CONSOLIDATED RETURNS FOR LIFE AND OTHER INSURANCE COMPANIES.

SEC. 1507. CONSOLIDATED RETURNS FOR LIFE AND OTHER INSURANCE COMPANIES. (a) In General.— Section 1504(c) (relating to the definition of includible insurance companies) is amended to read as follows: “(c) Includible Insurance Companies.— Notwithstanding the provisions of paragraph (2) of subsection (b)— “(1) Two or more domestic insurance companies each of which is subject to tax under section 802 shall be treated as includible corporations for purposes of applying subsection (a) to such insurance companies alone. “(2) (A) If an affiliated group (determined without regard to subsection (b)(2) includes one or more domestic insurance companies taxed under section 802 or 821, the common parent of such group may elect (pursuant to regulations prescribed by the Secretary) to treat all such companies as includible corporations for purposes of applying subsection (a) except that no such company shall be so treated until it has been a member of the affiliated group for the 5 taxable years immediately preceding the taxable year for which the consolidated return is filed. “(B) If an election under this paragraph is in effect for a taxable year— “(i) section 243(b)(6) and the exception provided under section 243(b)(5) with respect to subsections (b)(2) and (c) of this section, “(ii) section 542(b)(5), and “(iii) subsection (a)(4) and (b)(2)(D) of section 1563, and the reference to section 1563(b)(2)(D) contained in section 1563(b)(3)(C), shall not be effective for such taxable year. (b) Special Rules and Conforming Amendments.— (1) Section 821 (relating to tax on mutual insurance companies to which part II applies, as amended by section 1901(a)(104)(C) of this Act,) is amended by redesignating subsection (e) as sub- 90 STAT. 1740section (f), and by adding after subsection (d) the following new subsection: “(e) Tax Applicable to Member of Group Filing Consolidated Return.— Notwithstanding any other provision of this section, if a mutual insurance company to which this section applies joins in the filing of a consolidated return (or is required to so file), the applicable tax shall consist of a normal tax and a surtax computed as provided in section 11 as though the mutual insurance company taxable income of such company were the taxable income referred to in section 11,”. (2) Section 843 (relating to annual accounting period) is amended by adding at the end thereof the following sentence: “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.” (3) Section 1503 (relating to computation and payment of tax) is amended by adding the following new subsection: “(c) Special Rule tor Application of Certain Losses Against Income of Insurance Companies Taxed Under Section 802.— “(1) In general.— If an election under section 1504(c)(2) is in effect for the taxable year and the consolidated taxable income of the members of the group not taxed under section 802 results in a consolidated net operating loss for such taxable year, then under regulations prescribed by the Secretary, the amount of such loss which cannot be absorbed in the applicable carryback periods against the taxable income of such members not taxed under section 802 shall be taken into account in determining the consolidated taxable income of the affiliated group for such taxable year to the extent of 35 percent of such loss or 35 percent of the taxable income of the members taxed under section 802, whichever is less. The unused portion of such loss shall be available as a carryover, subject to the same limitations (applicable to the sum of the loss for the carryover year and the loss (or losses) carried over to such year), in applicable carryover years. For purposes of this subsection, in determining the taxable income of each insurance company subject to tax under section 802, section 802(b)(3) shall not be taken into account. For taxable years ending with or within calendar year 1981, ‘25 percent’ shall be substituted for ‘35 percent’ each place it appears in the first sentence of this subsection. For taxable years ending with or within calendar year 1982, ‘30 percent’ shall be substituted for ‘35 percent’ each place it appeal’s in that sentence. “(2) Losses of recent nonlife affiliates.— Notwithstanding the provisions of paragraph (1), a net operating loss for a taxable year of a member of the group not taxed under section 802 shall not be taken into account in determining the taxable income of a member taxed under section 802 (either for the taxable year or as a carryover or carryback) if such taxable year precedes the sixth taxable year such members have been members of the same affiliated group (determined without regal’d to section 1504(b)(2)).” (c) Effective Date and Transitional Rules.— (1) Effective date.— The amendments made by subsections (a) and (b) shall apply to taxable vents beginning after December 31, 1980. (2) Transition rules with respect to carryovers or carry-backs relating to pre-election taxable years and nontermination of group.— 90 STAT. 1741 (A) Limitations on carryovers or carrybacks tor groups ejecting under section 1504(c)(2).— If an affiliated group elects to file a consolidated return pursuant to section 1504 (c)(2) of the Internal Revenue Code of 1954, a carryover of a loss or credit from a taxable year ending before January 1, 1981, and losses or credits which may be carried back to taxable years ending before such date, shall be taken into account as if this section had not been enacted. (B) Nontermination of affiliated group.— The mere election to file a consolidated return pursuant to such section 1504(c)(2) shall not cause the termination of an affiliated group filing consolidated returns,