U.S. Income Taxation of International Insurance Activities (Portfolio 931)

Tax Management Portfolio, U.S. Income Taxation of International Insurance Activities, reviews the U.S. income taxation of U.S. persons engaged in insurance activities outside of the United States and of foreign persons engaged in insurance activities within the United States. The portfolio is divided into four main parts.

To view this Portfolio, take a free trial to Bloomberg Tax

Bloomberg Tax

This Portfolio is available with a subscription to Bloomberg Tax, a comprehensive research solution including over 500 Tax Management Portfolios, practice tools, primary sources and timely news.


Part I provides a general review of the requirements of when an arrangement is treated as insurance for U.S. income tax purposes and a review of the taxation of U.S. insurance companies.

Part II addresses the U.S. income taxation of foreign-owned U.S. insurance companies and branches. This part principally discusses the taxation of insurance activities rising to the level of a U.S. trade or business that are subject to U.S. income tax under §§ 882, 842, and 884. Further, this part addresses the U.S. excise taxation of U.S. insurance risks and the unique regime affecting Lloyd's syndicates insuring U.S. risks.

Part III addresses the U.S. income taxation of U.S.-owned foreign insurance companies and branches. This part discusses the several existing and past anti-deferral regimes that could potentially apply to a U.S.-owned foreign corporation. This part also discusses the different rules applicable to U.S.-owned foreign insurance branches.

Part IV addresses generally provisions affecting both foreign-owned U.S. companies and branches and U.S.-owned foreign companies and branches. This part discusses certain unique U.S. withholding tax issues applicable to payments made to or by insurance companies, some unique aspects of the entity classification rules applicable to insurance companies, and other miscellaneous items.


U.S. Income Taxation of International Insurance Activities was authored by the following experts.
Christopher Ocasal, Esq.

Christopher (Chris) Ocasal is a principal with Ernst & Young LLP. Mr. Ocasal has extensive experience in advising clients with regard to their international tax issues and has substantial expertise in international insurance tax issues.

Mr. Ocasal has worked with U.S. multinationals and foreign multinationals, advising on structuring joint ventures, domestic and international reorganizations, mergers and acquisitions, financial products, foreign currency transactions, anti-deferral regimes, withholding tax issues, foreign tax credit planning, and U.S. tax treaties. Previously Mr. Ocasal was an international tax partner with Sutherland, Asbill & Brennan, a principal in the PricewaterhouseCoopers LLP Washington National Tax Services office for nearly a decade, and a member of Baker & McKenzie.

Mr. Ocasal received a J.D. from George Washington University Law School and an LL.M. from Georgetown University, and is a member of the New York and Virginia bar.

Table of Contents

Detailed Analysis

I. Introduction

Introductory Material

A. Insurance for U.S. Tax Purposes

1. Generally

2. Insurance Risk

a. Generally

b. More Than an Investment Risk

3. Risk Shifting

a. Generally

b. Economic Family Theory

c. Unrelated-Third-Party Risks

d. Retrospective Rated Premiums

4. Risk Distribution

5. Commonly Accepted Notion of Insurance

B. Reinsurance for U.S. Tax Purposes

1. Generally

2. Assumption Reinsurance

3. Indemnity Reinsurance

a. Generally

b. Colonial Am. and DAC

c. Types of Indemnity Reinsurance

(1) Yearly Renewable Term Insurance

(2) Coinsurance

(3) Modified Coinsurance

4. Reinsurance Contracts for GAAP and Statutory Purposes

a. GAAP Definition of Reinsurance

(1) Short-Duration Contracts - Property and Casualty Insurance Contracts

(2) Timing Risk

(3) Underwriting Risk

(4) Reasonable Possibility of a Significant Loss

(5) Paragraph 11 Exception

(6) Long-Duration Contracts - Life Insurance Contracts

(7) Risk Transfer

(8) Mortality or Morbidity Risk

(9) Insurance Risk

(10) Reasonable Possibility of Significant Loss

(11) Statutory Guidelines

b. Loss Reserves

c. Gain and Loss Recognition

d. Multiple-Year Retrospectively Rated Contracts

5. Additional Tax Considerations

a. Loss-Portfolio Reinsurance

b. Section 845

(1) Generally

(2) "Significant Tax Avoidance Effect"

C. U.S. Taxation of U.S. Insurance Companies

1. History

a. Prior to 1921

b. Life Insurance Companies

(1) Period from 1921 to 1959

(2) Period from 1959 to 1984

(3) Period from 1984 to 1986

(4) Period after 1986

c. Property and Casualty Insurance Companies

(1) Period from 1921 to 1986

(2) Period after 1986

2. Insurance Company - Defined

a. Generally - § 831(c)

b. Life Insurance Company - Section 816(a)

c. Section 7701's Entity Classification Rules

d. Stock versus Mutual Insurance Companies

e. Cell Companies/Segregated Asset Accounts

f. Segregated Asset Accounts

g. Annual Accounting Period

3. U.S. Taxation of Life Insurance Companies

a. Generally

b. Life Insurance Company Gross Income

(1) Generally

(2) Premium Income

(3) Decrease in Reserves

(4) Other Amounts Included in Gross Income

c. Allowable Deductions

(1) Generally

(2) Death Benefits - Section 805(a)(1)

(3) Increases in Loss Reserves - § 805(a)(2)

(4) Policyholder Dividends

(5) Dividends Received Deduction

(a) Generally

(b) Pass-Through Dividends

(6) Operations Loss Deduction

(7) Proration - Section 815

(a) Generally

(b) Statutory Definition

(8) Small Life Insurance Company Deduction - Section 806

(a) Generally

(b) Eligibility for Deduction

(c) Tentative LICTI

(9) Treatment of Variable Contracts

(10) Other Deductions

d. Life Insurance Reserves

(1) Statutory Criteria - Section 816(b)(1) and (2)

(a) Required by Law

(b) Mature or Liquidate Future Unaccrued Claims

(c) Computed or Established on the Basis of Recognized Mortality or Morbidity Tables and Assumed Rates of Interest

(2) Total Reserves - Section 816(c)

(3) Tax Reserves

(a) Prescribed Method

(b) Prevailing Interest Rate

(c) Applicable Federal Interest Rate

(d) Prevailing Mortality and Morbidity Tables

(e) Special Rules

(i) Long-Term Care

(ii) Pension Plan and Group Contracts

(iii) Supplemental Benefits

(iv) Substandard Risks

(v) Term Insurance and Annuity Benefits

(vi) Adjustment for Change in Basis for Computing Reserves under § 807(f)

(vii) Lapsed Policies Still in Force

(viii) Former § 818(c) Reserves

(ix) A& H Reserves

(x) Fresh Start Under 1984 Act

e. Deferred Acquisition Costs

(1) Definitions of Contract Types - Section 848(e)

(a) Group Life

(b) Combined Contracts

(c) Excluded Contracts

(2) Reduced Amortization Period

(3) Net Consideration for Reinsurance Contract

(4) Effective Dates of DAC Regulations

(5) Limitation on Amount to Be Capitalized

(6) Revenue Offset

(7) Ceding Commission for Reinsurance

f. The Phase III Tax - Section 815

(1) Generally

(2) Computing the Phase III Tax - Section 815(c)

(a) Distributions

(b) Effect of Termination as Life Insurance Company

(c) Treatment of Certain Indebtedness

(d) Reductions in the Policyholder Surplus Account - Section 815(e)

g. Differential Earnings Adjustment - Section 809

(1) Decrease in Deductible Policyholder Dividends

(2) Average Equity Base

(3) Asset Valuation Reserve

(4) Interest Maintenance Reserve

(5) Voluntary Reserves

(6) Treatment of Stock Life Insurance Subsidiaries

h. Alternative Minimum Tax for Life Insurance Companies

(1) Before 1990

(2) AMT Preference Items

(3) Treatment of Life Insurance Contracts Under ACE

(a) Generally

(b) ACE Adjustment for Life Insurance Policyholder Dividends

(c) ACE Adjustment for Small Life Company Deduction

4. U.S. Taxation of Property and Casualty Insurance Companies

a. Generally

b. Insurance Company Taxable Income

(1) Generally

(2) Gross Income

(3) Deductions

c. Premiums Earned

(1) Generally

(2) Gross Premiums Written

(3) Return Premiums

(4) Unearned Premiums

(5) Policy Acquisition Expenses

d. Losses Incurred

(1) Generally

(2) Fair and Reasonable Reserves

(3) Discounting Reserves

e. Salvage and Subrogation

(1) Generally

(2) Accrual of Estimate Required

(3) Estimates

(4) Discounting

f. Proration

g. Net Operating Losses

h. Tax-Exempt P& C Companies

i. Small P& C Companies

(1) Generally

(2) Taxable Investment Income

(3) Applicability of AMT

j. Policyholder Dividends

k. Other Special P& C Companies

(1) Mortgage Guaranty Insurance Companies/Lease Guarantee Insurance

(2) Title Insurance Companies

(3) Interinsurer or Reciprocal

(a) Deduction for Amount Credited to Subscriber Accounts

(b) Election to Waive Deduction of Commissions Paid

l. Alternative Minimum Tax

5. Special Status of Insurance Companies in Consolidated Returns Engaging in Intercompany Insurance Transactions

6. Life/NonLife Consolidations

a. Generally

b. Advantages and Disadvantages of Life/Nonlife Consolidated Returns

(1) Offset Group Income and Losses

(2) Deferred Intercompany Gain

(3) Irrevocability of Election to File Consolidated Returns

(4) Effects on Group of Loss of Status as Life Insurance Company

c. Basic Rules for Life/Nonlife Consolidation

d. Eligibility to File Consolidated Returns

(1) Significance of Eligibility

(2) Definition of "Eligible Corporation"

(a) In Existence and Member of the Group

(b) Active Conduct of Trade or Business

(c) No Change in Tax Character

(d) No Disproportionate Asset Acquisition

(e) Tacking

(3) Holding Company Formation and Reverse Acquisitions

(4) Subgroups

(a) General Principles of Life/Nonlife Consolidation

(b) Life Subgroup

(c) Nonlife Subgroup

II. Foreign-Owned U.S. Insurance Activities

Introductory Material

A. Foreign-Owned U.S. Insurance Companies

1. U.S. Withholding Tax

2. Earnings Stripping: § 163(j)

B. Foreign-Owned U.S. Insurance Branches

1. Effectively Connected Income

a. History

(1) Revenue Acts of 1921, 1924, 1926, 1928, 1932 and 1934

(a) Taxation of Foreign Life Insurance Companies

(b) Taxation of Other Foreign Insurance Companies

(2) Revenue Acts of 1936 and 1938 and Internal Revenue Code of 1939

(a) Taxation of Foreign Life Insurance Companies

(b) Taxation of Other Foreign Insurance Companies

(c) Taxation of Foreign Nonlife Mutual Insurance Companies

(3) Revenue Act of 1942

(a) Taxation of Foreign Life Insurance Companies

(b) Taxation of Other Foreign Insurance Companies

(c) Taxation of Foreign Nonlife Mutual Insurance Companies

(4) Internal Revenue Code of 1954 and Life Insurance Company Tax Act of 1955

(a) Taxation of Foreign Life Insurance Companies

(b) Taxation of Other Foreign Insurance Companies

(c) Taxation of Foreign Nonlife Mutual Insurance Companies

(5) The Life Insurance Company Income Tax Act of 1959

(a) Section 819(a)

(b) Section 819(b) - Generally

(c) Section 819(c)(1) - Distributions to Shareholders

(d) Distributions Pursuant to Certain Mutualizations

(6) Foreign Investors Tax Act of 1966

(a) Section 842

(b) Section 819(a)(3) - Coordination of § § 819 and 881

(c) Segregated Assets Accounts Under § 819(a)

(7) Deficit Reduction Act of 1984

(8) Revenue Act of 1987

(9) Technical and Miscellaneous Revenue Act of 1988

b. U.S. Insurance Branches Taxed Under § 882

(1) Generally

(2) U.S. Trade or Business

(a) Generally

(b) Agency

(3) Effectively Connected Income

(a) Asset Use/Business Activity Test - Section 864(c)(2)

(b) Limited Force of Attraction Rule - Section 864(c)(3)

(c) Special Insurance Rule - Section 864(c)(4)(C)

(d) Section 864(c)(6)

(4) Effectively Connected Expenses

(5) Treaty Issues

(a) Generally § 894

(b) Taisei Fire & Marine Ins. Co. Ltd. v. U.S.

(c) Northwest Life Assurance Co. of Canada

(d) Limitation on Benefits Issues

(i) Base-Erosion/Ownership

(ii) Active Trade or Business

(e) June 2005 OECD Report

(i) Generally

(ii) Application of the Authorized OECD Approach

(iii) Practical Implications of OECD Part IV

c. U.S. Insurance Branches Taxed as Insurance Companies Under § 842

(1) Generally

(2) Minimum Effectively Connected Net Investment Income

(a) Generally

(b) Required U.S. Assets

(i) Total Insurance Liabilities of U.S. Business

(A) Life Insurance Companies

(B) Property and Casualty Insurance Companies

(C) NAIC Statements Filed in More than One State, or No NAIC Statement Filed, or Required to Be Filed, in Any State

(ii) Domestic Asset/Liability Percentage

(c) Domestic Investment Yield

(i) Generally

(ii) Worldwide Yield Election

(d) Coordination Rule with § 881 and § 4371 Tax

(e) Other Special Coordination Rules

(i) Small Life Insurance Company Deduction

(ii) Equity Base of Foreign Mutual Life Insurance Company

(f) Regulatory Authority

(g) Estimated Taxes

(i) For First Taxable Year Beginning After December 31, 1987

(ii) For Taxable Years Beginning After December 31, 1988

(3) Treaty Issues

2. Branch Profits Tax

a. Taxation of Dividend Equivalent Amount - Section 884(a)

(1) Generally

(2) Section 953(c)(3)(C) Elections

(3) Complete Termination Exemption

(4) Treaty Issues

b. Section 884(f) Branch Interest Tax and Excess Interest Tax

(1) Generally

(2) Treaty Issues

C. U.S. Excise Tax Under § 4371

1. History

a. Revenue Acts of 1918, 1921, 1924, 1926, 1928, 1932 and 1934

b. Internal Revenue Code of 1939, and Revenue Acts of 1941 and 1942

c. Revenue Act of 1954, Life Insurance Company Tax Act of 1955, Excise Tax Technical Changes Act of 1958, Life Insurance Company Income Tax Act of 1959 and Excise Tax Reduction Act of 1965

d. Tax Reform Act of 1976

e. Deficit Reduction Act of 1984 and Omnibus Reconciliation Act of 1987

f. Technical and Miscellaneous Revenue Act of 1988

g. Omnibus Budget Reconciliation Act of 1989

2. Section 4371 Excise Tax - Generally

3. Exceptions

a. Effectively Connected Income

b. U.S. Federal Government Exception

c. Foreign Government Exception

d. Export Clause Exception

e. Section 953(c)(3)(C) Election

f. Section 953(d) Election

g. Treaty-Based Exemption

(1) Substantive Rules

(2) Treaty-Qualified Exemption

(3) Treaty Anti-Conduit Arrangement

(4) Cascading Federal Excise Tax and Treaties

(a) Generally

(b) Qualified Exemptions

(c) Exemptions Subject to Anti-conduit Rules

(5) Exemption Procedure

h. Lloyd's Closing Agreement

4. Taxpayer

5. Section 1441/1442 Withholding on Premiums Subject to § 4371 Tax

6. Record Retention

7. Reporting and Deposits

8. Refunds

9. Treaty-Based Return Position

D. U.S. Virgin Islands Insurance Companies

III. U.S.-Owned International Insurance Activities

A. U.S.-Owned Foreign Insurance Companies

1. Subpart F Insurance Income

a. History

(1) Revenue Act of 1962

(2) Tax Reform Act of 1976

(3) Tax Equity and Fiscal Responsibility Act of 1982

(4) Deficit Reduction Act of 1984

(5) Tax Reform Act of 1986

(6) Technical and Miscellaneous Revenue Act of 1988

(7) Proposed 1991 Regulations

(8) Small Business Job Protection Act of 1996

(9) Taxpayer Relief Act of 1997

(10) Tax and Trade Relief Extension Act of 1998

b. Subpart F Insurance Income - Section 953

(1) Controlled Foreign Corporation (CFC) Status: More-than-25% Test

(2) Section 953 Insurance Income - 1999 Through 2008

(a) Generally

(b) Insurance and Annuity Contracts

(c) Income Taxed Under Subchapter L, if U.S. Insurance Company

(d) Investment Income

(i) Section 953 Applies Before § 954

(ii) Investment Income Defined

(iii) Allocation and Apportionment of Investment Income Between Insurance Income and EII

(3) Section 953 Insurance Income - Pre-1999 and Post-2008

(a) Generally

(b) Insurance and Annuity Contracts

(c) Risks Other than Same-Country Risks

(i) Generally

(ii) Election to Waive Same-Country Risk Exception

(iii) Section 964(d) Election for Same-Country Risk Exception to Apply to Qualified Insurance Branch

(iv) Same-Country Insurance Income

(v) Location of Risks

(A) Property Risks

(B) Liability Insurance - Risk in Connection with an Activity

(C) Life and Health Risks

(D) Risks Deemed Not SCI Income - Cross-Insurance Arrangements

(d) Allocation and Apportionment

(i) Defined

(ii) Reasonable Allocation or Apportionment

(iii) 80% Rule

(e) Would Be Taxed Under Subchapter L, if U.S. Insurance Company

(f) Investment Income

(4) Deductions - Section 953(b)

(a) Reserves

(i) Subpart F Modifications

(A) Generally

(B) Section 953(b) Modifications

(C) Prop. Regs. § 1.953-6 Modifications

(D) Regs. § 1.952-2 Modifications

(E) Section 954(i) Reserve Modifications - For Taxable Years Beginning After 1998

(ii) Reserves for Life Insurance Companies

(A) Qualifying for Life Insurance Company Treatment

(B) Life Insurance Company Treatment

(iii) Reserves for Property and Casualty Companies

(A) Property and Casualty Company Treatment

(B) Section 831(b)'s Alternative Tax for Small Property and Casualty Insurance Companies

(b) Other Deductions

(c) Allocation and Apportionment of Deductions

(i) Generally

(ii) Apportionment to RPII, Non-RPII and SCI/EII

(iii) Apportionment Between Underwriting and Investment Income

(5) Related-Person Insurance Income (RPII) - Section 953(c)

(a) Introduction

(b) Definition of RPII

(i) Generally

(ii) U.S. Shareholder

(A) Defined

(B) Exclusion Under Regulations for Certain Indirect Shareholders

(iii) Persons Related to U.S. Shareholder

(A) Generally

(B) Directors, Officers and Employees as Related Persons

(iv) CFC for RPII Purposes: 25%-or-More Test

(v) Special Pro Rata Share Rule

(vi) Allocation or Apportionment of Income Between Non-RPII and RPII Categories

(A) Premium Income

(B) Investment Income

(vii) Allocation and Apportionment of Deductions

(c) RPII Exclusions

(i) RPII De Minimis Income Test

(ii) RPII De Minimis Stock Test

(iii) Same-Country Income/Exempt Insurance Income

(d) Section 953(c)(3)(C)

(i) Generally

(ii) Effect of § 953(c)(3)(C) Election

(A) Generally

(B) Section 884

(C) Section 4371

(D) Taxable Year

(iii) Corporations Entitled to Make Election: Disqualified Corporations

(iv) Procedures for Making Election

(A) Generally

(B) Signed Election Statement

(C) Signed Closing Agreement

(D) Letter of Credit

(v) Termination or Revocation

(A) Termination

(B) Revocation

(e) Implications Under § § 1248 and 367

(i) Section 1248

(ii) Section 367

(f) Taxable Year

(g) Reporting Requirements

(i) Section 6046

(ii) Section 964(c)

(iii) Section 6038

(6) Exempt Insurance Income (EII) - Section 953(e)

(a) Generally

(b) Exempt Contract

(i) Generally

(ii) Insuring Only Non-U.S. Risks

(iii) More than 30% Unrelated Home-Country Risks

(iv) Substantial Activity Required for Non-Home-Country Risks

(A) Generally

(B) Substantial Insurance Activity

(C) Substantial Home-Country Activity

(c) Qualifying Insurance Company (QIC)

(i) Subject to Home-Country Insurance Regulations

(ii) More than 50% Unrelated Home-Country Risks

(iii) Would Be Subject to Subchapter L, if U.S. Company

(d) QIC Branch

(i) Qualified Business Unit

(A) Generally

(B) Trade or Business

(C) Books and Records

(D) Section 964(d) Election

(ii) Subject to Home-Country Insurance Regulations

(iii) Branch of a Qualified Insurance Company

(e) Earned by QIC or QIC Branch in Its Home Country for Purposes of Such Country's Tax Laws

(f) Anti-Abuse Rules

(7) Section 953(d) Election

(a) Introduction

(b) Effects

(i) Generally

(ii) Section 367(b)

(iii) Toll Charge for Pre-1988 Years

(iv) Branch Profits Tax

(v) Section 1248

(vi) Section 4371

(vii) Section 956

(viii) Consolidated Return Issues

(A) Generally

(B) Dual Consolidated Losses

(C) Designating Agent

(ix) Distributions

(x) Taxable Year

(xi) Section 965

(xii) Treaty Benefits

(xiii) Discounted Unpaid Losses - Section 846

(xiv) Reporting Obligations

(c) Election Requirements

(i) Statutory Requirements

(ii) Procedural Requirements

(A) Generally

(B) Election Statement

(C) Signed Closing Agreement, Letter of Credit

(D) Office and Assets Tests

(iii) Manner and Time of Election

(iv) Revocation or Termination

(v) Section 953(c)(3)(C) and (d) Elections

(8) Section 964(d) Election

(a) Effect

(i) Generally

(ii) Section 301 Treatment

(b) Branches Entitled to Make Election

(c) Election and Termination

c. Foreign Personal Holding Company Income - Section 954(c)

(1) Generally

(2) Section 954(i)

(a) Generally

(b) Qualified Insurance Income

(i) Generally

(ii) Ordinary and Necessary Investment Income of Exempt Contracts

(A) Generally

(B) Life Insurance Business

(C) P& C Insurance Business

(iii) Investment Income on Required Surplus of Exempt Contracts

(c) Other Definitions

(d) Allocation and Apportionment of Deductions

(3) § 954(h)

(4) Former Exceptions

(a) Former § 954(c)(3)(B)

(i) Generally

(ii) Ordinary and Necessary Reserves

(iii) Amount of Exclusion

(iv) Eligible Income

(b) Former § 954(c)(3)(C).

(i) Generally

(ii) Amount of Exclusion

(iii) Eligible Income

(c) Former § 954(h)

(i) Generally

(ii) Unrelated Ordinary and Necessary Investment Income

(A) Generally

(B) Life Insurance Business

(C) P& C Insurance Business

(iii) Unrelated Investment Income from Required Surplus

(iv) Other Definitions

(A) Qualifying Insurance Company (QIC)

(B) Start-Up Company

(v) Anti-Abuse Provision

d. Foreign Base Company Services Income - Section 954(e)

(1) Present Exception

(2) Former 1984 Exception

(3) Former 1997 Exception

e. Foreign Base Company Shipping Income - Former § 954(f)

f. Foreign Base Company Oil-Related Income - Section 954(g)

g. Section 954(b)

(1) De Minimis Exception

(2) Full-Inclusion Exception

(3) High-Tax Exception

(a) Generally

(b) Foreign Personal Holding Company Income

(c) Subpart F Insurance Income

h. E& P Limitation - Section 952(c)

(1) Current E& P

(2) Accumulated Deficit

(a) Generally

(b) Qualified Deficit

(c) Qualified Activity

(d) Qualified Insurance Company

(i) Generally

(ii) Section 904(d)(2) Definition

(A) Generally

(B) Gross Income

(e) Accumulated Deficits in E& P from Certain Related Corporations

i. U.S.-Source Effectively Connected Income - Section 952(b)

(1) Generally

(2) Section 953(c)(3)(C)

j. Section 956

k. Pro Rata Share Rule - Section 951(a)(2)

2. UBIT Issues - Section 512(b)(17)

a. Before Small Business Job Protection Act of 1996

b. Section 512(b)(17)

(1) Section 512(b)(17)'s Look-Through Approach

(2) Exceptions to § 512(b)(17)

(3) Regulatory Authority

3. Passive Foreign Investment Companies

a. Definition

(1) Generally

(2) PFIC Gross Income for Insurance Companies

(3) Qualified Insurance Income - Section 954(i) Exception

(4) Active Insurance Exception - Section 1297(b)(2)(B)

b. Would Be Subject to Subchapter L, if U.S. Company

c. Predominantly Engaged in Insurance Business

(1) Insurance Business

(2) Active Conduct of Insurance Business

(3) Insurance Business Must Be Predominant Business

(a) Percentage Required for "Predominantly Engaged" Requirement

(b) Reasonable Reserves

d. Derived in Active Conduct of Insurance Business

e. Level of Application of PFIC Insurance Exception

f. Qualified Bank Affiliated Exception

g. PFIC / CFC Overlap Rule

4. Personal Holding Companies

a. Generally

b. Insurance Company Issues

(1) Section 543(c)

(2) Subpart F Income Look-Through Rule

5. Foreign Personal Holding Companies - For Pre-2005 Taxable Years

a. Generally

b. Insurance Income Issues

(1) Section 555(a)

(2) Section 552(c)

6. Foreign Investment Companies - For Pre-2005 Taxable Years

B. U.S.-Owned Foreign Insurance Branches

1. Foreign Tax Credits: OFLs, SLLs and ODLs

2. Section 367 - Incorporation Issues

3. Dual Consolidated Loss Issues: § 1503(d)

4. Foreign Currency Issues - Sections 988 and 987

5. Other Special International Insurance Rules for Foreign Branches

a. Section 807(e)(4)

b. Section 814

(1) Introduction

(2) Separate-Entity Treatment

(3) Separate-Account Treatment

(a) Generally

(b) Recognition of Gain on Assets in Branch Account

(c) Transactions Between Contiguous Country Branch and U.S. Life Insurance Company

(i) Reimbursement for Home Office Services, etc.

(ii) Repatriation of Income

(d) Treatment of Foreign Taxes

(e) U.S.-Source Income Allocable to Contiguous Country Branch

C. Foreign Tax Credit Issues Affecting U.S.-Owned Foreign Insurance Companies and Foreign Insurance Branches

1. Foreign Tax Credits, Generally

a. U.S.-Owned Foreign Insurance Companies

b. U.S.-Owned Foreign Insurance Branches

2. Sourcing Rules

a. Insurance Underwriting Income

b. Certain Benefit Payments by Foreign Branches of U.S. Insurance Companies

3. Creditable Taxes: Insurance Income

4. Foreign Tax Credit Baskets - Financial Services Income for Taxable Years Beginning After December 31, 1986, and Prior to January 1, 2007

a. Generally

b. Former Financial Services Basket

(1) Statutory History

(a) From 1962 to 1986: The Predecessor to Former § 904(d)(2)(C)

(b) From 1986 to 2007: Former § 904(d)(2)(C)

(c) The Period Beginning in 2007: The Redesignation of Former § 904(d)(2)(C)

(2) Regulations Under Former § 904(d)(2)(C)

(a) Regulatory History

(b) Financial Services Entity

(i) Generally

(ii) Affiliated Group Member

(iii) Partnerships

c. Financial Services Income

d. Taxes Attributable to Financial Services Income Basket

5. Foreign Tax Credit Baskets - General Limitation for Taxable Years Beginning After December 31, 2006

a. Generally

b. Financial Services Group

c. Financial Services Income

6. Expense Allocation and Apportionment Issues

a. Affiliated Group

b. Section 818(f)

(1) Generally

(2) Election

c. Transportation Services: Insurance Expense

d. Section 847 Deduction

e. Section 1503(c)

IV. U.S. International Tax Issues Affecting Both Foreign-Owned and U.S.-Owned International Insurance Activities

A. U.S. Tax on Non-Effectively Connected U.S.-Source Income Paid by or to Insurance Companies

1. U.S.-Source Premiums

2. U.S.-Source Interest Paid on Amounts Held by Insurance Companies Under an Insurance Policy

3. U.S.-Source Annuities or Life Insurance Proceeds

4. U.S.-Source Investment Income of Certain Qualified Plans

5. U.S. Insurance Branches of Foreign Insurance Companies

a. Generally

b. Deemed U.S. Person Alternative

c. Deemed Effectively Connected Alternative

B. Grantor Trust Rules - Section 672(f)

C. Transfers of Life Insurance Contracts to Foreign Persons.

Working Papers

Working Papers

Table of Worksheets

Worksheet 1 Elections Under 953(c)(3)(C) and (d) Compared

Worksheet 2 Section 953(d) Election Statement

Worksheet 3 Asset Calculation Sheet for § 953(d)'s Office and Asset Test

Worksheet 4 Section 953(c)(3)(C) Election Statement

Worksheet 5 Statement to Request Closing Agreement for Treaty Exemption from § 4371 Tax

Worksheet 6 Form of Closing Agreement for Treaties with a Qualified Exemption

Worksheet 7 Form of Closing Agreement for Treaties with an Anti-Conduit Limitation

Worksheet 8 Published Domestic Asset/Liability Percentage and Domestic Investment Yields for § 842(b) Purposes

Worksheet 9 Treaties in Force with Exemptions for § 4371 Excise Tax (as of June 30, 2008)

Worksheet 10 Applicable Interest Rate Under § 846(c) for Determining Discounting Factors for Loss Payment Patterns and Estimated Salvage Recoverables

Worksheet 11 Basic Formula for Calculating Life Insurance Company Taxable Income





Committee Reports:

Treasury Rulings: