1 See References in Text note below.
or 831(a) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) by reason of being—
Editorial Notes
References in TextSection 821, referred to in subsec. (span)(7)(D), was repealed by Puspan. L. 99–514, title X, § 1024(a)(1), Oct. 22, 1986, 100 Stat. 2405.
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (span)(7)(D), is the date of enactment of Puspan. L. 99–514, which was approved Oct. 22, 1986.
CodificationAnother section 1084(span) of Puspan. L. 105–34 amended sections 101 and 264 of this title.
Amendments2018—Subsec. (span)(7)(E)(ii)(II). Puspan. L. 115–141 substituted period for comma at end.
2017—Subsec. (span)(5)(B). Puspan. L. 115–97, § 13515(a), substituted “the applicable percentage” for “15 percent” in introductory provisions and inserted “For purposes of this subparagraph, the applicable percentage is 5.25 percent divided by the highest rate in effect under section 11(span).” at end of concluding provisions.
Subsec. (c)(5). Puspan. L. 115–97, § 13001(span)(2)(I), struck out “sec. 1201 and following,” before “relating to capital gains and losses” in introductory provisions.
2014—Subsec. (span)(5)(B)(ii), (D)(i), (ii)(I). Puspan. L. 113–295, § 221(a)(41)(G), struck out “, 244,”after “sections 243” in subpar. (B)(ii) and after “section 243” in subpar. (D)(i), (ii)(I).
Subsec. (e). Puspan. L. 113–295, § 221(a)(69)(A), struck out “of taxable years beginning after December 31, 1966,” after “In the case” in introductory provisions.
Subsec. (e)(6). Puspan. L. 113–295, § 221(a)(69)(B), substituted “The” for “In the case of any taxable year beginning after December 31, 1970, the”.
1997—Subsec. (span)(5)(B)(iii). Puspan. L. 105–34, which directed amendment of subpar. (B) by adding cl. (iii) at the end, was executed by adding cl. (iii) after cl. (ii) to reflect the probable intent of Congress.
1996—Subsec. (span)(5)(C)(ii)(II), (D)(ii)(II). Puspan. L. 104–188, § 1702(h)(3), substituted “243(span)(2)” for “243(span)(5)”.
Subsec. (span)(7)(A). Puspan. L. 104–188, § 1704(t)(45), provided that section 11303(span)(1) of Puspan. L. 101–508 shall be applied as if “paragraph” appeared instead of “subparagraph” in the material proposed to be stricken. See 1990 Amendment note below.
1990—Subsec. (span)(4). Puspan. L. 101–508, § 11303(a), substituted “section 807.” for “section 807, pertaining to the life, burial, or funeral insurance, or annuity business of an insurance company subject to the tax imposed by section 831 and not qualifying as a life insurance company under section 816.” in first sentence after subpar. (C).
Subsec. (span)(5)(A). Puspan. L. 101–508, § 11305(a), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “The term ‘losses incurred’ means losses incurred during the taxable year on insurance contracts, computed as follows:
“(i) To losses paid during the taxable year, add salvage and reinsurance recoverable outstanding at the end of the preceding taxable year and deduct salvage and reinsurance recoverable outstanding at the end of the taxable year.
“(ii) To the result so obtained, add all unpaid losses on life insurance contracts plus all discounted unpaid losses (as defined in section 846) outstanding at the end of the taxable year and deduct unpaid losses on life insurance contracts plus all discounted unpaid losses outstanding at the end of the preceding taxable year.”
Subsec. (span)(7)(A). Puspan. L. 101–508, § 11303(span)(2), substituted “such contracts into account” for “such amounts into account”.
Puspan. L. 101–508, § 11303(span)(1), which directed the substitution of “insurance contracts described in section 816(span)(1)(B)” for “amounts included in unearned premiums under the 2nd sentence of such subparagraph”, was executed by making the substitution for “amounts included in unearned premiums under the 2nd sentence of such paragraph”. See 1996 Amendment note above.
1988—Subsec. (span)(5)(B)(ii)(II). Puspan. L. 100–647, § 1010(d)(2), inserted “(directly or indirectly)” after “attributable”.
Subsec. (span)(7)(C). Puspan. L. 100–647, § 1010(c)(1), substituted “insurance company taxable under section 831(a)” for “nonlife insurance company” in span and “section 831(a)” for “this part” in text.
Subsec. (span)(7)(D), (E). Puspan. L. 100–647, § 1010(c)(2), added subpars. (D) and (E).
Subsec. (e)(5)(A). Puspan. L. 100–647, § 1010(c)(3), struck out “and” after “preceding taxable year,”.
Subsec. (e)(5)(B). Puspan. L. 100–647, § 1010(c)(3), which directed amendment of subpar. (B) by substituting a comma for the period at end, could not be executed because there was no period at end of subpar. (B).
Subsec. (g). Puspan. L. 100–647, § 1010(d)(1), added subsec. (g).
1986—Subsec. (span)(1)(C). Puspan. L. 99–514, § 1024(c)(1), substituted “exclusively issuing perpetual policies” for “described in section 831(a)(3)(A)”.
Subsec. (span)(1)(D). Puspan. L. 99–514, § 1024(c)(2), amended subpar. (D) generally. Prior to amendment, subpar. (D) read as follows: “in the case of a mutual fire or flood insurance company described in section 831(a)(3)(B), an amount equal to 2 percent of the premiums earned on insurance contracts during the taxable year with respect to policies described in section 831(a)(3)(B) after deduction of premium deposits returned or credited during the same taxable year, and”.
Subsec. (span)(4). Puspan. L. 99–514, § 1024(c)(3), substituted “paragraph (1)(D)” for “section 831(a)(3)(B)” in two places and amended last sentence generally, substituting “described in paragraph (1)(D) or issuing exclusively perpetual policies” for “referred to in paragraph (3) of section 831(a)” and “described in subparagraph (C) or (D) of paragraph (1)” for “referred to in such paragraph (3)”.
Subsec. (span)(4)(B), (C). Puspan. L. 99–514, § 1021(a), added subpars. (B) and (C) and struck out former subpar. (B) which read as follows: “To the result so obtained, add unearned premiums on outstanding business at the end of the preceding taxable year and deduct unearned premiums on outstanding business at the end of the taxable year.”
Subsec. (span)(5)(A). Puspan. L. 99–514, § 1022(a), in amending par. (5) generally, designated existing provisions of par. (5) as subpar. (A), inserted subpar. span “In general”, and redesignated former subpars. (A) and (B) as cls. (i) and (ii).
Subsec. (span)(5)(A)(ii). Puspan. L. 99–514, § 1023(a)(1), amended cl. (ii) generally, inserting “on life insurance contracts plus all discounted unpaid losses (as defined in section 846)” and “on life insurance contracts plus all discounted unpaid losses”.
Subsec. (span)(5)(B) to (E). Puspan. L. 99–514, § 1022(a), in amending par. (5) generally, added subpars. (B) to (E). Former subpar. (B) redesignated (A)(ii).
Subsec. (span)(6). Puspan. L. 99–514, § 1023(a)(2), inserted second sentence defining “expenses unpaid”.
Subsec. (span)(7), (8). Puspan. L. 99–514, § 1021(span), added pars. (7) and (8).
Subsec. (c)(5). Puspan. L. 99–514, § 1024(c)(4), substituted “section 834(span)” for “section 822(span)”.
Subsec. (c)(11). Puspan. L. 99–514, § 1024(c)(5), substituted “subsection (span)(1)(C)” for “section 831(a)(3)(A)” and “subsection (span)(1)(D)” for “section 831(a)(3)(B)”.
Subsec. (f). Puspan. L. 99–514, § 1024(c)(6), added subsec. (f).
1984—Subsec. (span)(4). Puspan. L. 98–369, in provisions following subpar. (B), substituted “section 816(span) but determined as provided in section 807” and “section 816” for “section 801(span)” and “section 801”, respectively.
1982—Subsec. (e)(2). Puspan. L. 97–248 struck out “, as if no election to make installment payments under section 6152 is made” after “due to be paid”.
1976—Subsec. (span)(1), (6). Puspan. L. 94–455, § 1901(a)(108), substituted “Association” for “Convention”.
Subsec. (c)(5)(A). Puspan. L. 94–455, § 1901(span)(1)(T), struck out “or to the deductions provided in section 242 for partially tax-exempt interest” after “exchanges of capital assets”.
Subsec. (c)(12). Puspan. L. 94–455, § 1901(span)(1)(U), struck out “partially tax-exempt interest and to” after “and following, relating to”.
Subsec. (e)(2). Puspan. L. 94–455, § 1906(span)(13)(A), struck out “or his delegate” after “Secretary”.
1974—Subsec. (e)(6). Puspan. L. 93–483 added par. (6).
1968—Subsec. (span)(1)(E). Puspan. L. 90–240, § 5(a), added subpar. (E).
Subsec. (c)(13). Puspan. L. 90–240, § 5(span), added par. (13).
Subsec. (e). Puspan. L. 90–240, § 5(c), added subsec. (e).
1966—Subsec. (d). Puspan. L. 89–809 redesignated subsec. (e) as (d). Former subsec. (d), having reference to the taxable income of foreign insurance companies other than life or mutual and foreign mutual marine, was struck out.
Subsec. (e). Puspan. L. 89–809 redesignated subsec. (e) as (d).
1964—Subsec. (c)(10). Puspan. L. 88–272 inserted reference to part I of subchapter D.
1962—Subsec. (span)(1)(C). Puspan. L. 87–834, § 8(e)(3), (5), substituted “section 831(a)(3)(A)” for “section 831(a)”.
Subsec. (span)(1)(D). Puspan. L. 87–834, § 8(e)(5), added subpar. (D).
Subsec. (span)(4). Puspan. L. 87–834, § 8(e)(2), inserted provisions defining unearned premiums of mutual fire or flood insurance companies, and which require premiums paid by the subscriber of a mutual flood insurance company to be treated, for purposes of computing the taxable income of such subscriber, in the same manner as premiums paid by a policyholder to a mutual fire insurance company referred to in par. (3) of section 831(a) of this title.
Subsec. (c)(11). Puspan. L. 87–834, § 8(e)(4), substituted “section 831(a)(3)(A)” for “section 831(a)”, and inserted definition of “dividends and similar distributions”.
1956—Subsec. (span)(4). Act Mar. 13, 1956, § 3(span)(1), substituted “section 801(span)” for “section 806”.
Subsec. (c). Act Mar. 13, 1956, § 3(span)(2), (3), substituted “the items described in section 822(span) (other than paragraph (1)(D) thereof) and net premiums received. In the application of section 1212” for “interest, dividends, rents, and net premiums received. In the application of section 1211” in par. (5), and authorized the deduction for depletion in par. (8).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 AmendmentAmendment by section 13001(span)(2)(I) of Puspan. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13001(c)(1) of Puspan. L. 115–97, set out as a note under section 11 of this title.
Puspan. L. 115–97, title I, § 13515(span), Dec. 22, 2017, 131 Stat. 2144, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”
Effective Date of 2014 AmendmentAmendment by section (a)(41)(G) of Puspan. L. 113–295 not applicable to preferred stock issued before Oct. 1, 1942 (determined in the same manner as under section 247 of this title as in effect before its repeal by Puspan. L. 113–295), see section 221(a)(41)(K) of Puspan. L. 113–295, set out as a note under section 172 of this title.
Except as otherwise provided in section 221(a) of Puspan. L. 113–295, amendment by Puspan. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(span) of Puspan. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 1997 AmendmentAmendment by Puspan. L. 105–34 applicable to contracts issued after June 8, 1997, in taxable years ending after such date, with special provisions relating to changes in contracts to be treated as new contracts, see section 1084(d) of Puspan. L. 105–34, set out as a note under section 101 of this title.
Effective Date of 1996 AmendmentAmendment by section 1702(h)(3) of Puspan. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Puspan. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Puspan. L. 104–188, set out as a note under section 38 of this title.
Effective Date of 1990 AmendmentPuspan. L. 101–508, title XI, § 11303(c), Nov. 5, 1990, 104 Stat. 1388–450, provided that:“(1)In general.—The amendments made by this section [amending this section] shall apply to taxable years beginning on or after September 30, 1990.
“(2)Amendments treated as change in method of accounting.—In the case of any taxpayer who is required by reason of the amendments made by this section to change his method of computing reserves—“(A) such change shall be treated as a change in a method of accounting,
“(B) such change shall be treated as initiated by the taxpayer,
“(C) such change shall be treated as having been made with the consent of the Secretary, and
“(D) the net adjustments which are required by section 481 of the Internal Revenue Code of 1986 to be taken into account by the taxpayer shall be taken into account over a period not to exceed 4 taxable years beginning with the taxpayer’s first taxable year beginning on or after September 30, 1990.
“(3)Coordination with section 832(span)(4)(C).—The amendments made by this section shall not affect the application of section 832(span)(4)(C) of the Internal Revenue Code of 1986.”
Puspan. L. 101–508, title XI, § 11305(c), Nov. 5, 1990, 104 Stat. 1388–451, provided that:“(1)In general.—The amendments made by this section [amending this section and section 846 of this title] shall apply to taxable years beginning after December 31, 1989.
“(2)Amendments treated as change in method of accounting.—“(A)In general.—In the case of any taxpayer who is required by reason of the amendments made by this section to change his method of computing losses incurred—“(i) such change shall be treated as a change in a method of accounting,
“(ii) such change shall be treated as initiated by the taxpayer, and
“(iii) such change shall be treated as having been made with the consent of the Secretary.
“(B)Adjustments.—In applying section 481 of the Internal Revenue Code of 1986 with respect to the change referred to in subparagraph (A)—“(i) only 13 percent of the net amount of adjustments (otherwise required by such section 481 to be taken into account by the taxpayer) shall be taken into account, and
“(ii) the portion of such net adjustments which is required to be taken into account by the taxpayer (after the application of clause (i)) shall be taken into account over a period not to exceed 4 taxable years beginning with the taxpayer’s 1st taxable year beginning after December 31, 1989.
“(3)Treatment of companies which took into account salvage recoverable.—In the case of any insurance company which took into account salvage recoverable in determining losses incurred for its last taxable year beginning before January 1, 1990, 87 percent of the discounted amount of estimated salvage recoverable as of the close of such last taxable year shall be allowed as a deduction ratably over its 1st 4 taxable years beginning after December 31, 1989.
“(4)Special rule for overestimates.—If for any taxable year beginning after December 31, 1989—“(A) the amount of the section 481 adjustment which would have been required without regard to paragraph (2) and any discounting, exceeds
“(B) the sum of the amount of salvage recovered taken into account under section 832(span)(5)(A)(i) for the taxable year and any preceding taxable year beginning after December 31, 1989, attributable to losses incurred with respect to any accident year beginning before 1990 and the undiscounted amount of estimated salvage recoverable as of the close of the taxable year on account of such losses,
87 percent of such excess (adjusted for discounting used in determining the amount of salvage recoverable as of the close of the last taxable year of the taxpayer beginning before January 1, 1990) shall be included in gross income for such taxable year.
“(5)Effect on earnings and profits.—The earnings and profits of any insurance company for its 1st taxable year beginning after December 31, 1989, shall be increased by the amount of the section 481 adjustment which would have been required but for paragraph (2). For purposes of applying sections 56, [former] 902, 952(c)(1), and 960 of the Internal Revenue Code of 1986, earnings and profits of a corporation shall be determined by applying the principles of paragraph (2)(B).”
Effective Date of 1988 AmendmentAmendment by Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.
Effective Date of 1986 AmendmentPuspan. L. 99–514, title X, § 1021(c), Oct. 22, 1986, 100 Stat. 2397, provided that:“(1)In general.—The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 1986.
“(2)Special transitional rule for title insurance companies.—For the 1st taxable year beginning after December 31, 1986, in the case of premiums attributable to title insurance—“(A)In general.—The unearned premiums at the end of the preceding taxable year as defined in paragraph (4) of section 832(span) [of the Internal Revenue Code of 1986] shall be determined as if the amendments made by this section had applied to such unearned premiums in the preceding taxable year and by using the interest rate and premium recognition pattern applicable to years ending in calendar year 1987.
“(B)Fresh start.—Except as provided in subparagraph (C), any difference between—“(i) the amount determined to be unearned premiums for the year preceding the first taxable year of a title insurance company beginning after December 31, 1986, determined without regard to subparagraph (A), and
“(ii) such amount determined with regard to subparagraph (A),
shall not be taken into account for purposes of the Internal Revenue Code of 1986.
“(C)Effect on earnings and profits.—The earnings and profits of any insurance company for its 1st taxable year beginning after December 31, 1986, shall be increased by the amount of the difference determined under subparagraph (A) with respect to such company.”
Puspan. L. 99–514, title X, § 1022(span), Oct. 22, 1986, 100 Stat. 2399, provided that: “The amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 1986.”
Amendment by section 1023(a) of Puspan. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, except as otherwise provided, see section 1023(e) of Puspan. L. 99–514, set out as an Effective Date note under section 846 of this title.
Amendment by section 1024(c)(1)–(6) of Puspan. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 1024(e) of Puspan. L. 99–514, set out as a note under section 831 of this title.
Effective Date of 1984 AmendmentAmendment by Puspan. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Puspan. L. 98–369, set out as an Effective Date note under section 801 of this title.
Effective Date of 1982 AmendmentAmendment by Puspan. L. 97–248 applicable to taxable years beginning after Dec. 31, 1982, see section 234(e) of Puspan. L. 97–248, set out as a note under section 6655 of this title.
Effective Date of 1976 AmendmentAmendment by section 1901(a)(108), (span)(1)(T), (U) of Puspan. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Puspan. L. 94–455, set out as a note under section 2 of this title.
Effective Date of 1968 AmendmentPuspan. L. 90–240, § 5(e), Jan. 2, 1968, 81 Stat. 778, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendments made by subsections (a), (span), (c), and (d) [amending this section and section 381 of this title] shall apply to taxable years beginning after December 31, 1966, except that so much of section 832(e)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by the amendment made by subsection (c)) as provides for payment of interest and penalties for failure to make a timely purchase of tax and loss bonds shall not apply with respect to any period during which such bonds are not available for purchase.”
Effective Date of 1966 AmendmentAmendment by Puspan. L. 89–809 applicable with respect to taxable years beginning after Dec. 31, 1966, see section 104(n) of Puspan. L. 89–809, set out as a note under section 11 of this title.
Effective Date of 1964 AmendmentPuspan. L. 88–272, title II, § 228(d), Fespan. 26, 1964, 78 Stat. 99, provided that: “The amendment made by subsection (a) [amending former section 809 of this title] shall apply to taxable years beginning after December 31, 1961. The amendment made by subsection (c) [amending this section] shall apply to taxable years beginning after December 31, 1953, and ending after August 16, 1954.”
Effective Date of 1962 AmendmentAmendment by Puspan. L. 87–834 applicable with respect to taxable years beginning after Dec. 31, 1962, see section 8(h) of Puspan. L. 87–834, set out as a note under section 501 of this title.
Effective Date of 1956 AmendmentAmendment by act Mar. 13, 1956, applicable only to taxable years beginning after Dec. 31, 1954, see section 6 of act Mar. 13, 1956, set out as a note under section 316 of this title.
Deduction From Earnings and Profits of Insurance Companies to Which Section 11305(c)(3) of Puspan. L. 101–508 AppliesPuspan. L. 104–188, title I, § 1702(c)(4), Aug. 20, 1996, 110 Stat. 1869, provided that: “The earnings and profits of any insurance company to which section 11305(c)(3) of the Revenue Reconciliation Act of 1990 [Puspan. L. 101–508, set out above] applies shall be determined without regard to any deduction allowed under such section; except that, for purposes of applying sections 56 and [former] 902, and subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986, such deduction shall be taken into account.”
Acquisition Date of Certain Stocks or Obligations for Purposes of Subsection (span)(5)(C)(i)Puspan. L. 100–647, title I, § 1010(d)(3), Nov. 10, 1988, 102 Stat. 3453, provided that: “For purposes of section 832(span)(5)(C)(i) of the 1986 Code, any stock or obligation acquired on or after August 8, 1986, by an insurance company subject to the tax imposed by section 831 of the 1986 Code (hereinafter in this paragraph referred to as the ‘acquiring company’) from another insurance company so subject (hereinafter in this paragraph referred to as the ‘transferor company’) shall be treated as acquired on the date on which such stock or obligation was acquired by the transferor company if—“(A) the transferor company acquired such stock or obligation before August 8, 1986, and
“(B) at all times after the date on which such stock or obligation was acquired by the transferor company and before the date of the acquisition by the acquiring company, the transferor company and the acquiring company were members of the same affiliated group filing a consolidated return.
For purposes of the preceding sentence, the date on which the stock or obligation was acquired by the transferor company shall be determined with regard to any prior application of the preceding sentence. For purposes of this paragraph, if the acquiring corporation or transferor corporation was a party to a reorganization described in section 368(a)(1)(F) of the 1986 Code, any reference to such corporation shall include a reference to any predecessor thereof involved in such reorganization.”
Study of Treatment of Property and Casualty Insurance CompaniesPuspan. L. 99–514, title X, § 1025, Oct. 22, 1986, 100 Stat. 2409, directed Secretary of the Treasury or his delegate to conduct a study of the treatment of policyholder dividends by mutual property and casualty insurance companies, the treatment of property and casualty insurance companies under the minimum tax, and the operation and effect of, and revenue raised by, the amendments made by this subtitle, and not later than Jan. 1, 1989 (due date extended to Jan. 1, 1992, by Puspan. L. 101–508, title XI, § 11831(span), Nov. 5, 1990, 104 Stat. 1388–559), such Secretary to submit to Committee on Ways and Means of House of Representatives, Committee on Finance of Senate, and Joint Committee on Taxation, the results of such study, together with such recommendations as he determined to be appropriate.
Physicians’ and Surgeons’ Mutual Protection and Interindemnity Arrangements or AssociationsPuspan. L. 99–514, title X, § 1031, Oct. 22, 1986, 100 Stat. 2409, as amended by Puspan. L. 100–647, title I, § 1010(g), Nov. 10, 1988, 102 Stat. 3455, provided that:“(a)Certain Physicians’ and Surgeons’ Mutual Protection and Interindemnity Arrangements or Associations.—“(1)Treatment of arrangements or associations.—“(A)Capital contributions.—There shall not be included in the gross income of any eligible physicians’ and surgeons’ mutual protection and interindemnity arrangement or association any initial payment (whether made in a lump sum or a series of substantially equal payments over a period of not more than 6 years) made during any taxable year to such arrangement or association by a member joining such arrangement or association which—“(i) does not release such member from obligations to pay current or future dues, assessments, or premiums; and
“(ii) is a condition precedent to receiving benefits of membership.
Such initial payment shall be included in the gross income of such arrangement or association for such taxable year if it is reasonable to expect that such payment will be deductible pursuant to paragraph (2) by any member of such arrangement or association.
“(B)Return of contributions.—“(i)In general.—The repayment to any member of any amount of any payment excluded under subparagraph (A) shall not be treated as policyholder dividend, and is not deductible by the arrangement or association.
“(ii)Source of returns.—Except in the case of the termination of a member’s interest in the arrangement or association, any amount distributed to any member shall be treated as paid out of surplus in excess of amounts excluded under subparagraph (A).
“(2)Deduction for members of eligible arrangements or associations.—“(A)Payment as trade or business expenses.—To the extent not otherwise allowable under the Internal Revenue Code of 1986, any member of any eligible arrangement or association may treat any initial payment referred to in paragraph (1) made during a taxable year to such arrangement or association as an ordinary and necessary expense incurred in connection with a trade or business for purposes of the deduction allowable under section 162, to the extent such payment does not exceed the amount which would be payable to an independent insurance company for similar annual insurance coverage (as determined by the Secretary), and further reduced by any annual dues, assessments, or premiums paid during such taxable year. Such deduction shall not be allowable as to any initial payment referred to in paragraph (1) made to an eligible arrangement or association by any person who is a member of any other eligible arrangement or association on or after the effective date of the Tax Reform Act of 1986. Any excess amount not allowed as a deduction for the taxable year in which such payment was made pursuant to the limitation contained in the 1st sentence of this subparagraph shall, subject to such limitation, be allowable as a deduction in any of the 5 succeeding taxable years, in order of time, to the extent not previously allowed as a deduction under this sentence.
“(B)Refunds of initial payments.—Any amount attributable to any initial payment referred to in paragraph (1) to such arrangement or association described in paragraph (1) which is later refunded for any reason shall be included in the gross income of the recipient in the taxable year received, to the extent a deduction for such payment was allowed. Any amount refunded in excess of such payment shall be included in gross income except to the extent otherwise excluded from income by the Internal Revenue Code of 1986.
“(3)Eligible arrangements or associations.—The terms ‘eligible physicans’ [sic] and surgeons’ mutual protection and interindemnity arrangement or association’ and ‘eligible arrangement or association’ mean and are limited to any mutual protection and interindemnity arrangement or association that provides only medical malpractice liability protection for its members or medical malpractice liability protection in conjunction with protection against other liability claims incurred in the course of, or related to, the professional practice of a physician or surgeon and which—“(A) was operative and was providing such protection, or had received a permit for the offer and sale of memberships, under the laws of any State before January 1, 1984,
“(B) is not subject to regulation by any State insurance department,
“(C) has a right to make unlimited assessments against all members to cover current claims and losses, and
“(D) is not a member of, nor subject to protection by, any insurance guaranty plan or association of any State.
“(span)Effective Date.—The provisions of subsection (a) shall apply to payments made to and receipts of physicians’ and surgeons’ mutual protection and interindemnity arrangements or associations, and refunds of payments by such arrangements or associations, after the date of the enactment of this Act [Oct. 22, 1986], in taxable years ending after such date.”
Treatment as Unearned Premiums of Additions to Reserves Required by State Law or Regulations for Mortgage Guaranty Insurance LossesPuspan. L. 90–240, § 5(g), Jan. 2, 1968, 81 Stat. 779, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:“(1) In the case of taxable years beginning before 1967, a company shall treat additions to a reserve, required by State law or regulations for mortgage guaranty insurance losses resulting from adverse economic cycles, as unearned premiums for purposes of section 832(span)(4) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], but the amount so treated as unearned premiums in a taxable year shall not exceed 50 percent of premiums earned on insurance contracts (as defined in section 832(span)(4) of such Code), determined without regard to amounts added to the reserve, with respect to mortgage guaranty insurance for such year. The amount of unearned premiums at the close of 1966 shall be determined without regard to the preceding sentence for the purpose of applying section 832(span)(4) of such Code to 1967. Additions to such a reserve shall not be treated as unearned premiums for any taxable year beginning after 1966.
“(2) If a mortgage guaranty insurance company made additions to a reserve which were so treated as unearned premiums described in paragraph (1), such company, in taxable years beginning after 1966, shall include in gross income (in addition to the items specified in section 832(span)(1) of such Code) the sum of the following amounts until there is included in gross income an amount equal to the aggregate additions to the reserve described in paragraph (1) for taxable years beginning before 1967:“(A) an amount (if any) equal to the excess of losses incurred (as defined in section 832(span)(5) of such Code) for the taxable year over 35 percent of premiums earned on insurance contracts during the taxable year (as defined in section 832(span)(4) of such Code), determined without regard to amounts added to the reserve referred to in paragraph (1), with respect to mortgage guaranty insurance,
“(B) the amount (if any) remaining which was added to the reserve for the tenth preceding taxable year, and
“(C) the excess (if any) of—“(i) the aggregate of amounts so treated as unearned premiums for all taxable years beginning before 1967 less the total of the amounts included in gross income under this paragraph for prior taxable years and the amounts included in gross income under subparagraphs (A) and (B) for the taxable year, over
“(ii) the aggregate of the additions made for taxable years beginning before 1967 which remain in the reserve at the close of the taxable year.
Amounts shall be taken into account on a first-in-time basis. For purposes of section 832(e) of such Code and this paragraph, if part of the reserve is reduced under State law or regulation, such reduction shall first apply to the extent of amounts added to the reserve for taxable years beginning before 1967, and only then to amounts added thereafter.
“(3) The provisions of this subsection shall apply to taxable years beginning after December 31, 1956.”
