AMENDMENTS RELATED TO TITLE X OF THE REFORM ACT.

SEC. 1010. AMENDMENTS RELATED TO TITLE X OF THE REFORM ACT. (a) Amendments Related to Section 1011 of the Reform Act.— (1) Paragraph (1) of section 813(a) of the 1986 Code (relating to foreign life insurance companies) is amended by striking out “the special life insurance company deduction and”. (2) Paragraph (1) of section 1011(d) of the Reform Act is amended— (A) by striking out “any bond” and inserting in lieu thereof “any market discount bond (as defined in section 1278 of the Internal Revenue Code of 1986)”, 102 STAT. 3451 (B) by striking out “28 percent” and inserting in lieu thereof “31.6 percent”, and (C) by adding at the end thereof the following new sentence: ‘The preceding sentence shall apply only if the tax determined under the preceding sentence is less than the tax which would otherwise be imposed.” (3) Paragraph (2) of section 1011(d) of the Reform Act is amended to read as follows: (4) Qualified life insurance company.—For purposes of paragraph (1), the term ‘qualified life insurance company’ means any life insurance company subject to tax under part I of subchapter L of chapter 1 of the Internal Revenue Code of 1986.” (b) Amendments Related to Section 1012 of the Reform Act.— (1) Clause (iv) of section 1012(c)(4)(C) of the Reform Act is amended to read as follows: “(iv) dental benefit coverage provided by a Delta Dental Plans Association organization through con-tracts with independent professional service providers so long as the provision of such coverage is the principal activity of such organization.” (2) Clause (ii) of section 1012(c)(4)(C) of the Reform Act is amended by striking out “Association” and inserting in lieu thereof “Plan”. (3) The Secretary of the Treasury or his delegate may prescribe rules providing proper adjustments for taxpayers which become subject to subchapter L of chapter 1 of the 1986 Code by reason of the amendments made by section 1012 of the Reform Act with respect to short taxable years which begin during 1987 by reason of section 843 of such Code. (4) (A) Paragraph (3) of section 501(m) of the 1986 Code is amended by striking out “and” at the end of subparagraph (C), by striking out the period at the end of subparagraph (D) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new subparagraph: “(E) charitable gift annuities.” (B) Subsection (m) of section 501 of the 1986 Code is amended by adding at the end thereof the following new paragraph: (5) Charitable gift annuity.— For purposes of paragraph (3)(E), the term ‘charitable gift annuity’ means an annuity if— “(A) a portion of the amount paid in connection with the issuance of the annuity is allowable as a deduction under section 170 or 2055, and “(B) the annuity is described in section 51(c)(5) (determined as if any amount paid in cash in connection with such issuance were property).” (c) Amendments Related to Section 1021 of the Reform Act.— (1) (A) Subparagraph (O of section 832(b)(7) of the 1986 Code (relating to special rules for determining premiums earned) is amended by striking out “this part” and inserting in lieu thereof “section 831(a)”. (B) The subparagraph heading for such subparagraph is amended by striking out “nonlife insurance company” and inserting in lieu thereof “insurance company taxable under section 831 (a)”. (2) Paragraph (7) of section 832(b) of the 1986 Code is amended by adding at the end thereof the following new subparagraphs: 102 STAT. 3452 “(D) Treatment of companies which become taxable under section 831 (a).— “(i) Exception to phase-in for companies which were not taxable, etc., before 1987.— Subparagraph 1O of paragraph (4) shall not apply to any insurance company which, for each taxable year beginning before January 1, 1987, was not subject to the tax imposed by section 821(a) 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— “(I) subject to tax under section 821(c) (as so in effect), or “(II) described in section 501(c) (as so in effect) and exempt from tax under section 501(a). “(ii) Phase-in beginning at later date for companies not 1st taxable under section 831 (a) in 1987.— In the case of an insurance company— “(I) which was not subject to the tax imposed by section 831(a) for its 1st taxable year beginning after December 31, 1986, by reason of being subject to tax under section 831(b), or described in section 501(c) and exempt from tax under section 501(a), and “(II) which, for any taxable year beginning before January 1, 1987, was subject to the tax imposed by section 821(a) or 831(a) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986), subparagraph (C) of paragraph (4) shall apply beginning with the 1st taxable year beginning after December 31, 1986, for which such company is subject to the tax imposed by section 831(a) and shall be applied by substituting the last day of the preceding taxable year for ‘December 31, 1986’ and the 1st day of the 7th succeeding taxable year for ‘January 1, 1993’. “(E) Treatment of certain reciprocal insurers.— In the case of a reciprocal (within the meaning of section 835(a)) which reports (as required by State law) on its annual statement reserves on unearned premiums net of premium acquisition expenses— “(i) subparagraph (B) of paragraph (4) shall be applied by treating unearned premiums as including an amount equal to such expenses, and “(ii) appropriate adjustments shall be made under subparagraph (c) of paragraph (4) to reflect the amount by which— “(I) such reserves at the close of the most recent taxable year beginning before January 1, 1987, are greater or less than, “(II) 80 percent of the sum of the amount under subclause (I) plus such premium acquisition expenses,” (3) Paragraph (5) of section 832(e) of the 1986 Code is amended by striking out “and” at the end of subparagraph (A) and by striking out the period at the end of subparagraph (B) and inserting in lieu thereof a comma. (d) Amendments Related to Section 1022 of the Reform Act.— 102 STAT. 3453 (1) Section 832 of the 1986 Code (defining insurance company taxable income) is amended by adding at the end thereof the following new subsection: “(g) Dividends Within Group.—In the case of an insurance company subject to tax under section 831(a) filing or required to file a consolidated return under section 1501 with respect to any affiliated group for any taxable year, any determination under this part with respect to any dividend paid by one member of such group to another member of such group shall be made as if such group were not filing a consolidated return.” (2) Subclause (II) of section 832(b)(5)(B)(ii) of the 1986 Code (relating to losses incurred) is amended by inserting “(directly or indirectly)” after “attributable”. (3) For purposes of section 832(b)(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 reorganisation 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. (e) Amendments Related to Section 1023 of the Reform Act.— (1) Subparagraph (B) of section 846(f)(6) of the 1986 Code (relating to special rule for certain accident and health insurance lines of business) is amended by striking out “paid during the year” and inserting in lieu thereof “paid in the middle of the year”. (2) Subsection (g) of section 846 of the 1986 Code is amended by striking out “and” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof and”, and by adding at the end thereof the following new paragraph: “(3) regulations providing appropriate adjustments in the application of this section to a taxpayer having a taxable year which is not the calendar year.” (3) Subsection (e) of section 1023 of the Reform Act (relating to discounting of unpaid losses and certain unpaid expenses) is amended by adding at the end thereof the following new paragraph: 102 STAT. 3454 “(4) Application of fresh start to companies which become subject to section 831 (a) tax in later taxable year.— If— “(A) an insurance company was not subject to tax under section 831(a) of the Internal Revenue Code of 1986 for its 1st taxable year beginning after December 31, 1986, by reason of being— “(i) subject to tax under section 831(b) of such Code, or “(ii) described in section 501(c) of such Code and exempt from tax under section 501(a) of such Code, and “(B) such company becomes subject to tax under such section 831(a) for any later taxable year, paragraph (2) and subparagraphs (A) and (C) of paragraph (3) shall be applied by treating such later taxable year as its 1st taxable year beginning after December 31, 1986, and by treating the calendar year in which such later taxable year begins as 1987; and paragraph (3)(B) shall not apply.” (f) Amendments Related to Section 1024 of the Reform Act.— (1) Subparagraph (A) of section 831(b)(2) of the 1986 Code (relating to companies to which alternative tax applies) is amended by adding at the end thereof the following new sentence: “The election under clause (ii) shall apply to the taxable year for which made and for all subsequent taxable years for which the requirements of clause (i) are met. Such an election, once made, may be revoked only with the consent of the Secretary.” (2) Subsection (a) of section 835 of the 1986 Code (relating to election by reciprocal) is amended by striking out “section 821(a)” and inserting in lieu thereof “section 831(a)”. (3) Subsection (0 of section 835 of the 1986 Code is amended by striking out “subsection (e)” and inserting in lieu thereof “subsection (d)”. (4) Paragraph (6) of section 243(b) of the 1986 Code (relating to special rules for insurance companies) is amended by striking out “or 821”. (5) Subsection (c) of section 543 of the 1986 Code (relating to gross income of insurance companies other than life or mutual) is amended— (A) by striking out “or Mutual” in the heading and inserting in lieu thereof “Insurance Companies”, and (B) by striking out “life or mutual” in the text and inserting in lieu thereof “a life insurance company”. (6) Subsection (g) of section 816 of the 1986 Code (relating to burial and funeral benefit insurance companies) is amended by striking out “section 821 or”. (7) The table of sections for part n of subchapter L of chapter 1 of the 1986 Code (relating to other insurance companies) is amended by striking out the item relating to section 831 and inserting in lieu thereof the following new item: “Sec. 831. Tax on insurance companies other than life insurance companies.” (8) Paragraph (1) of section 1024(d) of the Reform Act is amended by adding at the end thereof the following new sentence: “In the case of a company taxable under section 831(b) of the Internal Revenue Code of 1986 (as amended by subsection 102 STAT. 3455(a)), any amount included in gross income under this paragraph shall be treated as gross investment income.” (9) Section 831(b) of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(3) Limitation on use of net operating losses.— For purposes of this part, except as provided in section 844, a net operating loss (as defined in section 172) shall not be carried— “(A) to or from any taxable year for which the insurance company is not subject to the tax imposed by subsection (a), or “(B) to any taxable year if, between the taxable year from which such loss is being carried and such taxable year, there is an intervening taxable year for which the insurance company was not subject to the tax imposed by subsection (a).” (g) Amendments Related to Section 1031 of the Reform Act.— (1) Paragraph (1) of section 1031(a) of the Reform Act is amended by inserting “(whether made in a lump sum or a series of substantially equal payments over a period of not more than 6 years)” after “any initial payment”. (2) Paragraph (2) of section 1031(a) of the Reform Act is amended by striking out “initial payment” each place it appears and inserting in lieu thereof “initial payment referred to in paragraph (1)”. (3) Paragraph (2) of section 1031(a) of the Reform Act is amended by striking out “this title” each place it appears and inserting in lieu thereof “the Internal Revenue Code of 1986”. (h) Special Rule for Mutual Life Insurance Company.— (1) In general.—Paragraph (2) of section 217(i) of the Tax Reform Act of 1984 is amended to read as follows: “(2) Effect of election on subsidiaries of electing parent.—For purposes of determining the amount of the small life insurance company deduction of any controlled group which includes a mutual company which made an election under paragraph (1), the taxable income of such electing company shall be taken into account under section 806(b)(2) of the Internal Revenue Code of 1954 (relating to phaseout of small life insurance company deduction).” (2) Effective date.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 1986, and before January 1, 1992. (3) Revenue loss limited.—The decrease in the amount of Federal revenue by reason of the amendment made by this subsection shall not exceed $300,000 per taxable year. (i) Delay in Effective Date for Diversification Requirements With Respect to Accounts for Certain Immediate Annuities.—Section 817(h) of the 1986 Code shall not apply until January 1, 1989 with respect to a variable contract (as defined in section 817(d) of the 1986 Code) if— (1) such contract provides for the payment of an immediate annuity (as defined in section 72(u)(4) of the 1986 Code), (2) such contract was outstanding on September 12, 1986, and (3) the segregated asset account on which such contract is based was, on September 12, 1986, wholly invested in deposits insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation. 102 STAT. 3456 (j) Treatment of Alternative Minimum Tax With Respect to Shareholders Surplus Account.— (1) Paragraph (2) of section 815(c) of the 1986 Code (relating to shareholders surplus account) is amended by adding at the end thereof the following new sentence: “If for any taxable year a tax is imposed by section 55, under regulations proper adjustments shall be made for such year and all subsequent taxable years in the amounts taken into account under subparagraphs (A) and (B) of this paragraph and subparagraph (B) of subsection (d)(3).” (2) Effective date.—The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986. (k) Treatment of Certain Items as Not Interest for Source Rules, Etc.—Subsection (D of section 818 of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(3) Items described in section 807(c) treated as not interest for source rules, etc.—For purposes of part I of subchapter N, items described in any paragraph of section 807(c) shall be treated as amounts which are not interest.”