SECTION 1. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH OTHER 
              COMPANIES PERMITTED.

    (a) In General.--Section 1504(b) of the Internal Revenue Code of 
1986 (defining includible corporation) is amended by striking paragraph 
(2) and by redesignating paragraphs (3) through (8) as paragraphs (2) 
through (7), respectively.
    (b) Conforming Amendments.--
            (1) Section 1503 of such Code is amended by striking 
        subsection (c) (relating to special rule for application of 
        certain losses against income of insurance companies taxed 
        under section 801) and by redesignating subsections (d), (e), 
        and (f) as subsections (b), (c), and (d), respectively.
            (2) Section 1504 of such Code is amended by striking 
        subsection (c) and by redesignating subsections (d), (e), and 
        (f) as subsections (c), (d), and (e), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.
    (d) Phase-In of Application of Certain Losses Against Income of 
Insurance Companies.--For taxable years beginning after December 31, 
2000, and before January 1, 2007--
            (1) In general.--If--
                    (A) an affiliated group includes 1 or more domestic 
                insurance companies each of which is subject to tax 
                under section 801 of the Internal Revenue Code of 1986,
                    (B) the common parent of such group has elected to 
                treat all such companies as includible corporations, 
                and
                    (C) the consolidated taxable income of the members 
                of the group not taxed under such section 801 results 
                in a consolidated net operating loss for such taxable 
                year,
        then, under regulations prescribed by the Secretary of the 
        Treasury or his delegate, the amount of such loss which cannot 
        be absorbed in the applicable carryback periods against the 
        taxable income of such members not taxed under such section 801 
        shall be taken into account in determining the consolidated 
        taxable income of the affiliated group for such taxable year to 
        the extent of the applicable percentage of such loss or the 
        applicable percentage of the taxable income of the members 
        taxed under such section 801, whichever is less. The unused 
        portion of such loss shall be available as a carryover, subject 
        to the same limitations (applicable to the sum of the loss for 
        the carryover year and the loss (or losses) carried over to 
        such year), in applicable carryover years.
            (2) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage shall be determined in accordance 
        with the following table:

For taxable years beginning in:     The applicable percentage is:
        2001...................................................     40 
        2002...................................................     50 
        2003...................................................     60 
        2004...................................................     70 
        2005...................................................     80 
        2006...................................................     90.
    (e) Election for Pre-2007 Years of Groups With Insurance 
Companies.--For taxable years beginning after December 31, 2000, and 
before January 1, 2007, the common parent of an affiliated group which 
includes 1 or more domestic insurance companies subject to tax under 
section 801 of such Code may elect to treat all such insurance 
companies as corporations which are not includible corporations within 
the meaning of subsection (b) of section 1504 of such Code, if, as of 
the date of the enactment of this section--
            (1) such affiliated group included 1 or more insurance 
        companies subject to tax under section 801 of such Code, and
            (2) no additional election was in effect under section 
        1504(c)(2) of such Code (as in effect on the day before the 
        date of the enactment of this Act).
    (f) No Carryback Before January 1, 2001.--To the extent that a 
consolidated net operating loss is allowed or increased by reason of 
the amendments made by this section, such loss may not be carried back 
to a taxable year beginning before January 1, 2001.
    (g) Nontermination of Group.--No affiliated group shall terminate 
solely as a result of the amendments made by this section.
    (h) Subsidiary Stock Basis Adjustments.--A parent corporation's 
basis in the stock of a subsidiary corporation shall be adjusted to 
reflect the preconsolidation income, gain, deduction and loss incurred 
during a period when such corporations were members of an affiliated 
group (determined without regard to section 1504(b)(2) of such Code as 
in effect on the day before the date of enactment of this Act) but were 
not included in a consolidated return of such group by operation of 
section 1504(c)(2)(A) of such Code (as in effect on the day before the 
date of the enactment of this Act).
    (i) Waiver of 5-Year Waiting Period.--Under regulations prescribed 
by the Secretary of the Treasury or his delegate, an automatic waiver 
from the 5-year waiting period for reconsolidation provided in section 
1504(a)(3) of such Code shall be granted to any corporation which was 
previously an includible corporation but was subsequently deemed a 
nonincludible corporation as a result of becoming a subsidiary of a 
corporation which was not an includible corporation solely by operation 
of section 1504(c)(2) of such Code (as in effect on the day before the 
date of the enactment of this Act).
Output: Amends the Internal Revenue Code to include life insurance companies as an "includible corporation" for purposes of filing consolidated tax returns.Permits an affiliated group which includes at least one domestic insurance company that elects to file a consolidated return rather than pay tax under certain life insurance provisions to use a phased-in percentage of insurance company net operating loss in determining its own taxable income. (Permits unused loss carryover.)Provides for: (1) subsidiary stock basis adjustment; and (2) waiver of the five-year reconsolidation waiting period for certain formerly includible corporations which became nonincludible as a result of becoming a subsidiary of a nonincludible life insurance company.