26 U.S.C. § 953 - Insurance income
|Cite as:||26 U.S.C. § 953|
|Currency:||Current through P.L. 116-158 (08/14/2020)|
(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.
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) So much of section 805(a)(8) as relates to the deduction allowed under section 172.
(B) 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) 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.
(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.
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.
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