26 U.S.C. § 953 : US Code - Section 953: Insurance income

Search 26 U.S.C. § 953 : US Code - Section 953: Insurance income

(a) Insurance income
(1) In general
For purposes of section 952(a)(1), the term "insurance income"
means any income which -
(A) is attributable to the issuing (or reinsuring) of an
insurance or annuity contract, and
(B) would (subject to the modifications provided by
subsection (b)) be taxed under subchapter L of this chapter if
such income were the income of a domestic insurance company.
(2) Exception
Such term shall not include any exempt insurance income (as
defined in subsection (e)).
(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) Reserves for any insurance or annuity contract shall be
determined in the same manner as under section 954(i).
(4) 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.
(e) Exempt insurance income
For purposes of this section -
(1) Exempt insurance income defined
(A) In general
The term "exempt insurance income" means income derived by a
qualifying insurance company which -
(i) is attributable to the issuing (or reinsuring) of an
exempt contract by such company or a qualifying insurance
company branch of such company, and
(ii) is treated as earned by such company or branch in its
home country for purposes of such country's tax laws.
(B) Exception for certain arrangements
Such term shall not include income attributable to the
issuing (or reinsuring) of an exempt contract 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 which is not
an exempt contract.
(C) Determinations made separately
For purposes of this subsection and section 954(i), the
exempt insurance income and exempt contracts of a qualifying
insurance company or any qualifying insurance company branch of
such company shall be determined separately for such company
and each such branch by taking into account -
(i) in the case of the qualifying insurance company, only
items of income, deduction, gain, or loss, and activities of
such company not properly allocable or attributable to any
qualifying insurance company branch of such company, and
(ii) in the case of a qualifying insurance company branch,
only items of income, deduction, gain, or loss and activities
properly allocable or attributable to such branch.
(2) Exempt contract
(A) In general
The term "exempt contract" means an insurance or annuity
contract issued or reinsured by a qualifying insurance company
or qualifying insurance company branch in connection with
property in, liability arising out of activity in, or the lives
or health of residents of, a country other than the United
States.
(B) Minimum home country income required
(i) In general
No contract of a qualifying insurance company or of a
qualifying insurance company branch shall be treated as an
exempt contract unless such company or branch derives more
than 30 percent of its net written premiums from exempt
contracts (determined without regard to this subparagraph) -
(I) which cover applicable home country risks, and
(II) with respect to which no policyholder, insured,
annuitant, or beneficiary is a related person (as defined
in section 954(d)(3)).
(ii) Applicable home country risks
The term "applicable home country risks" means risks in
connection with property in, liability arising out of
activity in, or the lives or health of residents of, the home
country of the qualifying insurance company or qualifying
insurance company branch, as the case may be, issuing or
reinsuring the contract covering the risks.
(C) Substantial activity requirements for cross border risks
A contract issued by a qualifying insurance company or
qualifying insurance company branch which covers risks other
than applicable home country risks (as defined in subparagraph
(B)(ii)) shall not be treated as an exempt contract unless such
company or branch, as the case may be -
(i) conducts substantial activity with respect to an
insurance business in its home country, and
(ii) performs in its home country substantially all of the
activities necessary to give rise to the income generated by
such contract.
(3) Qualifying insurance company
The term "qualifying insurance company" means any controlled
foreign corporation which -
(A) is subject to regulation as an insurance (or reinsurance)
company by its home country, and is licensed, authorized, or
regulated by the applicable insurance regulatory body for its
home country to sell insurance, reinsurance, or annuity
contracts to persons other than related persons (within the
meaning of section 954(d)(3)) in such home country,
(B) derives more than 50 percent of its aggregate net written
premiums from the issuance or reinsurance by such controlled
foreign corporation and each of its qualifying insurance
company branches of contracts -
(i) covering applicable home country risks (as defined in
paragraph (2)) of such corporation or branch, as the case may
be, and
(ii) with respect to which no policyholder, insured,
annuitant, or beneficiary is a related person (as defined in
section 954(d)(3)),
except that in the case of a branch, such premiums shall only
be taken into account to the extent such premiums are treated
as earned by such branch in its home country for purposes of
such country's tax laws, and
(C) is engaged in the insurance business and would be subject
to tax under subchapter L if it were a domestic corporation.
(4) Qualifying insurance company branch
The term "qualifying insurance company branch" means a
qualified business unit (within the meaning of section 989(a)) of
a controlled foreign corporation if -
(A) such unit is licensed, authorized, or regulated by the
applicable insurance regulatory body for its home country to
sell insurance, reinsurance, or annuity contracts to persons
other than related persons (within the meaning of section
954(d)(3)) in such home country, and
(B) such controlled foreign corporation is a qualifying
insurance company, determined under paragraph (3) as if such
unit were a qualifying insurance company branch.
(5) Life insurance or annuity contract
For purposes of this section and section 954, the determination
of whether a contract issued by a controlled foreign corporation
or a qualified business unit (within the meaning of section
989(a)) is a life insurance contract or an annuity contract shall
be made without regard to sections 72(s), 101(f), 817(h), and
7702 if -
(A) such contract is regulated as a life insurance or annuity
contract by the corporation's or unit's home country, and
(B) no policyholder, insured, annuitant, or beneficiary with
respect to the contract is a United States person.
(6) Home country
For purposes of this subsection, except as provided in
regulations -
(A) Controlled foreign corporation
The term "home country" means, with respect to a controlled
foreign corporation, the country in which such corporation is
created or organized.
(B) Qualified business unit
The term "home country" means, with respect to a qualified
business unit (as defined in section 989(a)), the country in
which the principal office of such unit is located and in which
such unit is licensed, authorized, or regulated by the
applicable insurance regulatory body to sell insurance,
reinsurance, or annuity contracts to persons other than related
persons (as defined in section 954(d)(3)) in such country.
(7) Anti-abuse rules
For purposes of applying this subsection and section 954(i) -
(A) the rules of section 954(h)(7) (other than subparagraph
(B) thereof) shall apply,
(B) there shall be disregarded any item of income, gain,
loss, or deduction of, or derived from, an entity which is not
engaged in regular and continuous transactions with persons
which are not related persons,
(C) there shall be disregarded any change in the method of
computing reserves a principal purpose of which is the
acceleration or deferral of any item in order to claim the
benefits of this subsection or section 954(i),
(D) a contract of insurance or reinsurance shall not be
treated as an exempt contract (and premiums from such contract
shall not be taken into account for purposes of paragraph
(2)(B) or (3)) if -
(i) any policyholder, insured, annuitant, or beneficiary is
a resident of the United States and such contract was
marketed to such resident and was written to cover a risk
outside the United States, or
(ii) the contract covers risks located within and without
the United States and the qualifying insurance company or
qualifying insurance company branch does not maintain such
contemporaneous records, and file such reports, with respect
to such contract as the Secretary may require,
(E) the Secretary may prescribe rules for the allocation of
contracts (and income from contracts) among 2 or more
qualifying insurance company branches of a qualifying insurance
company in order to clearly reflect the income of such
branches, and
(F) premiums from a contract shall not be taken into account
for purposes of paragraph (2)(B) or (3) if such contract
reinsures a contract issued or reinsured by a related person
(as defined in section 954(d)(3)).
For purposes of subparagraph (D), the determination of where
risks are located shall be made under the principles of section
953.
(8) Coordination with subsection (c)
In determining insurance income for purposes of subsection (c),
exempt insurance income shall not include income derived from
exempt contracts which cover risks other than applicable home
country risks.
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection and section 954(i).
(10) Application
This subsection and section 954(i) shall apply only to taxable
years of a foreign corporation beginning after December 31, 1998,
and before January 1, 2007, and to taxable years of United States
shareholders with or within which any such taxable year of such
foreign corporation ends. If this subsection does not apply to a
taxable year of a foreign corporation beginning after December
31, 2006 (and taxable years of United States shareholders ending
with or within such taxable year), then, notwithstanding the
preceding sentence, subsection (a) shall be applied to such
taxable years in the same manner as it would if the taxable year
of the foreign corporation began in 1998.
(11) Cross reference
For income exempt from foreign personal holding company
income, see section 954(i).