R IN THE HOUSE OF REPRESENTATIVES

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1 I TH CONGRESS 1ST SESSION H. R. 1 To amend the Internal Revenue Code of 1 to revise the limitation applicable to mutual life insurance companies on the deduction for policyholder dividends and to exempt small life insurance companies from the required capitalization of certain policy acquisition expenses. IN THE HOUSE OF REPRESENTATIVES APRIL, 1 Mr. FILNER (for himself and Mrs. CHENOWETH) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1 to revise the limitation applicable to mutual life insurance companies on the deduction for policyholder dividends and to exempt small life insurance companies from the required capitalization of certain policy acquisition expenses. 1 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the Insurance Tax Fairness and Small Insurance Company Economic Growth Act of 1.

2 SEC.. REVISION OF LIMITATION ON DEDUCTION OF POL- ICYHOLDER DIVIDENDS BY MUTUAL LIFE IN- SURANCE COMPANIES. (a) IN GENERAL. Paragraph () of section 0(c) of the Internal Revenue Code of 1 (relating to reduction in case of mutual companies) is amended to read as follows: () LIMITATION IN CASE OF MUTUAL COMPA- NIES. (A) IN GENERAL. In the case of a mutual life insurance company, the amount allowed as a deduction under paragraph (1) for any taxable year shall not exceed the lesser of (i) 0 percent of the policyholder dividends paid or accrued by such company during such taxable year, or (ii) 0 percent of the life insurance company taxable income of such company for such taxable year (determined without regard to any deduction for policyholder dividends). In no event shall the limitation under this subparagraph for any taxable year be less than $,000,000. (B) TREATMENT OF STOCK COMPANIES OWNED BY MUTUAL LIFE INSURANCE COMPA- HR 1 IH

3 NIES. Solely for purposes of this paragraph, a stock life insurance company shall be treated as a mutual life insurance company if stock possessing (i) at least 0 percent of the total combined voting power of all classes of stock of such stock life insurance company entitled to vote, or (ii) at least 0 percent of the total value of shares of all classes of stock of such stock life insurance company, is owned at any time during the calendar year directly (or through the application of section 1) by one or more mutual life insurance companies).. (b) REPEAL OF SECTION 0. (1) Section 0 of such Code is hereby repealed. () Subparagraph (B) of section 0(a)() of such Code is amended to read as follows: (B) the amount of the policyholders share of tax-exempt interest,. () Subparagraph (B) of section 0(b)(1) of such Code is amended to read as follows: HR 1 IH

4 (B) the amount of the policyholders share of tax-exempt interest,. () Subparagraph (A) of section 1(b)() of such Code is amended by striking sections 0 and 0 and inserting section 0. () Subsection (c) of section 1 of such Code is amended by striking (other than section 0). () Subsection (c) of section of such Code is amended by striking paragraph () and by redesignating paragraph () as paragraph (). (c) EFFECTIVE DATE. (1) IN GENERAL. Except as provided in paragraph (), the amendments made by this section shall apply to taxable years beginning after December 1, 1. () RECOMPUTATION UNDER SECTION 0(f) NOT AFFECTED. The amendments made by this section shall not affect the application of section 0(f) of the Internal Revenue Code of 1 (as in effect before its repeal by subsection (b)) in respect of any taxable year beginning before January 1, 1. () LIMITATION ON LOSS CARRYBACKS. In the case of a life insurance company subject to the limitation under section 0(b)() of such Code, no cap- HR 1 IH

5 ital loss arising in a taxable year beginning after December 1, 1, may be carried to a taxable year beginning before January 1, 1. SEC.. SMALL LIFE INSURANCE COMPANIES EXEMPT FROM REQUIRED CAPITALIZATION OF CER- TAIN POLICY ACQUISITION EXPENSES. Section of the Internal Revenue Code of 1 (relating to capitalization of certain policy acquisition expenses) is amended by adding at the end the following new subsection: (k) EXEMPTION FOR SMALL LIFE INSURANCE COM- PANIES. This section shall not require any small life insurance company (as defined in section 0) to capitalize any specified policy acquisition expenses for any taxable year beginning after December 1, 1.. SEC.. SENSE OF CONGRESS RELATING TO USE OF IN- CREASED REVENUES. It is the sense of the Congress that any increase in revenues to the Treasury resulting from the amendments made by this Act shall be dedicated to the funding of (1) deficit reduction, () tax incentives for the economic growth of small life insurance companies, and HR 1 IH

6 () programs benefiting the nutrition, early education, housing, and family support of the Nation s children. Æ HR 1 IH