 
not below zero) by any reinsurance pre-
miums paid directly or indirectly to the 
covered insurance company by such affili-
ated corporation during such taxable year. 
‘‘(iii) PREMIUMS
TREATED
AS
NON- 
TAXED
TO
EXTENT
OF
TREATY
REDUC-
TION.—Rules similar to the rules of section 
163(j)(5)(B) shall apply for purposes of 
determining the extent to which tax is im-
posed by this subtitle with respect to any 
premium. 
‘‘(C) PREMIUM
LIMITATION.—For pur-
poses of this paragraph— 
‘‘(i) IN
GENERAL.—The term ‘pre-
mium limitation’ means, with respect to 
any covered insurance company for any 
taxable year, the excess of— 
‘‘(I) the product of the gross pre-
miums written by such covered insur-
ance company on insurance contracts 
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during the taxable year multiplied by 
the industry fraction for such taxable 
year, over 
‘‘(II) the aggregate reinsurance 
premiums paid by such covered insur-
ance company during the taxable year 
which are not affiliated non-taxed re-
insurance premiums. 
Such limitation shall not be less than zero. 
‘‘(ii) INDUSTRY
FRACTION.—In the 
case of any taxable year beginning in a cal-
endar year, the term ‘industry fraction’ 
means the fraction, determined by the Sec-
retary on the basis of published aggregate 
data from annual statements of insurance 
companies— 
‘‘(I) the numerator of which is 
the aggregate reinsurance premiums 
paid by covered insurance companies 
to non-affiliated corporations during 
the second preceding calendar year, 
and 
‘‘(II) the denominator of which is 
the aggregate gross premiums written 
by covered insurance companies dur-
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ing such second preceding calendar 
year. 
‘‘(iii) SEPARATE
APPLICATION
TO 
EACH LINE OF BUSINESS.—With respect to 
each line of business— 
‘‘(I) the Secretary shall deter-
mine a separate industry fraction with 
respect to each such line of business, 
and 
‘‘(II) subparagraph (A) shall be 
applied separately to each such line of 
business by taking into account the 
industry fraction determined with re-
spect to such line of business. 
‘‘(D) QUALIFIED
CEDING
COMMISSION.— 
For purposes of this paragraph, the term 
‘qualified ceding commission’ means, with re-
spect to the affiliated non-taxed reinsurance 
premiums paid by a covered insurance company 
during any taxable year, the product of— 
‘‘(i) the ceding commissions which are 
paid to such company with respect to such 
premiums and which are included in in-
come of such company, multiplied by 
‘‘(ii) a fraction— 
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miums and which are received by such 
corporation during such taxable year 
directly or indirectly from covered in-
surance companies with respect to 
which such corporation is affiliated, 
and 
‘‘(II) so much of the net invest-
ment income (within the meaning of 
section 842(b)) for such taxable year 
as is allocable to reinsurance pre-
miums with respect to which an elec-
tion under clause (i) applies for such 
taxable year or any prior taxable year. 
‘‘(iv) RULES
RELATED
TO
ELEC-
TION.—Any election under clause (i) 
shall— 
‘‘(I) be made at such time and in 
such form and manner as the Sec-
retary may provide, and 
‘‘(II) apply for the taxable year 
for which made and all subsequent 
taxable years unless revoked with the 
consent of the Secretary. 
‘‘(F) OTHER
DEFINITIONS
AND
SPECIAL 
RULES.—For purposes of this paragraph— 
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‘‘(i) 
COVERED
INSURANCE
COM-
PANY.—The term ‘covered insurance com-
pany’ means any insurance company sub-
ject to the tax imposed by section 831. 
‘‘(ii) TREATMENT
OF
CONTROLLED 
GROUP.—All domestic members of a con-
trolled group of corporations (as defined in 
section 1563) of which a covered insurance 
company is a member shall be treated as 
one corporation. 
‘‘(iii) AFFILIATED CORPORATIONS.—A 
corporation shall be treated as affiliated 
with a covered insurance company if both 
corporations are members of the same con-
trolled group of corporations, as defined in 
section 1563(a) except that— 
‘‘(I) ‘more than 25 percent’ shall 
be substituted for ‘at least 80 percent’ 
each place it appears in section 
1563(a)(1), and 
‘‘(II) the determination shall be 
made without regard to subsections 
(a)(4), 
(b)(2)(C), 
(b)(2)(D), 
and 
(e)(3)(C) of section 1563. 
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‘‘(iv) TREATMENT
OF
REINSURANCE 
ASSUMED BY COVERED INSURANCE COM-
PANY.—Reinsurance ceded by a non-affili-
ated corporation to a covered insurance 
company shall be taken into account in the 
same manner as premiums written by such 
covered insurance company. 
‘‘(G) REGULATIONS.—The Secretary shall 
prescribe such regulations as may be appro-
priate to carry out or to prevent the avoidance 
of the purposes of this paragraph, including 
regulations which provide for the application of 
this section to alternative reinsurance trans-
actions, fronting transactions, conduit and re-
ciprocal transactions, and any economically 
equivalent transactions.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2009. 
Æ 
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