Collapse to view only § 845. Certain reinsurance agreements
- § 841. Credit for foreign taxes
- § 842. Foreign companies carrying on insurance business
- § 843. Annual accounting period
- [§ 844. Repealed.
- § 845. Certain reinsurance agreements
- § 846. Discounted unpaid losses defined
- [§ 847. Repealed.
- § 848. Capitalization of certain policy acquisition expenses
§ 841. Credit for foreign taxes
The taxes imposed by foreign countries or possessions of the United States shall be allowed as a credit against the tax of a domestic insurance company subject to the tax imposed by section 801 or 831, to the extent provided in the case of a domestic corporation in section 901 (relating to foreign tax credit). For purposes of the preceding sentence (and for purposes of applying section 906 with respect to a foreign corporation subject to tax under this subchapter), the term “taxable income” as used in section 904 means—
(1) in the case of the tax imposed by section 801, the life insurance company taxable income (as defined in section 801(b)), and
(2) in the case of the tax imposed by section 831, the taxable income (as defined in section 832(a)).
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, § 5(4), 70 Stat. 49; Pub. L. 86–69, § 3(b), June 25, 1959, 73 Stat. 139; Pub. L. 87–834, § 8(g)(1), Oct. 16, 1962, 76 Stat. 998; Pub. L. 89–809, title I, § 104(i)(8), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 98–369, div. A, title II, § 211(b)(10), July 18, 1984, 98 Stat. 755; Pub. L. 99–514, title X, § 1024(c)(10), Oct. 22, 1986, 100 Stat. 2407.)
§ 842. Foreign companies carrying on insurance business
(a) Taxation under this subchapter
(b) Minimum effectively connected net investment income
(1) In general
In the case of a foreign company taxable under part I or II of this subchapter for the taxable year, its net investment income for such year which is effectively connected with the conduct of an insurance business within the United States shall be not less than the product of—
(A) the required United States assets of such company, and
(B) the domestic investment yield applicable to such company for such year.
(2) Required U.S. assets
(A) In general
For purposes of paragraph (1), the required United States assets of any foreign company for any taxable year is an amount equal to the product of—
(i) the mean of such foreign company’s total insurance liabilities on United States business, and
(ii) the domestic asset/liability percentage applicable to such foreign company for such year.
(B) Total insurance liabilities
For purposes of this paragraph—
(i) Companies taxable under part I
(ii) Companies taxable under part II
(C) Domestic asset/liability percentage
The domestic asset/liability percentage applicable for purposes of subparagraph (A)(ii) to any foreign company for any taxable year is a percentage determined by the Secretary on the basis of a ratio—
(i) the numerator of which is the mean of the assets of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
(ii) the denominator of which is the mean of the total insurance liabilities of the same companies.
(3) Domestic investment yield
The domestic investment yield applicable for purposes of paragraph (1)(B) to any foreign company for any taxable year is the percentage determined by the Secretary on the basis of a ratio—
(A) the numerator of which is the net investment income of domestic insurance companies taxable under the same part of this subchapter as such foreign company, and
(B) the denominator of which is the mean of the assets of the same companies.
(4) Election to use worldwide yield
(A) In general
(B) Worldwide current investment yield
For purposes of subparagraph (A), the term “worldwide current investment yield” means the percentage obtained by dividing—
(i) the net investment income of the company from all sources, by
(ii) the mean of all assets of the company (whether or not held in the United States).
(C) Election
(5) Net investment income
For purposes of this subsection, the term “net investment income” means—
(A) gross investment income (within the meaning of section 834(b)), reduced by
(B) expenses allocable to such income.
(c) Special rules for purposes of subsection (b)
(1) Reduction in section 881 taxes
(A) In general
The tax under section 881 (determined without regard to this paragraph) shall be reduced (but not below zero) by an amount which bears the same ratio to such tax as—
(i) the amount of the increase in effectively connected income of the company resulting from subsection (b), bears to
(ii) the amount which would be subject to tax under section 881 if the amount taxable under such section were determined without regard to sections 103 and 894.
(B) Limitation on reduction
(2) Data used in determining domestic asset/liability percentages and domestic investment yields
(d) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
(1) providing for the proper treatment of segregated asset accounts,
(2) providing for proper adjustments in succeeding taxable years where the company’s actual net investment income for any taxable year which is effectively connected with the conduct of an insurance business within the United States exceeds the amount required under subsection (b)(1),
(3) providing for the proper treatment of investments in domestic subsidiaries, and
(4) which may provide that, in the case of companies taxable under part II of this subchapter, determinations under subsection (b) will be made separately for categories of such companies established in such regulations.
(Aug. 16, 1954, ch. 736, 68A Stat. 267; Mar. 13, 1956, ch. 83, § 5(5), 70 Stat. 49; Pub. L. 86–69, § 3(f)(1), June 25, 1959, 73 Stat. 140; Pub. L. 89–809, title I, § 104(i)(1), Nov. 13, 1966, 80 Stat. 1561; Pub. L. 99–514, title X, § 1024(c)(11), Oct. 22, 1986, 100 Stat. 2408; Pub. L. 100–203, title X, § 10242(a), Dec. 22, 1987, 101 Stat. 1330–420; Pub. L. 100–647, title II, § 2004(q)(2), (3), Nov. 10, 1988, 102 Stat. 3609; Pub. L. 101–239, title VII, § 7821(d)(2), Dec. 19, 1989, 103 Stat. 2424; Pub. L. 108–218, title II, § 205(b)(6), Apr. 10, 2004, 118 Stat. 610; Pub. L. 115–97, title I, § 13512(b)(7), Dec. 22, 2017, 131 Stat. 2143.)
§ 843. Annual accounting period
For purposes of this subtitle, the annual accounting period for each insurance company subject to a tax imposed by this subchapter shall be the calendar year. Under regulations prescribed by the Secretary, an insurance company which joins in the filing of a consolidated return (or is required to so file) may adopt the taxable year of the common parent corporation even though such year is not a calendar year.
(Added Mar. 13, 1956, ch. 83, § 4(a), 70 Stat. 48; amended Pub. L. 94–455, title XV, § 1507(b)(2), Oct. 4, 1976, 90 Stat. 1740.)
[§ 844. Repealed.
§ 845. Certain reinsurance agreements
(a) Allocation in case of reinsurance agreement involving tax avoidance or evasion
In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may—
(1) allocate between or among such persons income (whether investment income, premium, or otherwise), deductions, assets, reserves, credits, and other items related to such agreement,
(2) recharacterize any such items, or
(3) make any other adjustment,
if he determines that such allocation, recharacterization, or adjustment is necessary to reflect the proper amount, source, or character of the taxable income (or any item described in paragraph (1) relating to such taxable income) of each such person.
(b) Reinsurance contract having significant tax avoidance effect
(Added Pub. L. 98–369, div. A, title II, § 212(a), July 18, 1984, 98 Stat. 757; amended Pub. L. 108–357, title VIII, § 803(a), Oct. 22, 2004, 118 Stat. 1569.)
§ 846. Discounted unpaid losses defined
(a) Discounted losses determined
(1) Separately computed for each accident year
(2) Method of discounting
The amount of the discounted unpaid losses as of the end of any taxable year attributable to any accident year shall be the present value of such losses (as of such time) determined by using—
(A) the amount of the undiscounted unpaid losses as of such time,
(B) the applicable interest rate, and
(C) the applicable loss payment pattern.
(3) Limitation on amount of discounted losses
(4) Determination of applicable factors
In determining the amount of the discounted unpaid losses attributable to any accident year—
(A) the applicable interest rate shall be the interest rate determined under subsection (c) for the calendar year with which such accident year ends, and
(B) the applicable loss payment pattern shall be the loss payment pattern determined under subsection (d) which is in effect for the calendar year with which such accident year ends.
(b) Determination of undiscounted unpaid losses
For purposes of this section—
(1) In general
(2) Adjustment if losses discounted on annual statement
If—
(A) the amount of unpaid losses shown in the annual statement is determined on a discounted basis, and
(B) the extent to which the losses were discounted can be determined on the basis of information disclosed on or with the annual statement,
the amount of the unpaid losses shall be determined without regard to any reduction attributable to such discounting.
(c) Rate of interest
(1) In general
(2) Determination of annual rate
(d) Loss payment pattern
(1) In general
(2) Method of determination
Determinations under paragraph (1) for any determination year shall be made by the Secretary—
(A) by using the aggregate experience reported on the annual statements of insurance companies,
(B) on the basis of the most recent published aggregate data from such annual statements relating to loss payment patterns available on the 1st day of the determination year,
(C) as if all losses paid or treated as paid during any year are paid in the middle of such year, and
(D) in accordance with the computational rules prescribed in paragraph (3).
(3) Computational rules
For purposes of this subsection—
(A) In general
Except as otherwise provided in this paragraph, the loss payment pattern for any line of business shall be based on the assumption that all losses are paid—
(i) during the accident year and the 3 calendar years following the accident year, or
(ii) in the case of any line of business reported in the schedule or schedules of the annual statement relating to auto liability, other liability, medical malpractice, workers’ compensation, and multiple peril lines, during the accident year and the 10 calendar years following the accident year.
(B) Treatment of certain losses
(i) 3-year loss payment pattern
(ii) 10-year loss payment pattern(I) In general(II) Computation of extension
(4) Determination year
(e) Other definitions and special rules
For purposes of this section—
(1) Accident year
(2) Unpaid loss adjustment expenses
(3) Annual statement
(4) Line of business
(5) Multiple peril lines
(6) Special rule for certain accident and health insurance lines of business
Any determination under subsection (a) with respect to unpaid losses relating to accident and health insurance lines of businesses (other than credit disability insurance) shall be made—
(A) in the case of unpaid losses relating to disability income, by using the general rules prescribed under section 807(d) applicable to noncancellable accident and health insurance contracts and using a mortality or morbidity table reflecting the taxpayer’s experience; except that the limitation of subsection (a)(3) shall apply, and
(B) in all other cases, by using an assumption (in lieu of a loss payment pattern) that unpaid losses are paid in the middle of the year following the accident year.
(f) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including—
(1) regulations providing proper treatment of allocated reinsurance, and
(2) regulations providing appropriate adjustments in the application of this section to a taxpayer having a taxable year which is not the calendar year.
(Added Pub. L. 99–514, title X, § 1023(c), Oct. 22, 1986, 100 Stat. 2399; amended Pub. L. 100–647, title I, § 1010(e)(1), (2), Nov. 10, 1988, 102 Stat. 3453; Pub. L. 101–508, title XI, § 11305(b), Nov. 5, 1990, 104 Stat. 1388–451; Pub. L. 115–97, title I, §§ 13517(b)(3), 13523(a)–(c), Dec. 22, 2017, 131 Stat. 2147, 2152.)
[§ 847. Repealed. Pub. L. 115–97, title I, § 13516(a), Dec. 22, 2017, 131 Stat. 2144]
§ 848. Capitalization of certain policy acquisition expenses
(a) General ruleIn the case of an insurance company—
(1) specified policy acquisition expenses for any taxable year shall be capitalized, and
(2) such expenses shall be allowed as a deduction ratably over the 180-month period beginning with the first month in the second half of such taxable year.
(b) 5-year amortization for first $5,000,000 of specified policy acquisition expenses
(1) In general
(2) Phase-out
(3) Special rule for members of controlled groupIn the case of any controlled group—
(A) all insurance companies which are members of such group shall be treated as 1 company for purposes of this subsection, and
(B) the amount to which paragraph (1) applies shall be allocated among such companies in such manner as the Secretary may prescribe.
For purposes of the preceding sentence, 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, and subsection (b)(2)(C) of section 1563 shall not apply to the extent it excludes a foreign corporation to which section 842 applies.
(4) Exception for acquisition expenses attributable to certain reinsurance contracts
(c) Specified policy acquisition expensesFor purposes of this section—
(1) In generalThe term “specified policy acquisition expenses” means, with respect to any taxable year, so much of the general deductions for such taxable year as does not exceed the sum of—
(A) 2.09 percent of the net premiums for such taxable year on specified insurance contracts which are annuity contracts,
(B) 2.45 percent of the net premiums for such taxable year on specified insurance contracts which are group life insurance contracts, and
(C) 9.2 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A) or (B).
(2) General deductions
(d) Net premiumsFor purposes of this section—
(1) In generalThe term “net premiums” means, with respect to any category of specified insurance contracts set forth in subsection (c)(1), the excess (if any) of—
(A) the gross amount of premiums and other consideration on such contracts, over
(B) return premiums on such contracts and premiums and other consideration incurred for reinsurance of such contracts.
The rules of section 803(b) shall apply for purposes of the preceding sentence.
(2) Amounts determined on accrual basis
(3) Treatment of certain policyholder dividends and similar amounts
(4) Special rules for reinsurance
(A) Premiums and other consideration incurred for reinsurance shall be taken into account under paragraph (1)(B) only to the extent such premiums and other consideration are includible in the gross income of an insurance company taxable under this subchapter or are subject to tax under this chapter by reason of subpart F of part III of subchapter N.
(B) The Secretary shall prescribe such regulations as may be necessary to ensure that premiums and other consideration with respect to reinsurance are treated consistently by the ceding company and the reinsurer.
(e) Classification of contractsFor purposes of this section—
(1) Specified insurance contract
(A) In general
(B) ExceptionsThe term “specified insurance contract” shall not include—
(i) any pension plan contract (as defined in section 818(a)),
(ii) any flight insurance or similar contract,
(iii) any qualified foreign contract (as defined in section 807(e)(3) without regard to paragraph (5) of this subsection),
(iv) any contract which is an Archer MSA (as defined in section 220(d)), and
(v) any contract which is a health savings account (as defined in section 223(d)).
(2) Group life insurance contractThe term “group life insurance contract” means any life insurance contract—
(A) which covers a group of individuals defined by reference to employment relationship, membership in an organization, or similar factor,
(B) the premiums for which are determined on a group basis, and
(C) the proceeds of which are payable to (or for the benefit of) persons other than the employer of the insured, an organization to which the insured belongs, or other similar person.
(3) Treatment of annuity contracts combined with noncancellable accident and health insurance
(4) Treatment of guaranteed renewable contracts
(5) Treatment of reinsurance contract
(6) Treatment of certain qualified long-term care insurance contract arrangements
(f) Special rule where negative net premiums
(1) In generalIf for any taxable year there is a negative capitalization amount with respect to any category of specified insurance contracts set forth in subsection (c)(1)—
(A) the amount otherwise required to be capitalized under this section for such taxable year with respect to any other category of specified insurance contracts shall be reduced (but not below zero) by such negative capitalization amount, and
(B) such negative capitalization amount (to the extent not taken into account under subparagraph (A))—
(i) shall reduce (but not below zero) the unamortized balance (as of the beginning of such taxable year) of the amounts previously capitalized under subsection (a) (beginning with the amount capitalized for the most recent taxable year), and
(ii) to the extent taken into account as such a reduction, shall be allowed as a deduction for such taxable year.
(2) Negative capitalization amountFor purposes of paragraph (1), the term “negative capitalization amount” means, with respect to any category of specified insurance contracts, the percentage (applicable under subsection (c)(1) to such category) of the amount (if any) by which—
(A) the amount determined under subparagraph (B) of subsection (d)(1) with respect to such category, exceeds
(B) the amount determined under subparagraph (A) of subsection (d)(1) with respect to such category.
(g) Treatment of certain ceding commissions
(h)
(1) In general
(2) Adjustment to other contracts
(Added Pub. L. 101–508, title XI, § 11301(a), Nov. 5, 1990, 104 Stat. 1388–445; amended Pub. L. 103–66, title XIII, § 13261(d), Aug. 10, 1993, 107 Stat. 539; Pub. L. 104–191, title III, § 301(h), Aug. 21, 1996, 110 Stat. 2052; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(5), (b)(10)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628, 2763A–629; Pub. L. 108–173, title XII, § 1201(h), Dec. 8, 2003, 117 Stat. 2479; Pub. L. 109–280, title VIII, § 844(e), Aug. 17, 2006, 120 Stat. 1013; Pub. L. 113–295, div. A, title II, § 221(a)(70), Dec. 19, 2014, 128 Stat. 4048; Pub. L. 115–97, title I, §§ 12001(b)(8)(C), 13517(b)(4), 13519(a), (b), Dec. 22, 2017, 131 Stat. 2093, 2147, 2148.)