26
U.S.C. § 953
(a)
General rule
For
purposes of section
952(a)(1), the term "insurance income" means any income which--
(1)
is attributable to
the issuing (or reinsuring)
of any insurance or
annuity contract--
(A)
in connection with
property in, liability
arising out of activity
in, or in connection
with the lives or health
of residents of, a
country other than
the country under the
laws of which the controlled
foreign corporation
is created or organized,
or
(B)
in connection with
risks not described
in subparagraph (A)
as the result of any
arrangement whereby
another corporation
receives a substantially
equal amount of premiums
or other consideration
in respect of issuing
(or reinsuring) a contract
described in subparagraph
(A), and
(2)
would (subject to the
modifications provided
by paragraphs (1) and
(2) of subsection (b))
be taxed under subchapter
L of this chapter if
such income were the
income of a domestic
insurance company.
(b)
Special rules
For
purposes of subsection
(a)--
(1)
The following provisions
of subchapter L shall
not apply:
(A)
The small life insurance
company deduction.
(B)
Section 805(a)(5) (relating
to operations loss
deduction).
(C)
Section 832(c)(5) (relating
to certain capital
losses).
(2)
The items referred
to in--
(A)
section 803(a)(1) (relating
to gross amount of
premiums and other
considerations),
(B)
section 803(a)(2) (relating
to net decrease in
reserves),
(C)
section 805(a)(2) (relating
to net increase in
reserves), and
(D)
section 832(b)(4) (relating
to premiums earned
on insurance contracts),
shall
be taken into account
only to the extent
they are in respect
of any reinsurance
or the issuing of any
insurance or annuity
contract described
in subsection (a)(1).
(3)
All items of income,
expenses, losses, and
deductions shall be
properly allocated
or apportioned under
regulations prescribed
by the Secretary.
(c)
Special rule for certain
captive insurance companies
(1)
In general
For
purposes only of taking
into account related
person insurance income--
(A)
the term "United States shareholder" means, with respect to any foreign corporation, a United States person (as defined
in section 957(c))
who owns (within the
meaning of section
958(a)) any stock of
the foreign corporation,
(B)
the term "controlled foreign corporation" has the meaning given to such term by section 957(a) determined by substituting "25 percent or more" for "more than 50 percent", and
(C)
the pro rata share
referred to in section
951(a)(1)(A)(i) shall
be determined under
paragraph (5) of this
subsection.
(2)
Related person insurance
income
For
purposes of this subsection,
the term "related person insurance income" means any insurance income (within the meaning of subsection (a)) attributable
to a policy of insurance
or reinsurance with
respect to which the
person (directly or
indirectly) insured
is a United States
shareholder in the
foreign corporation
or a related person
to such a shareholder.
(3)
Exceptions
(A)
Corporations not held
by insureds
Paragraph
(1) shall not apply
to any foreign corporation
if at all times during
the taxable year of
such foreign corporation--
(i)
less than 20 percent
of the total combined
voting power of all
classes of stock of
such corporation entitled
to vote, and
(ii)
less than 20 percent
of the total value
of such corporation,
is
owned (directly or
indirectly under the
principles of section
883(c)(4)) by persons
who are (directly or
indirectly) insured
under any policy of
insurance or reinsurance
issued by such corporation
or who are related
persons to any such
person.
(B)
De minimis exception
Paragraph
(1) shall not apply
to any foreign corporation
for a taxable year
of such corporation
if the related person
insurance income (determined
on a gross basis) of
such corporation for
such taxable year is
less than 20 percent
of its insurance income
(as so determined)
for such taxable year
determined without
regard to those provisions
of subsection (a)(1)
which limit insurance
income to income from
countries other than
the country in which
the corporation was
created or organized.
(C)
Election to treat income
as effectively connected
Paragraph
(1) shall not apply
to any foreign corporation
for any taxable year
if--
(i)
such corporation elects
(at such time and in
such manner as the
Secretary may prescribe)--
(I)
to treat its related
person insurance income
for such taxable year
as income effectively
connected with the
conduct of a trade
or business in the
United States, and
(II)
to waive all benefits
(other than with respect
to section 884) with
respect to related
person insurance income
granted by the United
States under any treaty
between the United
States and any foreign
country, and
(ii)
such corporation meets
such requirements as
the Secretary shall
prescribe to ensure
that the tax imposed
by this chapter on
such income is paid.
An
election under this
subparagraph made for
any taxable year shall
not be effective if
the corporation (or
any predecessor thereof)
was a disqualified
corporation for the
taxable year for which
the election was made
or for any prior taxable
year beginning after
1986.
(D)
Special rules for subparagraph
(C)
(i)
Period during which
election in effect
(I)
In general
Except
as provided in subclause
(II), any election
under subparagraph
(C) shall apply to
the taxable year for
which made and all
subsequent taxable
years unless revoked
with the consent of
the Secretary.
(II)
Termination
If
a foreign corporation
which made an election
under subparagraph
(C) for any taxable
year is a disqualified
corporation for any
subsequent taxable
year, such election
shall not apply to
any taxable year beginning
after such subsequent
taxable year.
(ii)
Exemption from tax
imposed by section
4371
The
tax imposed by section
4371 shall not apply
with respect to any
related person insurance
income treated as effectively
connected with the
conduct of a trade
or business within
the United States under
subparagraph (C).
(E)
Disqualified corporation
For
purposes of this paragraph
the term "disqualified corporation" means, with respect to any taxable year, any foreign corporation which is a
controlled foreign
corporation for an
uninterrupted period
of 30 days or more
during such taxable
year (determined without
regard to this subsection)
but only if a United
States shareholder
(determined without
regard to this subsection)
owns (within the meaning
of section 958(a))
stock in such corporation
at some time during
such taxable year.
(4)
Treatment of mutual
insurance companies
In
the case of a mutual
insurance company--
(A)
this subsection shall
apply,
(B)
policyholders of such
company shall be treated
as shareholders, and
(C)
appropriate adjustments
in the application
of this subpart shall
be made under regulations
prescribed by the Secretary.
(5)
Determination of pro
rata share
(A)
In general
The
pro rata share determined
under this paragraph
for any United States
shareholder is the
lesser of--
(i)
the amount which would
be determined under
paragraph (2) of section
951(a) if--
(I)
only related person
insurance income were
taken into account,
(II)
stock owned (within
the meaning of section
958(a)) by United States
shareholders on the
last day of the taxable
year were the only
stock in the foreign
corporation, and
(III)
only distributions
received by United
States shareholders
were taken into account
under subparagraph
(B) of such paragraph
(2), or
(ii)
the amount which would
be determined under
paragraph (2) of section
951(a) if the entire
earnings and profits
of the foreign corporation
for the taxable year
were subpart F income.
(B)
Coordination with other
provisions
The
Secretary shall prescribe
regulations providing
for such modifications
to the provisions of
this subpart as may
be necessary or appropriate
by reason of subparagraph
(A).
(6)
Related person
For
purposes of this subsection--
(A)
In general
Except
as provided in subparagraph
(B), the term "related person" has the meaning given such term by section 954(d)(3).
(B)
Treatment of certain
liability insurance
policies
In
the case of any policy
of insurance covering
liability arising from
services performed
as a director, officer,
or employee of a corporation
or as a partner or
employee of a partnership,
the person performing
such services and the
entity for which such
services are performed
shall be treated as
related persons.
(7)
Coordination with section
1248
For
purposes of section
1248, if any person
is (or would be but
for paragraph (3))
treated under paragraph
(1) as a United States
shareholder with respect
to any foreign corporation
which would be taxed
under subchapter L
if it were a domestic
corporation and which
is (or would be but
for paragraph (3))
treated under paragraph
(1) as a controlled
foreign corporation--
(A)
such person shall be
treated as meeting
the stock ownership
requirements of section
1248(a)(2) with respect
to such foreign corporation,
and
(B)
such foreign corporation
shall be treated as
a controlled foreign
corporation.
(8)
Regulations
The
Secretary shall prescribe
such regulations as
may be necessary to
carry out the purposes
of this subsection,
including--
(A)
regulations preventing
the avoidance of this
subsection through
cross insurance arrangements
or otherwise, and
(B)
regulations which may
provide that a person
will not be treated
as a United States
shareholder under paragraph
(1) with respect to
any foreign corporation
if neither such person
(nor any related person
to such person) is
(directly or indirectly)
insured under any policy
of insurance or reinsurance
issued by such foreign
corporation.
(d)
Election by foreign
insurance company to
be treated as domestic
corporation
(1)
In general
If--
(A)
a foreign corporation
is a controlled foreign
corporation (as defined
in section 957(a) by
substituting "25 percent or more" for "more than 50 percent" and by using the definition of United States shareholder under 953(c)(1)(A)),
(B)
such foreign corporation
would qualify under
part I or II of subchapter
L for the taxable year
if it were a domestic
corporation,
(C)
such foreign corporation
meets such requirements
as the Secretary shall
prescribe to ensure
that the taxes imposed
by this chapter on
such foreign corporation
are paid, and
(D)
such foreign corporation
makes an election to
have this paragraph
apply and waives all
benefits to such corporation
granted by the United
States under any treaty,
for
purposes of this title,
such corporation shall
be treated as a domestic
corporation.
(2)
Period during which
election is in effect
(A)
In general
Except
as provided in subparagraph
(B), an election under
paragraph (1) shall
apply to the taxable
year for which made
and all subsequent
taxable years unless
revoked with the consent
of the Secretary.
(B)
Termination
If
a corporation which
made an election under
paragraph (1) for any
taxable year fails
to meet the requirements
of subparagraphs (A),
(B), and (C), of paragraph
(1) for any subsequent
taxable year, such
election shall not
apply to any taxable
year beginning after
such subsequent taxable
year.
(3)
Treatment of losses
If
any corporation treated
as a domestic corporation
under this subsection
is treated as a member
of an affiliated group
for purposes of chapter
6 (relating to consolidated
returns), any loss
of such corporation
shall be treated as
a dual consolidated
loss for purposes of
section 1503(d) without
regard to paragraph
(2)(B) thereof.
(4)
Effect of election
(A)
In general
For
purposes of section
367, any foreign corporation
making an election
under paragraph (1)
shall be treated as
transferring (as of
the 1st day of the
1st taxable year to
which such election
applies) all of its
assets to a domestic
corporation in connection
with an exchange to
which section 354 applies.
(B)
Exception for pre-1988
earnings and profit
(i)
In general
Earnings
and profits of the
foreign corporation
accumulated in taxable
years beginning before
January 1, 1988, shall
not be included in
the gross income of
the persons holding
stock in such corporation
by reason of subparagraph
(A).
(ii)
Treatment of distributions
For
purposes of this title,
any distribution made
by a corporation to
which an election under
paragraph (1) applies
out of earnings and
profits accumulated
in taxable years beginning
before January 1, 1988,
shall be treated as
a distribution made
by a foreign corporation.
(iii)
Certain rules to continue
to apply to pre-1988
earnings
The
provisions specified
in clause (iv) shall
be applied without
regard to paragraph
(1), except that, in
the case of a corporation
to which an election
under paragraph (1)
applies, only earnings
and profits accumulated
in taxable years beginning
before January 1, 1988,
shall be taken into
account.
(iv)
Specified provisions
The
provisions specified
in this clause are:
(I)
Section 1248 (relating
to gain from certain
sales or exchanges
of stock in certain
foreign corporations).
(II)
Subpart F of part III
of subchapter N to
the extent such subpart
relates to earnings
invested in United
States property or
amounts referred to
in clause (ii) or (iii)
of section 951(a)(1)(A).
(III)
Section 884 to the
extent the foreign
corporation reinvested
1987 earnings and profits
in United States assets.
(5)
Effect of termination
For
purposes of section
367, if--
(A)
an election is made
by a corporation under
paragraph (1) for any
taxable year, and
(B)
such election ceases
to apply for any subsequent
taxable year,
such
corporation shall be
treated as a domestic
corporation transferring
(as of the 1st day
of such subsequent
taxable year) all of
its property to a foreign
corporation in connection
with an exchange to
which section 354 applies.
(6)
Additional tax on corporation
making election
(A)
In general
If
a corporation makes
an election under paragraph
(1), the amount of
tax imposed by this
chapter for the 1st
taxable year to which
such election applies
shall be increased
by the amount determined
under subparagraph
(B).
(B)
Amount of tax
The
amount of tax determined
under this paragraph
shall be equal to the
lesser of--
(i)
3/4 of 1 percent of
the aggregate amount
of capital and accumulated
surplus of the corporation
as of December 31,
1987, or
(ii)
$1,500,000.
